The Australian Securities and Investments Commission (ASIC) today issued a notice to companies it regulates regarding the new rules for director resignations.

The Treasury Laws Amendment (Combating Illegal Phoenixing) Act 2020 helps combat illegal phoenix activity. Illegal phoenix activity involves creating a new company to continue the business of an existing company that has been deliberately liquidated to avoid paying outstanding debts, including taxes, creditors and employee entitlements.

The reforms prohibit company directors from improperly backdating their resignation or leaving a company with no directors. From February 18, 2021, a company director will not be able to backdate their resignation more than 28 days or resign if it means the company would be left without a director.

The resigning director or the company will need to notify ASIC of a director resignation within 28 days. Where ASIC is not notified within 28 days, the effective resignation date will be the document lodgement date.

The reforms also prohibit companies from removing the last remaining director on ASIC records, leaving a company with no directors. ASIC will reject submissions of Form 484 Change to company details or Form 370 Notification by officeholder of resignation or retirement to cease the last appointed director without replacing that appointment.

These reforms assist the joint effort of ASIC and other government agencies in detecting, deterring and disrupting directors and advisers who engage in illegal phoenix activity.

Illegal phoenix activity can involve serious breaches of the law that include directors’ duties, fraudulent concealment or removal of assets and fraud by company officers under the Corporations Act 2001. Penalties include large fines and up to 15 years imprisonment for company directors and secretaries and others involved.

More information on the new rules can be found on ASIC’s website.