Article by Mark Davidson, Manager, Pearce & Heers’ Gold Coast Office
On 18 February 2021, the Treasury Laws Amendment (Combating Illegal Phoenixing) Act 2020 came into effect. This law includes provisions to stop directors:
- Backdating their resignation as director; or
- Resigning as a director at all if it would leave the company without a director.
Why back date your resignation as a director
Backdating a director resignation was a common tactic used by directors to engage in illegal phoenix activity to avoid their responsibilities to the Liquidator, creditors, the ATO and employees.
Typically, a director with assets (such a property) would resign and back date their resignation for a period of up to a year or more which would make pursuing claims against them substantially more difficult. This is because there are certain claims which can only be pursued against a director, such as insolvent trading or breaches of duties. A Liquidator can prove that an unregistered director was a de facto director but this is difficult, particularly if the current director doesn’t want to assist the Liquidator or provide records.
The ATO also uses the relevant date to determine whom would be liable for the non-payment of superannuation and taxes under a Director Penalty Notice.
The cost of a back dating the lodgement did incur a current late fee of $340, which is a tiny price to pay to avoid a claim by a Liquidator or the ATO.
What the amendments mean moving forward
A director will have 28 days from the date they resign to provide written notice (ASIC Form 370) to ASIC of their resignation. If the written notice is received outside the 28-day period, then the date of their resignation is taken to be the date the written notice was received.
Further, if the resignation would leave the company without a director then ASIC will reject the lodgement. Traditionally there has been a disconnect between the resignation and a new appointment of a director as each requires its own form, being:
- Form 370 Notification by officeholder of resignation or retirement; and
- Form 484 Change to company details.
Is there anything that can be done to correct an honest mistake?
There are instances where the 28-day period might be missed with a valid reason. In those circumstances, you can apply for the mistake to be corrected to:
- ASIC if within 56 days after the resignation; or
- The Court.
Obviously, a court application will bring its own costs and that needs to be considered.
These reforms are an initiative to detect, deter and disrupt directors and advisers who engage in illegal phoenix activity as it costs the community millions of dollars in unpaid taxes, employee entitlements and debts. 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, secretaries and others involved.