It is always important to remember a director has duties not just under common law to a company and its shareholders but also there are statutory obligations contained in legislation such as the Corporations Act 2006, Income Tax Assessment Act 1997, Competition and Consumer Act 2010 and Superannuation Act 2005 to name a few.
There are also a range of obligations under state-based legislation such as workplace health and safety and environmental law.
A director must:
- Act with reasonable care, skill and diligence
- Act in good faith
- Not use improperly us any information or their position
- Disclose and manage conflicts of interest
Therefore, when a director leaves a company it can lead to uncertainty or confusion.
A director may leave for a number of reasons including by resignation or by removal.
A director can resign from their position at any time and when this occurs most of their obligations stop.
The process as to when a director resigns is usually outlined in the company’s constitution is also provided for in the Corporations Act 2006 (Act).
The director will generally give notice to the company in writing that they intend resigning.
The company will then notify the Australian Securities and Investments Commission (ASIC).
It is important to remember that if the director resigns and that director is the sole director of the company a new director must be appointed to continue the business of the company.
Often a director is removed from office by the shareholders or members of the company.
Again, the process is usually outlined in the company’s constitution is also provided for in the Act.
This process is usually done by the shareholders or the members passing a resolution at a general meeting of the company to remove the director.
It is important to ensure that you comply with your constitution and the Act to ensure the company does leave itself open to a challenge in relation to the removal.
For example, an executive director working in the company may claim that they have been unfairly dismissed or have been discriminated against.
Requirements for notification when a director leaves
If a director resigns:
- The director must provide written notification to the company’s registered address
- The company must then notify ASIC of the resignation within 28 days of the resignation
- Replace that director if required and if it is a sole director must replace that director.
If a director is removed:
- A resolution must be passed by the company either through the shareholders or the other directors depending on the company’s constitution
- Notify ASIC
- Pass a resolution to appoint the new director and then notify ASIC
What if the director who resigns or removed is also a shareholder?
The departing director may want to either retain or sell their shares in the company.
If there is a shareholders or security holders (SHA) agreement in place that will contain the mechanism for the departing party to value and sell their shares.
It is for this reason that one of the most important documents any company should have is a SHA which will outline this process.
If there is no SHA in place then you would look to the company’s constitution and if agreement can’t be reached through negotiation and other means of alternative dispute resolution, then you may be required to go to the courts to get a resolution. But be warned going to court can be a timely and costly.
A court can order one shareholder to buy out the other at a determined price or make an order that the company be wound up.
It is also important that when a director leaves a company consideration must be given to their responsibility for any ongoing liabilities including guarantees that the director might have signed, are they a signatory to any loans and even such thinks as signatories to bank accounts etc.
How can FC Lawyers help?
At FC Lawyers our experienced team have acted for hundreds of companies in relation to these and a range of business, commercial and regulatory matters.
Contact our team today to discuss how we can assist you.
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