When forming a new company, particularly one that is rather large, it is necessary for a Board of Directors to be designated. Whether the company is public or private or even held by a single individual, at least one Board member needs to be identified and registered in accordance with the Companies Act 2013.
The type of company and the size of the company will dictate the number of Board members that must be chosen. The Board must agree to a new Board member in accordance with these basic requirements and any other more specific requirements contained in their bylaws for electing or choosing new directors;
- The Board and the shareholders must vote or give permission for a new Board member in accordance with their particular rules for adding a new Board member
- The new board member must agree to accept the position
- All other procedures from the Companies Act 2013 that apply to the type of corporation that is adding a Board member must be complied with
- The name (s) of the new director(s) must then be registered with the Australian Securities Information Commission
Once these steps are taken a new Board member may begin executing their duties to the company and the shareholders. But what happens when a company is left with a single Board member and decides they want to remove that Board member?
Until February 1, 2021 the company could remove this last Board member sans replacing the departing Board member with a new Board member. But, as of February 1, 2021 the ability for a company to remove its last Board member without a replacement, will not be allowed. Moving forward, if a company attempts to file with the ASIC the removal of the last Board member, without naming a replacement, the application will be rejected.
The new policy leaves a company with only one option; to select a new Board member prior to removing the last director. Hence, the process for designating a new director must take place as it would under any other circumstances.
However, there are some exceptions to the new policy. These exceptions are both stringent and limited, and unless the company meets one of these exceptions the application to remove the last director will be denied.
- The last board member has passed away
- The company is being formally closed for business
- The company is going to be run by an external administration
- The director being removed never consented to take the directorship position
- The ASIC must be contacted directly for approval via one of these exceptions
In the event that the last director is retiring, the ASIC will continue to allow for notification of the same via Form 370 Notification by the Officeholder of Resignation or Retirement. However, if the company will remain in business, beyond the retirement of the last director, a new director will have to be named prior to the retirement of the one remaining director and in accordance with the procedures subsequent to February 1, 2021. If the last director is retiring and the company is winding up permanently, then the situation will fall within the above exception and a new director will not need to be named prior to the retirement of the last director. When applying for this exception it is important to have proper legal guidance so that your application is complete, timely and provides the proper documentation to prove that you fall within the exception of winding up your business.
Due to the new policy of the ASIC, it is important that your company and its Board fully understand the implications of removing the last director. If the new procedures and requirements are not complied with in their entirety, your application to remove the last director, without the designation of a new director, will be denied by the ASIC. Therefore, it is strongly recommended that under these circumstances legal advice is obtained to assist your company in making a proper application for either a change of director, or to file your paperwork in accordance with one of the noted exceptions to the new policy.
If you find yourself in need of assistance with this or any other legal issue, please contact the law offices of Owen Hodge Lawyers. At Owen Hodge, we are always happy to assist clients in understanding the full ramifications of any and all of your legal needs. Please feel free to call us at your earliest convenience to schedule a consultation at 1800 770 780.