In Australia, companies are required to have at least one director who is responsible for managing the company’s affairs and making decisions on behalf of the company. Appointing and removing company directors is an important process that requires careful consideration and adherence to legal requirements. Compliance with legal obligations, adherence to the company’s constitution, and consideration of shareholders’ views are essential throughout these processes. In this article, we will discuss the steps involved in appointing and removing company directors in Australia.

Before taking any action to remove a director from office, you should consult your company’s governing documents such as:

• your constitution,
• the shareholder agreement; and
• the rules under Part 2D3 of the Corporations Act 2001, or the Replaceable Rules under Part 2B4.

It is important that your directors and shareholders understand how these processes work. Crucially, the rules and requirements differ depending on whether the company is public or private. You need to make sure your company has properly documented this removal or appointment by passing the appropriate resolutions. The director that you appoint must provide a signed consent to act. If they are resigning on their own, they will need to provide a signed resignation. Finally, your company will need to update ASIC company registry within 28 days.

Appointing a Company Director

The process of appointing a company director involves several key steps:

1. Determine the Eligibility of the Director

Before appointing a director, it is important to ensure that they are eligible to hold the position. Under Australian law, a director must:

• be at least 18 years old
• not have been disqualified from managing corporations
• not have been declared bankrupt
• not have been convicted of certain criminal offenses
• consider the skills, experience, and expertise required for the specific role

2. Obtain Consent from the Director

Once you have identified a suitable candidate for the director position, you must obtain their consent to act as a director. This can be done by providing them with a consent form that outlines their responsibilities and obligations as a director.

3. Hold a Board Meeting

The appointment of a director must be approved by the company’s board of directors. A board meeting should be held to discuss the appointment and vote on whether to approve it. The appointment must be approved by a majority of the board members. The Australian Securities and Investments Commission (ASIC) must be notified of the appointment within 28 days.

4. Lodge the Appointment with ASIC

Once the appointment has been approved, it must be lodged with the Australian Securities and Investments Commission (ASIC) within 28 days. The company must provide ASIC with the details of the new director, including their name, address, date of birth, and other relevant information.

Removing a Company Director

Removing a company director can be a more complex process than appointing one. There are several reasons why a director may need to be removed, including:

• resignation
• retirement
• removal by shareholders
• removal by the board of directors

Each of these scenarios require a different process for removing the director.

Resignation or Retirement

If a director wishes to resign or retire from their position, they must provide written notice to the company. The notice should include the effective date of the resignation or retirement. If a director is resigning, they:

• can inform ASIC themselves; and
• will need to provide a copy of the signed resignation letter
• If this does not occur, your company will need to update ASIC within 28 days to avoid a late fee. You can do this through your ASIC Connect account, using your corporate key. You will need to insert:
• your company details; and
• the day the director was appointed or resigned.
• front page of publication
• directors’ duties complete guide

Removal by Shareholders

Shareholders have the power to remove a director from their position by passing a resolution at a general meeting. The resolution must be passed by at least 50% of the votes cast by shareholders who are entitled to vote. This vote must be logged in the company’s minute book and signed by the chairman of the meeting.

Removal by the Board of Directors

The board of directors can remove a director from their position if they believe that the director has breached their duties or is no longer suitable for the role. The process for removing a director in this scenario will depend on the company’s constitution and any relevant laws or regulations.

In response, this director has a right to put their case to the shareholders by providing a written statement and speaking at the meeting. The company must circulate this written statement to the shareholders. This letter is a “consent to act”.

It is always recommended to seek professional advice when dealing with director appointments or removals. They can provide guidance tailored to the specific needs of your company and help ensure compliance with all legal and regulatory requirements.

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By Gregory Atamian JJN Associates – Accountants Tax Advisor

The content and the references made in this article are correct as at the publication date and are for general information and should not be relied upon as advice. If you wish to seek particular advice, call us on 02 9997 4000.