Resigning as a Director: What You Need to Know

When a business is under financial pressure, resigning as a director can feel like the quickest way to step away from the stress. However, many directors are surprised to learn that resigning does not automatically remove responsibility for issues that arose while they were in the role.

In Australia, director liability is often linked to what happened during your time as a director — particularly when it comes to unpaid tax, superannuation, employee entitlements and company debts. While resigning generally ends your responsibilities moving forward, it may not protect you from claims relating to past decisions or unpaid obligations.

A common misunderstanding is that resigning before the ATO takes action will avoid personal liability. In many cases, this is not correct. Director Penalty Notices (DPNs) can still apply if PAYG withholding, GST or superannuation obligations were not lodged or paid on time while you were a director.

The same applies to insolvent trading claims. These claims look at whether the company was able to pay its debts at the time they were incurred, and whether directors took reasonable steps to prevent further losses.

It is also important to avoid continuing to run the business behind the scenes after resigning. Even if your name has been removed as a director, continuing to control decisions may expose you to further risk as a “shadow” or “de facto” director.

If your business is experiencing financial difficulties, there are some important steps to consider before resigning:

• Check that PAYG, GST and super lodgements are up to date
• Review the company’s financial position carefully
• Keep clear records of decisions being made
• Seek legal and accounting advice early
• Consider whether restructuring or external administration may be appropriate

Resigning should also be properly documented. Providing written notice, ensuring ASIC records are updated, and keeping evidence of your resignation date can help avoid disputes later on.

Every business situation is different, and early advice can make a significant difference in managing risk and protecting your position. The team at Solari and Stock Lawyers can assist directors in understanding their obligations and navigating difficult business decisions with confidence. Speak with our Commercial Team today on 8525 2700, or click here to request an appointment.

Written by Michael Solari
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