The Importance of Properly Resigning as a Director

Resigning as a director should be straightforward. But if the proper steps aren’t followed, it can quickly become complicated and costly. Resignation is not just a procedural step it’s a compliance event with real liability consequences if mishandled.

The courts are also dealing with this issue more often. The decision in One Tree Agriculture Pty Ltd v Lye [2025] FCA 126 (One Tree) is a clear reminder that intention isn’t enough. Without proper documentation and ASIC notification, a director who believes they have resigned will still be treated as if they never did.

If a resignation isn’t effective, the director remains exposed to insolvent trading claims and other breach of duty claims.

What happened in the One Tree case?

• A company owned by Mrs Lye appointed her husband as director in 2016 and Mrs Lye resigned.
• On 19 January 2017, Mrs Lye’s husband was declared bankrupt.
• After his bankruptcy, Mrs Lye resumed the role of director, with an understanding he would return in 2021 when discharged from bankruptcy.
• They agreed she would resign on 1 July 2021, but no formal steps were taken.
• ASIC was never notified, so she remained the recorded director.
• The company later incurred significant debts and was wound up.
• Only then were documents lodged with ASIC notifying of her resignation, well outside the required timeframe.
• Facing potential insolvent trading claims, Mrs Lye asked the Court to backdate her resignation.

What the Court said

• There was no valid resignation, just an intention to resign, which is not enough.
• There was no written notice, no formal action, and no evidence that she actually stepped down.
• The “replacement” director was never validly appointed (no written consent), so she couldn’t resign anyway.
• A resignation cannot leave a company without a director.
• ASIC records mattered as a third party had relied on them.
• Backdating was refused as it would cause prejudice, and she contributed to the error.
• The application was also brought too late

Steps to an effective resignation

1. Put it in writing, a clear, dated resignation notice to the company is essential.
2. Ensure ASIC is notified promptly and ideally within 28 days.
3. Check the replacement director, they must be validly appointed and have provided written consent.
4. Confirm the company still has a director as any purported resignation must not leave the company without a director.
5. Keep records and retain evidence of all steps taken.

Key takeaways

• A person does not cease to be a director merely by stating so. Resignation or removal occurs when it is recognised by law.
• If the paperwork isn’t right, there is a risk a director may still be responsible when it matters most.
• A resignation won’t work if there isn’t a valid replacement director in place.
• A resignation is ineffective if it breaches the requirement that a company must have at least one director (for proprietary companies, at least one who ordinarily resides in Australia).
• Courts are reluctant to backdate, especially where third parties (especially creditors) would be harmed.
• If the process is handled incorrectly, the director may remain exposed to liability long after stepping down.