Issues for and duties of Resident Directors

 

Background:

Laws in Australia can make a director personally responsible for the obligations and liabilities of the company. For this reasons people will not take on the role of a Resident Director lightly, particularly for trading companies.

 

Requirement for Company Directors to Ordinarily Reside in Australia:

 

Section 201A of the Corporations Act requires that at least one director of a proprietary

company and at least two directors of a public company must ‘ordinarily reside in Australia’.

However, this concept is not defined anywhere in the Act and there has never been any.

guidance issued by ASIC as to what criteria must be fulfilled for a director satisfy this

requirement.
 

There has also been no case law that has considered the meaning of ‘ordinarily reside in

Australia’ for the purposes of Section 201A. As a result, past cases that have considered the

term “ordinarily resident in Australia” in the context of Section 43 of the Bankruptcy Act 1966

(Cth) have normally been looked to for guidance as to what courts would find ‘ordinarily

reside’ to mean in the context of Section 201A.
             

These cases have stated that whether an individual is “ordinarily resident” is a matter

of fact and degree, but that relevant factors include:

1. not just whether the individual is resident in Australia;
2. the use of the word ‘ordinarily’ connotes a comparison, a measure of degree;
3. the degree of permanence to the individual’s residence in Australia, as contrasted with a place where the individual stays only casually or intermittently;
4. where the ordinary course of the individual’s life regularly occurs;
5. whether the individual has a dwelling in Australia (although it has been held that a

                    person can be ordinarily resident in more than one country);

6. if the individual has left Australia, how long they intend to spend outside Australia;
7. employment arrangements that create a link between the individual and Australia.

 

Section 205D of the Act also requires that a company director inform ASIC of their usual

residential address, so a company director claiming to ordinarily reside in Australia would clearly need an Australian residential address in which they usually reside.

 

Issues

Where the company is carrying on an active trading business, then the level of responsibility for a Resident Director increases substantially.

A professional Resident Director will require processes and procedures to be in place to ensure the company remains solvent and complies with all relevant local laws. A professional Resident Director will be able to assist you put these processes and procedures in place.

 

Duties:

Specifically a Resident Director will:

• Monitor the company’s solvency by reviewing periodic reports from your bookkeeper and accountant, to ensure that the company is able to meet is debts and obligations when they fall due;
• Review business contracts entered into by the company and ensure that the company is able to comply with the obligations under the contract;
• Review employment contracts to ensure compliance with Australian employment laws;
• Oversight local banking arrangements;
• Advise on the appointment of other advisers (e.g. lawyers, bankers, accountants, and consultants etc) to ensure that the company otherwise fully complies with Australian laws;
• Ensure that annual and periodic filings to the Australian Securities & Investments Commission (ASIC) are complied with;
• Oversight that the company complies with its Australian tax obligations. This is usually done by the company’s accountant and Tax Agent. But the directors still have oversight responsibility; and
• Report to the non-resident owners about the affairs of the company in Australia.

 

November 2024