Does a director’s resignation need to be in writing?

Does a director’s resignation need to be in writing?

By Bruce Gotterson

July 05, 2016

This article appeared in the June 2016 issue of Club Director

It’s such a simple question. Unfortunately, the answer will depend on what is said, what a Club’s constitution provides and what occurs after the resignation.

Being a director of a club sometimes means having robust debates with your colleagues. So what happens if a director says “I’m sick of this, I will put in my resignation at the end of the month” and the remaining board members pass a resolution “that the Board accept the director’s resignation.”?

When considering how a director may resign the first matter to consider is the club’s constitution. For example, let’s say that the example club’s rules provide:

 

“XX      The office of a director shall automatically be vacated if the director:…

(y)        resigns from office as a director by notice in writing given to the Secretary.”

 

Clearly, the example does not comply with the requirements of rule XX(y). However, section 203A of the Corporations Act 2001 (the Act) provides slightly more flexibility with regard to resignations and provides that “a director may resign … in writing”. That is, a director “may” resign in writing but may also resign in other ways.

Some directors mistakenly hold the belief that the Act will always prevail over a club’s constitution. However, there are many instances where a club constitution can set a lower (or higher) standard than contained in the Act and the Club must comply with the lower (or higher) standard contained in the club’s constitution.

In this case, section 203A is a “replaceable rule” for the purposes of the Act and section 135(2) of the Act provides “A provision… that applies to a company as a replaceable rule can be displaced or modified by the company’s constitution.”

That is, section 203A of the Act may be modified by a club’s constitution and the terms of the club’s constitution (in this case rule XX(y)) will apply.

However, this is not the end of the enquiry. The club’s constitution is a written contract between the club and the member. There is case law to support an argument that it is possible for a director to offer to vary the terms of the contract to enable the director to resign orally and for the board of a club to pass a resolution to agree to the variation and to accept the oral resignation.

In this regard, in Knight v Bulic (1994) 13 ACSR 553 Hayne J said at 561:

“Both sides accepted that although the articles provide for a director to resign his office by notice in writing, a binding agreement of resignation could be reached by the director tendering his resignation orally and the company accepting that resignation.”

Of course clubs should seek their own legal advice when considering a director’s oral resignation and/or the wording of a resolution to accept such a resignation. But what about our example above?

Well, in the example you will notice that the director did not actually resign or even offer to resign. The director merely indicated an intention to resign at a later date. The Board could not “accept” something that has not been “offered”.  So at least in our example, the robust conversations will continue at the next board meeting.

If you have questions regarding the above please contact Bruce Gotterson on b.gotterson@pigott.com.au

 

This article is not legal advice and the above could change significantly depending on a club’s constitution and or specific factual scenario.

Prepared by Bruce Gotterson and Matt Goodwin