When has a director vacated office?

When has a director vacated office?

By Bruce Gotterson

November 15, 2017

This article appeared in the November 2017 issue of Club Life.

In last month’s column I dealt with the uncertainty which clubs face from time to time in relation to whether a director has vacated his or her office by focusing on directors who fail to attend board meetings.

This month I want to talk about that uncertainty but with reference to cases where directors indicate they are resigning but fail to give formal notice of their resignation.

Occasionally a director (usually in a fit of pique) announces to a meeting of the board that he or she is resigning and then leaves the meeting.  Does this constitute an effective resignation?

The standard rule in most club constitutions provides that the office of a director shall be vacated if the director “by notice in writing given to the secretary resigns from office as a director”.

This reflects section 203A of the Corporations Act which provides that:

A director of a company may resign as a director of the company by giving written notice of the resignation to the company at its registered office”.

In a case of Cain v Aeromarine Consulting Pty Limited [2003] FCA 1016 25th September 2003 the Federal Court of Australia had to consider whether a director had resigned from office by oral notice.  In that case the court held that:

  1. The relevant rule in the constitution allowed for a unilateral resignation i.e. once the director has given written notice the board does not have to accept the resignation for it to be effective.
  2. However a company can by agreement with a director dispense with the formalities set out in its constitution in relation to the resignation of a director.
  3. This is because a constitution of a company is a contract between (amongst others) the directors and the company itself and that contract can be varied orally or by conduct.
  4. Accordingly a director can orally resign despite a requirement of written notice in the company’s constitution provided that such resignation is accepted by the company.

This means that there must be an agreement between the director and the company to effectively vary the contract (being the Constitution) and accept an oral resignation.  This variation applies on a one off basis to that director only.  As the governing body of the company under its constitution is the board of directors then to be effective an oral resignation by a director requires a formal resolution of the board of directors to accept the resignation.

However until the board passes a formal resolution accepting the resignation, the director can withdraw the oral resignation.

Further, if the oral resignation has not been accepted by a formal resolution of the board and the director continues to attend board meetings it is probably the case that the oral resignation has lapsed or the board by its conduct has indicated that it does not propose to accept it.

Notwithstanding this case it is still strongly recommended that any decision by a director to resign from office be by way of written notice delivered to the secretary.  Once that has been done the resignation takes effect straight away (unless the notice says it will take place from a later date) and does not have to be accepted by the board to be effective.

At the end of the day it is crucial, as it is with most things, to see exactly what the Constitution says on the issue as it might be that a club’s Constitution does not have the standard rule about director resignation set out above.

For more information contact Bruce Gotterson on b.gotterson@pigott.com.au

This article is intended to provide general information in summary form on a legal topic, current at the time of publication.  The contents do not constitute legal advice and should not be relied on as such. Formal legal advice should be sought in specific circumstances.