Q&A: What to consider if a director of a corporate trustee of a single member SMSF resigns

The question that was posed of us is, what happens if one of the directors for a single member SMSF resigns? You can have a single member SMSF where the trustee is a body corporate. You’ll see there under 2A. The rules are that if you have a one member SMSF with a body corporate, then the member is either the sole director of the body corporate / is the sole director of the trustee company, or the member of the fund is one of two directors of the of the corporate trustee.

What I’m assuming here is if one of them has left, the question poses, what happens if one of the directors has resigned? Well, that would have to be the non-member, wouldn’t it? Because you couldn’t have a non-member single director. So, in this case, what we have is the single member continuing to act as the sole director of the corporate trustee, and that is allowed to be done. You can do that. But what we need to look at is the question itself, which was they’ve left, what should have been done or what do we need to think about?

So, I’m assuming there’s no member balance, which is held for the party member as it’s only a one-member fund. If there was a member balance for that extra director, obviously they would need to get rid of that balance. The most important steps here are actually to pull out your constitution, what we used to call the old articles of association, the rule book for the corporate trustee. The fund itself will have its own rule book being the trust deed. We’re just focusing at the moment on the corporate trustee and what its rule book requires.

By pulling out the constitution, it’ll actually give you the index and you can look at that and see what it requires around resignation or the acceptance of resignations of company directors or the corporate directors here. We’ve got to make sure that the process required by the Constitution was followed. Now, most constitutions would require something along the lines of a written notification of resignation. So, a director resignation consent form on top of that, which sets out that when they’re resigning, from this point forward, they have no rights, they’re removed and then a director minute or resolution to finalise that for the consent to remove the director. Then we need to make sure that ASIC has been updated through the portal. You can do that through the ASIC portal that the SMSF trustees have access to, or your accountant or your advisors can do that for you. But it’s important that ASIC has been updated around that.

Now, the one step which often gets overlooked is you also need to tell the ATO. There’s a specific form for this. If you Google SMSF NAT 3036, it brings up the particular form which you can use to notify the ATO of any changes which have occurred to the fund itself. Now, it’s important that that is done. It’s punishable by fine. So, you not only should update ASIC around the directorships, but you’re also updating ATO that those things have changed. Making sure those things are done is really important.

Once that’s happened, once we’ve put all these things in line, it pretty much will wrap up the process required. But you’d need to still think about what will happen going forward. You’ve now got a one member, one director structure. You might need to consider putting in place or considering what we could do if something happens to that one person. Usually, what we would look at here is maybe appointing an additional director, someone that can stick around, maybe identify someone who could be a successor director. So they’re not necessarily a director now, but on an event occurring, there is an automatic process where that person can step in and act as a successor director. It doesn’t happen essentially automatically. There’d be a whole lot of paperwork that needs to be done beforehand to have those nominations put in place. But again, that could be looked at.

Shareholding in the corporate trustee needs to be considered too. So, if I’m the sole director, sole member, I want to make sure that I’ve got the ability to pass control of the company, of the corporate trustee, to the right person. How can I do that? I can do that not only through success of directors, but also making sure the shareholding of the corporate trustee passes to the appropriate person. That’s important. Remember that shareholders vote in and sack or get rid of directors. So, the ability to pass shareholding across means that person also can appoint themselves as directors if there is a flaw in any of the other steps.

And the last thing, of course, is making sure that you have accurate and up to date death benefit nominations. Because if you’re everything, if you’re the member and sole director, you want to make sure that when you’re not here, your decisions, your wishes are followed. To do that, you should have up to date death benefit nominations.

So, that’s the process and the considerations moving forward. I can tell you that this area of the SMSF, this whole succession, this whole estate planning area has become huge. And you can get some real value for you and your family if you get this right.

There is a great article which was released in 2021 (SMSF estate and succession planning: What’s the difference?) which covers the estate planning and the succession planning issues. Once you’re satisfied with things around success and directorship, shareholding, wills, death benefit nominations, make sure that you review those regularly. Don’t just set and forget.