Daniel Butler, director of DBA Lawyers, said in a recent online update that successor directors are particularly useful for blended families and succession planning as they offer more flexibility than alternate directors and are also helpful for making a withdrawal before death.
“Many are familiar with alternate directors but not successor directors,” Butler said.
“An alternate director is a person who can step in as a director to exercise some or all of the appointing director’s powers for a specified period or on a temporary basis. For example, if a director is unable to physically attend a meeting of directors, or fulfil other director duties, they can ask their alternate director to act in their stead.”
However, he said with modern communication technologies, it is questionable whether an alternate director is now needed, as they can only act if the appointing director of the trust is alive and has capacity.
“There is no succession flexibility provided by an alternate director and the risks and penalties of an alternate director are the same as the appointing director.”
Butler said in the case of successor directors, the SMSF deed must be expressly and carefully worded to include successor director provisions and where the company acts as trustee of an SMSF, the trustee-member rules in s 17A SISA generally require the successor director to be a legal personal representative.
“A successor director can overcome some of the issues faced in numerous court decisions where the LPR of the deceased SMSF member was not able to be appointed as an SMSF trustee/director.”
He said an example of this is Ioppolo v Conti [2015] WASCA 45 at [56]-[73] where the court held that the provisions in section 17A concerning an LPR being appointed as a trustee were “permissive rather than mandatory”.
“Thus, the legal documents must facilitate the appointment of the LPR as you should not rely on cooperation from the remaining directors/trustees/members,” Butler said.
“Some SMSF deeds rely on a guardian to provide some influence after a member loses capacity/dies but that is not as critical as being ‘instituted’ as a director to provide input to the company decision-making process.”
A successor director allows a director to nominate a person appointed as a director of the company upon an event occurring, such as incapacity or death.
Butler gave another example of Tim, who is a sole SMSF member/director/shareholder. Tim loses capacity and can no longer act as a director. His daughter Nikki is his attorney under his EPoA.
“Nikki can appoint herself as a director either via Tim’s shareholder rights or section 201F of Corporations Act 2001 (Cth),” Butler said.
“However, if Tim had appointed Nikki as his successor director she would automatically step into that role upon Tim losing capacity and section 17A of the SIS Act would be satisfied.”
