Administration & Management
Is an alternate director for an SMSF better than a successor director?
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We compare the option of a director nominating an alternate director in contrast to nominating a successor director in a self-managed superannuation fund ('SMSF') context to determine which is better. In the first section, we will explore the role of an alternate director and some of the problems that could arise when an alternate director is used in an SMSF context. Afterwards, we examine why successor directors provide greater flexibility compared with alternate directors.

Note that, for simplicity, we will discuss the role of an alternate or successor director in the singular below even though in practice there may be more than one of these acting at the same time.

Alternate director

The role of an alternate director

Generally 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, a director who is unable to attend a directors' meeting or to their duties while they are overseas can appoint a person to act for them as their alternate director for the relevant period.

Under the Corporations Act 2001 (Cth) ('CA'), a director may appoint an alternate director to exercise some or all of the appointing director's powers for a specified period. The exercise of a power by an alternate director is just as effective as if it was exercised by the appointing director. Section 201K of the CA is a replaceable rule in relation to the appointment of an alternate director and each constitution should therefore be checked to determine whether an alternate director role exists and what rules govern that role.

Broadly, the powers that an alternate director can exercise are only powers that can be exercised by the appointing director at that point in time. The appointing director should carefully monitor their alternate director's activities to ensure the alternate director is acting appropriately.

Note that an alternate director's appointment ceases when the appointing director ceases to be a director. This is particularly relevant where the appointing director loses capacity, e.g. due to loss of mental capacity. Many incorrectly assume that an alternate director can continue to act under the CA despite the appointing director's loss of capacity. Moreover, generally under many constitutions, a director is automatically removed upon the loss of capacity, so an alternate director would also be removed upon loss of capacity where the constitution is drafted to remove a director on loss of capacity. Thus, an alternate director gives limited succession value to a director.

Furthermore, an attorney under an enduring power of attorney is also not entitled to act for a director as the legislation relating to powers of attorney is state based whereas the CA is Federal legislation. Further, the performance of a director's office is a director's own personal responsibility as stated at paragraph 17 in Saad v Doumeny Holdings Pty Ltd [2005] NSWSC 893:

[17] ... For a power of attorney is not available for the performance of a duty of a director's office which is his own personal responsibility as a director:  Mancini v Mancini (1999) 17 ACLC 1570 at 1577 - 1578, per Bryson J. ...

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