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The memorandum and articles of association of our company state that there must be a minimum of two directors. One of the directors passed away last week. Do we need to appoint another director until we change the constitution?

This is advisable, but the company may not need to appoint another director immediately so long as it is careful not to carry out any business until a new constitution (allowing for a sole director company) has been adopted, as anything done before this time (i.e., with one director, although the memorandum and articles of association require that there be two) may not be valid.

This includes where the company acts as trustee of a trust.

If the constitution doesn't provide for what happens in these situations, S.201H(1) of the Corporations Act 2001 (a replaceable rule) provides as follows:

"S.201(H) Appointment by other directors

  1. The directors of a company may appoint a person as a director. A person can be appointed as a director in order to make up a quorum for a directors' meeting even if the total number of directors of the company is not enough to make up that quorum."

Such an appointment needs to be ratified by the shareholders.

However, the replaceable rules of the Corporations Act 2001 only apply to proprietary companies registered after 1 July 1998 (or those registered before 1 July 1998 that repeal their constitution after that day), and only where the company's constitution hasn't displaced or modified the replaceable rules.

If, at the end of the day, the company does not appoint another director to replace the one who has passed on, and it can't rely on the replaceable rules and doesn't have anything else available, the board of directors will not be able to meet and make any decisions (whether for itself or for the trust), as it can't make quorum. However, the shareholders will still be able to make decisions for the company (whether at a general meeting or by written resolution).

Also, ASIC will need to be notified of the changes within 28 days of them occurring.

Note: S.201F(1) also provides that "The director of a proprietary company who is its only director and only shareholder may appoint another director by recording the appointment and signing the record."