1. Ways of winding up an association
An incorporated association may be wound up in two ways:
- voluntarily; or
- by order of the Supreme Court.
1.1 Voluntary winding up
An incorporated association can only wind up on a voluntary basis if:
- it is solvent, that is, it has sufficient assets to pay all of its debts and liabilities; and
- it resolves by special resolution that it should be wound up voluntarily.
More information on the requirements for a special resolution is provided in Chapter 7 – Altering the Rules. Once a special resolution is passed, a copy of this must be lodged with the Commissioner at Consumer Protection within 14 days from the date when the resolution was passed.
When the winding up takes effect will depend on whether, after the payment of all its debts and liabilities, the incorporated association has any surplus property. The meaning of surplus property covers cash assets, as well as physical property, such as furniture, equipment or real estate.
1.1.1 No surplus property
Where there is no surplus property, then the process is straightforward and the winding up takes effect 14 days after the notice of the special resolution has been lodged with the Commissioner.
1.1.2 Surplus property
Surplus property on winding up can only be distributed to another association incorporated in Western Australia, or for charitable purposes. Surplus property cannot be distributed to members or former members of the association.
The association must prepare and lodge with the Commissioner a plan for the distribution of the surplus property. The plan must be drafted in accordance with the rules of the association and satisfy certain statutory requirements of the Act. If there are no provisions in the rules, the management committee is required to draw up a plan in accordance with any directions given by the members of the association by a resolution.
The Commissioner can:
- direct the association to amend the distribution plan;
- appoint a person on his/her behalf to implement a distribution plan in certain circumstances; or
- direct that surplus funds be paid into the Consolidated Account (ie the Western Australian State Treasury).
Anyone who is aggrieved by a declaration made by the Commissioner may apply to the Supreme Court for a review of the declaration.
An incorporated association must not implement a distribution plan until one month after the distribution plan has been lodged, unless the Commissioner states otherwise.
Once any surplus property is finally distributed, the winding up takes effect seven days after such distribution.
1.2 Winding up by the Supreme Court
An incorporated association can be wound up by the Supreme Court if:
- the association was not eligible for incorporation at the time of incorporation;
- incorporation of the association was obtained by fraud or mistake;
- the association has fewer than six members;
- the association has been inoperative for not less than 12 months;
- the association is unable to pay its debts;
- the association has engaged in activities outside the scope of its purposes, as specified in its rules, or has ceased to pursue those purposes;
- the committee of the association has acted oppressively towards members
- the association has refused or failed to remedy a breach of the Act or regulation
- within a reasonable period after notice of the contravention has been given to th
- association by the Commissioner;
- the association has, itself or as trustee, traded or secured pecuniary profit for its members;
- the association, by special resolution, resolved that it be wound up by the Supreme Court; or
- the Supreme Court is of the opinion that it is just and equitable that the association should be wound up.
An application to the Supreme Court to wind up an incorporated association can be brought by:
- the association;
- a member of the association;
- the Commissioner;
- the Minister; or
- in certain circumstances, a creditor.
As always, an incorporated association that is facing proceedings or bringing proceedings in the Supreme Court should seek legal advice.
1.3 Insolvent Associations
An insolvent association is one that is unable to pay is debts when they fall due for payment. If an association is insolvent it cannot be wound up voluntarily and will need to make an application to the Supreme Court to be wound up.
If there is a concern that your association may be insolvent it is recommended that no further debt is incurred until the financial position of the association has been established.
If it is not possible to restructure, refinance or obtain additional funding it may be necessary to appoint a voluntary administrator or contact a liquidator.
Liquidation is the orderly winding up of an organisation’s affairs. It involves realising the organisation’s assets, cessation or sale of operations and distributing the proceeds of the realisation among its creditors.
Voluntary administration involves an external administrator investigating the organisation’s affairs and providing a recommendation to the creditors.
If the association is unsure where to begin it is recommended that they do the following:
- Make a list of all possible creditors and how much is owed to each.
- Arrange to have the association’s accounts audited.
- Contact creditors and see if you can reach an agreement regarding the debt.
- Discuss the situation with finance professional or a lawyer.
Any association that may be insolvent is encouraged to seek professional advice to determine its rights, obligations and options.