The End of the Road

This chapter sets out the procedure for ending the incorporation of an association.  It also discusses the alternative forms of incorporation and how associations could arrange to transfer their jurisdiction.

Key Points

  • An incorporated association may end its incorporation by applying for voluntary cancellation or by winding up either voluntarily or by order of the Supreme Court.
  • An association can apply for voluntary cancellation if it is solvent (has no outstanding debts or other legal liabilities) and resolves by special resolution to apply for cancellation.
  • If an incorporated association has surplus property when it is cancelled, it must prepare and submit a distribution plan to the Commissioner for approval. The distribution plan describes how the surplus property is to be distributed.  It is recommended that an association wishing to cease it's activities resolves its affairs as far as possible before applying for cancellation.
  • An association may also transfer to another form of incorporated structure. These include registering as a company, an Aboriginal or Torres Strait Islander corporation or a co-operative.  The main distinctions are the purpose of the organisation and whether or not profit is to be distributed to members and if so, to what extent.

For many associations, there comes a time when the members just want to call it quits and cease the activities of the association.  Sometimes they simply walk away, leaving the incorporated entity in place without any action to bring its life to an end.

A much better option is to take formal steps to dissolve the association’s incorporation.  Cancellation is the process by which the incorporation of an association as a separate legal entity is ended.  The process involves finalising any contracts, paying debts and distributing property.

However, cancellation may not be the most suitable course for the association at the time.  

In some circumstances it may be more appropriate for the members to consider a different form of incorporation.  For example, as a company or for Indigenous groups, an Aboriginal or Torres Strait Islander corporation.

Ways of ending an association's incorporation

The Act enables association’s to choose the process for the resolution of their affairs.  Whichever best suits their particular circumstances such as:

  • voluntary cancellation (with or without assets);
  • voluntary winding up, applying the relevant parts of the corporation law; or
  • winding up by order of the Supreme Court.

Voluntary cancellation

An incorporated association can only apply for voluntary cancellation if:

  • it is solvent – having sufficient assets to pay all of its debts and liabilities; and
  • it resolves by special resolution that it should be cancelled voluntarily.

Voluntary cancellation without assets

To begin the process, the management committee must examine the affairs of the association and pass a resolution confirming that there are no outstanding debts or property.

A general meeting of the association can then be called to pass the special resolution to apply for cancellation.  More information on the requirements for a special resolution is provided in Altering the Rules

Once these steps have been completed an application for cancellation can be submitted to Consumer Protection using AssociationsOnline along with copies of:

  • the resolution passed by the management committee; and
  • the special resolution passed by the members.

The cancellation of the association takes effect from the date determined by the Commissioner for Consumer Protection and will be confirmed in writing to the applicant.

Voluntary cancellation with assets

If the association has assets or surplus property there are additional steps that must be completed in order to be voluntarily cancelled.  Surplus property refers to any assets of the association that remain after the payment of any debts or liabilities. 

Again the management committee must pass a resolution before beginning the cancellation process.  The committee must examine the affairs of the association and declare by resolution that it is of the opinion the association can meet its debts and liabilities.  The committee should draft a plan detailing how the surplus property will be disposed of.  This plan must include the name(s) of the intended beneficiary or beneficiaries for the surplus property and an estimate of the value of the property that will be received by the recipient(s).

An incorporated association’s surplus property may only be distributed to organisations which fall into the following categories:

  • an incorporated association;
  • a company limited by guarantee registered under the Corporations Act 2001;
  • an organisation that holds a current licence under the Charitable Collections Act 1946 (see Fundraising for more information);
  • an organisation that is a member or former member of the association and whose rules prevent the distribution of property to its members; or
  • a non-distributing co-operative registered under the Co-operatives Act 2009.

The members must pass special resolutions:

  • confirming that they wish to apply to voluntarily cancel the association’s incorporation; and
  • approving the plan for the distribution of the surplus property.

An application for cancellation can be submitted to Consumer Protection using AssociationsOnline along with copies of:

  • the resolution passed by the management committee;
  • the special resolution passed by the members;
  • the distribution plan as passed by special resolution by the members; and
  • a statement by the committee that the resolutions have been passed in accordance with the Act.

This application must be submitted within 28 days of the date the special resolution was passed and should be accompanied by the prescribed fee.

The distribution plan must be approved by the Commissioner for Consumer Protection before it can be implemented by the association.  When approving the plan the Commissioner will advise the association the time period within which the property distribution must be completed. 

When the association has finished distributing its property it should notify the Commissioner.  The cancellation of the association will then take effect from the date determined by the Commissioner and will be confirmed in writing to the applicant.

Process to voluntarily cancel the incorporation of a solvent association without assets:

Process to voluntarily cancel the incorporation of a solvent association with assets:

 

Cancellation of an incorporated association by the Commissioner

In those instances where members simply walk away from an association without formally finalising its affairs, the Commissioner may direct that the incorporation of the association be cancelled.  The Act provides this discretion where the Commissioner has reasonable cause to believe that the incorporated association, among other things, has been inoperative for at least 12 months or has fewer than six members. 

Where the incorporation of an association has been cancelled, any property of the association vests in the State.  The Commissioner acting on behalf of the State, has an obligation to distribute this property in accordance with the Act.  This can be a time consuming process. 

Depending on the circumstances, former members of the defunct association may have little say in how such property is distributed, although extensive efforts are made to find and consult them.

The voluntary cancellation of an association is the best way to ensure that its assets and property are distributed according to the wishes of the members. 

Reporting defunct or disbanded associations and clubs

Consumer Protection is compiling a list of associations that may be defunct (inactive or dormant for 12 months or more).  If you are aware of an association that is now defunct please use the online form to report the association to Consumer Protection.

Winding up 

An incorporated association can be wound up voluntarily if it resolves by special resolution to wind up.  A solvent association may choose voluntary winding up rather than applying for cancellation if the association has difficulties identifying or locating assets, is a party to legal proceedings or has any outstanding contractual obligations or disputed debts. 
 
Where the financial affairs of an association are complex, winding up allows the association to appoint a liquidator to manage the process of finalising its financial affairs.  It also provides a level of protection for the committee and members in the event of any subsequent claim against the association.

An association may also be wound up by order of 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 suspended its operations or has been dormant for a year or more;
  • 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 regulations within a reasonable period after notice of the contravention has been given to the 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.

Provisions of the Corporations Law apply to the process.  An incorporated association should always consider seeking legal advice.

Types of incorporated structures

There may be circumstances in which members of an association want to carry on. For one reason or another, they cannot carry on as an incorporated association, or there may be advantages in moving to another jurisdiction. For example, an association wanting to expand its activities into other States may prefer to be incorporated as a company, regulated by Commonwealth authorities. 

The Act contains provisions that allow the Commissioner to facilitate a transfer to another jurisdiction.

There are a number of options for incorporation available, depending on the purpose, objectives, nature and structure of the group. The following are examples of incorporated structures:

  • an incorporated association;
  • a co-operative company;
  • an Aboriginal or Torres Strait Islander corporation; and
  • an incorporated company

Note: Incorporated associations and co-operatives are registered under State laws, while Aboriginal or Torres Strait Islander corporations and companies are registered under Commonwealth laws.

Incorporation under the Corporations Act 2001

An organisation wishing to operate for profit or conduct its activities anywhere in Australia can incorporate as an Australian company under the Corporations Act 2001.

Organisations can incorporate as either a public or private company. Private companies (proprietary companies) cannot have more than 50 members and are not able to attract investment from the general public. Public companies can raise capital by offering shares to the public and there is no restriction on the number of members (shareholders). For these reasons, public companies are subject to more stringent disclosure and reporting requirements under the Corporations Act 2001 than proprietary companies.

There are four types of companies:

  • Public no liability company. No liability companies can only be used for mining purposes.
     
  • Unlimited company with share capital. Unlimited companies with share capital can be public or proprietary. This type of company is often used for pooled investments because it is easier for members to withdraw their investment capital from this type of structure. The disadvantage is members are personally liable for the debts of the company.
     
  • Company limited by shares. A company limited by shares can be public or proprietary and is often used for business purposes. Members' personal liability is limited to any unpaid subscription price for their own shares in the company.
     
  • Public company limited by guarantee. A company limited by guarantee must be a public company and is therefore subject to the more stringent disclosure and reporting requirements for public companies under the Corporations Act 2001. Companies limited by guarantee cannot issue shares. This is an advantage for not-for-profit organisations with a fluctuating membership as members do not have to buy shares in the company.

    Like a company limited by shares, this company structure limits liability of members. Instead of being limited to the amount payable for shares issued, liability is limited to the amount agreed to in a guarantee (e.g. the membership fee). However, members only need to contribute the guaranteed amount if the company is wound up. The company must include 'Limited' or 'Ltd' at the end of its name. This requirement may be waived for a not-for-profit organisation.

    Another requirement is that, as a public company, a company limited by guarantee must open its registered office for at least three hours each business day. If this requirement causes difficulty, arrangements could be made with a professional business (e.g. an accounting or law firm) to use their office as the company's registered office.

In general, companies have greater scope than incorporated associations in the activities that they can undertake.

The main issues with becoming a company are that companies are more highly regulated than other entities, and incorporation can also be expensive (at least $1000) and involve higher ongoing costs.

Registration as a co-operative company

A co-operative is a legal entity created, owned and controlled by its members. Members benefit by sharing and using the co-operative's products and services. 

Co-operatives can be set up for a wide range of social and economic activities such as retail, agriculture, irrigation, marketing and taxi services.  There are different types of co-operatives to suit different business needs.  A distributing co-operative has a share capital and may give returns or profits to members.  A non-distributing co-operative may or may not have a share capital and cannot give any returns or profits to members (other than the nominal value of shares). 

Sometimes, after an association becomes incorporated its circumstances have changed in one way or another:

  • Is the association undertaking new activities? 
  • Has the association started focusing more heavily on what was originally a secondary activity? 
  • Does the association wish to start distributing its profits in a different way?

If the association is evolving in a significant manner, the incorporated association’s structure may no longer be the most appropriate structure for the organisation. 

The good news is that there are options available for the incorporated association if this is the case.  It may be decided the association is better suited to the structure of a co-operative and would operate more effectively if it transferred from being an incorporated association to a co-operative company.  

The table below highlights some of the similarities and differences between incorporated associations and co-operatives to help decide if a co-operative structure would be more appropriate way to continue on.

For further information on any facet of the application process please contact Consumer Protection on 1300 30 40 74 or visit www.commerce.wa.gov.au/co-ops.

  Incorporated Association Co-operative Company
Associations Incorporation Act 2015 Co-operatives Act 2009
Trade for profit? Yes, able to trade and generate a profit but cannot distribute to members. Yes, may undertake trading activities to generate a profit.
Legal capacity and powers of an individual? Yes Yes
Can acquire property in entity's own name? Yes Yes
Financial benefit to members? As a not-for-profit entity any profits must be used to further the objects of the association. No financial benefits can be distributed to members.

May share in the resources and assets of the co-operative and benefit from its activities.

Members of distributing co-operatives may also receive direct distributions of profits.

Minimum number of members? 6+ members.

For a co-operative group: 2+ members. 

For a co-operative: 5+ active members.

Minimum number of directors or office bearers? No set number.  The rules must outline the structure of the management committee. No set number.  The rules must outline the structure of the board.  However it is recommended that the number of directors is not less than three, at least two of whom must be resident in Australia
Financial reporting obligations? Required to present annual accounts to members at every AGM. Required to present annual accounts to members at every AGM.  Annual report needs to be lodged with Department within 28 days after AGM. 
Audit requirements? Tier 2 associations must have accounts reviewed and Tier 3 associations must have accounts audited annually.  Small co-operatives with limited revenue, assets and employees do not need an audit.  All other co-operatives require one.
The Rules / Constitution? Rules should include all matters in Schedule 1 of the Act.  Associations can create their own rules or adopt the model rules. Rules should include all matters in Schedule 1 of the Act.  Co-operatives can create their own rules or may wish to adopt the model rules.

 

Incorporation under the Corporations (Aboriginal and Torres Strait Islander) Act (2006)

The Corporations (Aboriginal and Torres Strait Islander) Act (2006) provides a simple way for Aboriginal or Torres Strait Islander groups to incorporate. 

Eligibility for membership is limited to Aboriginal or Torres Strait Islander persons and their spouses if the spouses meet the membership requirements in the rules.  Some Aboriginal or Torres Strait Islander corporations may make provision in their rules for associate membership.  This allows those persons, who are not entitled to become full members under the membership rule, to become associate members.  Associate members have the same rights and responsibilities as a member. They are not entitled to vote at meetings of the corporation or stand for election to the governing committee.

Unlike incorporated associations, Aboriginal or Torres Strait Islander corporations allow groups to share profits and engage in trading activities that incorporated associations are restricted from doing.

Office of the Registrar of Indigenous Corporations 

Assistance and advice on forming an Aboriginal or Torres Strait Islander corporation is available from the Office of the Registrar of Indigenous Corporations.

PO Box 2029   WODEN    ACT   2606
Telephone:    1800 622 431
Email:    info@oric.gov.au
Website:    www.oric.gov.au

Transferring to another jurisdiction

The Commissioner for Consumer Protection has authority to approve an incorporated association’s transfer into a company limited by guarantee, an Aboriginal Corporation or a Co-operative.

Steps for transfer of incorporation

  1. Decide on the whether the change of corporate structure is suitable and obtain approvals if relevant, from government funding agencies, affiliated bodies or accreditation bodies or any other entities where existing statutory or contractual obligations are currently held.
  2. Send a notice in accordance with the current rules of the meeting to transfer incorporation by special resolution to ALL members, whether they have voting rights or not.
  3. Convene the meeting and pass the changes by special resolution.
  4. Submit the application for approval to transfer incorporation under another law using AssociationsOnline and a copy of the special resolution within one month of the meeting. The application should be accompanied by the prescribed fee and the following information:
    • a statement as to the reasons for the intended transfer;
    • a statement as to whether the entity to which the association intends to transfer is subject to rules that prohibit the distribution of profits to that entity’s members;
    • a statement declaring that the association’s creditors are not likely to be materially prejudiced by the transfer; and
    • if the association receives funding, evidence that the association’s funding bodies have been advised of the proposed transfer.
  5. If approval to transfer is granted, make an application within the approved timeframe to the relevant regulatory body.
  6. Once registered with the relevant regulatory body, submit to the Department copies of the certificate of registration.

Things to consider before transfer

A change in corporate structure from the Associations Incorporation Act 2015 to the Corporations Act 2001 (Corporations Act) may affect any existing statutory or contractual obligations with government funding agencies, affiliated bodies or accreditation bodies.

Any existing property, rights or obligations may not be recognised despite section 100(2) of the Act which provides that transfer of incorporation does not affect the identity of the association which is to be taken to be the same body before and after the transfer of incorporation.

Consequently associations should consider what approvals, if any, they should obtain before calling a general meeting of members to consider a change in corporate structure.  

Associations are responsible for making their own enquiries as the Department of Commerce cannot do so on their behalf.  Associations should consider obtaining legal advice before embarking on this process. 

Examples of arrangements which may be affected and notifications which should be made or approvals sought are:

  • Associations that have been appointed as trustee of trust land or hold a lease should contact the relevant regulatory body to ensure their tenancy arrangements will not be affected by their proposed change of corporate structure.
  • Associations that own land should make enquiries as to the process of updating the title to reflect the change of corporate structure.
  • Associations that have gaming or liquor licences should contact the Department of Local Government, Sport and Cultural Industries - Racing, Gaming and Liquor to ascertain if their licences will affected by their proposed change of corporate structure.
  • An association legislated under the School Education Act 1999 (WA).  For example school councils, non-government schools, parents and citizens’ may require prior approval from the Minister of Education prior to passing the passing of the special resolution to transfer.

Important Information about applying to transfer to a company limited by guarantee

It is recommended that associations seeking to transfer to the Corporations Act 2001 should first apply to Australian Securities and Investments Commission (ASIC) to reserve the name before submitting the application.  

Once the application for approval to transfer incorporation under another law has been approved by Consumer Protection.  An application using the ASIC Form 202 - Application for registration of a body corporate as an Australian company must be made.

You should ensure that the company limited by guarantee complies with the reporting and regulatory requirements of the Corporations Act.  Detailed information on the requirements of setting up and running a company limited by guarantee can be found on www.asic.gov.au.  ASIC should be contacted for further information. 

Although the transfer process is relatively straightforward, there are several steps required and it is recommended that associations first contact the Consumer Protection Associations Branch on 1300 30 40 74 to find out how best to proceed. 

Amalgamating existing incorporated associations

There may be situations where it makes sense to merge the activities of two or more incorporated associations together and continue on as a single incorporated association.  This process is known as amalgamation.

To begin the amalgamation process it is necessary for each of the merging associations to pass its own special resolutions confirming the:

  • terms of the amalgamation;
  • name and objects of the new group; and
  • proposed rules for the new group 

More information on the requirements for a special resolution is provided in Altering the Rules

Once the above process has been completed, an application to amalgamate the associations should be submitted to the Department of Commerce using AssociationsOnline along with the prescribed fee.
 
If the Commissioner is satisfied that the:

  • required special resolutions have been passed in accordance with the Act;
  • proposed new body is eligible for incorporation; and
  • rules of the new body comply with the requirements of the Act,

a certificate of incorporation will be issued for the new body and each of the amalgamating incorporated associations will be automatically cancelled. 

Transfer of amalgamating associations’ property and liabilities

Once the new body has been incorporated:

  • the property of all the former associations vest with the new incorporated association;
  • the rights and liabilities of the former associations become the rights and liabilities of the new incorporated association;
  • any proceedings by or against the former associations that existed immediately prior to the incorporation of the new association may be continued by or against the new body; and
  • any pre-existing agreements of the former associations will apply to the new incorporated association (unless the agreements state otherwise).

Insolvent associations

An insolvent association is one that is unable to pay its debts when due for payment.  An insolvent association cannot apply for cancellation or be wound up voluntarily.  It will need to make an application to the Supreme Court to be wound up.

If there is a concern that an 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 realisation proceeds 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 to 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 an agreement can be reached regarding the debt.
  • Discuss the situation with a finance professional or a lawyer. 

Any association that may be insolvent is encouraged to seek professional advice to determine its rights, obligations and options.

Becoming an unincorporated association

Where an incorporated association has decided to wind up, there may be some members who wish to carry on some or all of the old association’s activities.

Despite the many benefits of being an incorporated entity, it is still possible to undertake a wide range of activities under the status of an unincorporated association.  The major disadvantage to operating in this way is members become personally liable for any debts or liabilities that the group might incur.

If this course of action is being contemplated, the old association’s assets or property cannot in general be handed on to those running the unincorporated association.  This could only occur if it can be established that the unincorporated association was formed for a charitable purpose.  There may be legal objections to such a distribution.

Even if an association chooses to continue in an unincorporated form, the group should still seek advice about the organisation's compliance requirements in relation to matters such as taxation, occupational safety and health and employment awards. 

Although this guide primarily addresses statutory requirements for incorporated associations in Western Australia, much of the information could be used as a guide for running an efficient unincorporated association.