The following information will help prepare your association for the new law commencing in July 2016.
You can read the information below or download the full fact sheet from the document link above.
Please note the references to "Part 2" to "Part 16" refer to the relevant areas in the new law to deal with a particular topic.
The concept of ‘permitted trading’ fails to acknowledge the fact that the growth in trading activity in the not‑for‑profit sector is largely as a result of growing pressure on not‑for‑profits to be financially self‑sustainable, combined with the growing reliance on the not‑for‑profit sector for the delivery of government funded community services.
The contracting out of the delivery of social services to community organisations has meant that incorporated associations are increasingly engaging in trading activities as a predominant activity.
The continued inclusion of the ‘permitted trading’ test fails to recognise the fact that it is the not‑for‑profit character of incorporated associations (i.e. that they do not secure pecuniary profit for individual members) that distinguishes it from other corporate forms, such as a corporations law company. The removal of the ‘permitted trading’ test will provide clearer direction on eligibility for incorporation matters and greater certainty to associations.
The removal of the restriction on trading will not allow commercial ‘for-profit’ companies to become incorporated associations. The new law contains a number of safeguards to ensure that only ‘not-for-profit’ groups are eligible to become incorporated.
Firstly, and unlike their commercial counterparts, eligibility for incorporation as an association will be restricted to those organisations which serve an overriding community purpose, rather than being exclusively commercially focused. In order to be eligible for incorporation, an association’s goal must be focused on attaining the common objectives of its members. People voluntarily join associations because they want to work together on a common cause or interest - be it the advancement of a profession, the cure for a disease, or the pursuit of a hobby.
Secondly, the ‘not‑for‑profit’ character of associations is further reinforced by requiring every incorporated association to have in its rules a statement that the property and income of the association must be applied solely towards the promotion of the objects or purposes of the association and no part of that property or income may be paid or otherwise distributed, directly or indirectly, to any member of the association, except in good faith in the promotion of those objects or purposes.
Thirdly, the law provides that an association is not eligible to be incorporated under the legislation if it is formed or carried on for the purpose of securing pecuniary profit for its members from its transactions. The new law details the circumstances in which an association will be taken to be securing pecuniary profit for its members.
Finally, the new law retains the Commissioner’s power in the current Act to direct the transfer of an association’s incorporation to another Act, where it becomes inappropriate for a particular association to continue to be incorporated under the Act.
The new law is consistent with recently amended associations legislation in New South Wales and Victoria which both provide that, while an incorporated association may trade and make a profit from that trading activity, any profit must be directed towards the purposes of the association, and not to the private enrichment of its members.
Yes, although eligibility for Commonwealth tax benefits and concessions is determined by the ATO and always on a case by case basis. The current Association Incorporation Act’s restriction on the level of trading an association can engage and remain eligible for incorporation under the Act is a WA feature that was introduced in 1987. ATO publications reinforce the essential element of a not‑for‑profit organisation as being the prohibition on securing pecuniary profit for members. This prohibition remains in the new law.
The inclusion of approved purposes provides much needed guidance to the associations sector as to the nature of the associations that are eligible for incorporation under the Act. The list of approved purposes demonstrates that, in order to be eligible for incorporation, an association’s goal must be focused on attaining the common objectives of its members. People voluntarily join associations because they want to work together on a common cause or interest - be it the advancement of a profession, the cure for a disease, or the pursuit of a hobby. A sense of community coordination is at the heart of associations. Common interests, rather than individual financial gain, bind the members together who unitedly try to achieve a common purpose.
A list of approved purposes is an effective and simple mechanism in which to reinforce that eligibility for incorporation is restricted to those organisations which serve an overriding community purpose, rather than being exclusively commercially focused.
The term ‘pecuniary profit’ is associated with financial profit or gain.
The purpose of these provisions is to preserve the not‑for‑profit status of incorporated associations. A not‑for-profit organisation is an organisation that is not operating for the profit or gain of its individual members, whether these gains would have been direct or indirect.
The new law (section 5) lists the circumstances where an association would be considered to be securing pecuniary (or financial) profit for its members. For example, if it carries on any activity for the purpose of securing pecuniary profit for its members; it has capital that is divided into shares or stock held by members; or it holds property in which members have a disposable interest.
The new law also details a number of circumstances in which an association is not to be regarded as securing a pecuniary profit to its members. For example, the payment of a salary to a member who is an employee; the awarding of prizes as a result of member competitions; or where the association is established for the protection or regulation of some trade, business, industry or calling in which the members are engaged or interested.
No, it will not change. Section 19 of the law limits the liabilities of officers, trustees or members in respect to the liabilities of an incorporated association for any lawful conduct. This clause is exactly the same as the provision in the Associations Incorporation Act 1987.
The key purpose of legislation to incorporate associations is to allow a group with a common purpose to create a separate body corporate, mandated by State Government legislation, so that an incorporated association can then operate in its own right, sue or be sued.
However, legal protection does not apply to liabilities incurred before the association is incorporated, so officers, trustees and members may be responsible for the assets of an unincorporated association.
There is no limited liability for unlawful activities. This will not change in the new law.
The Regulations will prescribe a set of model rules; those rules will meet all of the requirements of the new law for the rules of an association, and provide a framework for governance of the association which is consistent with best practice. An association that wishes to use the model rules will only need to add its name, objects and purposes, financial year and quorums.
Where an association wishes to use the model rules there will be no requirement for the association to provide a copy of its rules with its application for incorporation or to have its rules assessed by the Department.
When an association chooses to develop its own rules the resulting rules will not be standard, and a specific set of rules for that association must be lodged, assessed and maintained by the Department.
An association can choose to use a combination of its own rules and the model rules, by choosing those model rules that suit its needs while changing those that don’t, or by adding additional rules to those in the model rules. These rules will, however, be described as the associations “own rules” for the purposes of the Act. Because they will be different from the standard rules they will need to be lodged, assessed and maintained in the same way as “own rules”.
There are a number of matters that have been added to the matters listed in Schedule 1.
The most significant change is that Schedule 1 now requires an association’s rules to include a procedure for dealing with any dispute under or relating to the rules between members, or between members and the incorporated association (Item 19).
The rules of an association must also now include the following additional matters:
The provision restricting the application of an association’s property and income to the promotion of its objects and purposes which Schedule 1 required an association to include as part of its objects and purposes has now been moved to the main body of the new law. The provision is now only required to be included in an association’s rules rather than requiring it to form part of the association’s objects or purposes.
The new law provides that if an incorporated association approves the adoption of the model rules as its rules, it is taken to have adopted any subsequent amendment to the model rules as an alteration of its rules. The alteration will take effect on the day the relevant amendment to the model rules comes into operation; will not require a special resolution of the association in order to take effect; and will not require the approval of the Commissioner.
As the model rules are a statement of best practice, it is not considered necessary to burden those associations which adopt the model rules as their own rules with the alteration of rules process that is required of associations that develop their own rules.
To allow time for an existing incorporated association to ensure that its rules comply with the new law, the general requirements for content of rules (section 22) in the new law will not apply to an existing association until the expiry of 3 years after the new law commences or such longer period as the Commissioner may, on application made by the association, from time to time allow. This should give existing incorporated associations plenty of time in which to ensure their rules comply with the new law.
All incorporated associations, large and small, will continue to be able to nominate who will receive their surplus property on cancellation or winding up from a list of eligible recipients. For example, a company limited by guarantee; a body corporate holding a licence under the Charitable Collections Act 1946; a non‑distributing co‑operative, an incorporated association. In special circumstances, upon application by the association, the Commissioner may also approve a particular body corporate or a particular body corporate that is to apply property for a particular charitable purpose approved by the Commissioner as being an eligible recipient. For example, this could include local government or other government instrumentalities. This is in recognition of the fact that in some cases local government authorities and other government instrumentalities may be best placed to look after a museum, reserve, premises or facilities to retain these facilities in a community. In such cases the Commissioner will require the written approval of the recipient before the surplus property can be directed to it.
A specific requirement has been included in the new law to make sure that associations do check their contracts as part of developing a distribution plan for their surplus property. The new law will require an association’s distribution plan to give effect to any contract that specifies how property or any part of the property of the association that has been provided to an association by a body is to be dealt with if an incorporated association is wound up or its incorporation cancelled. Further, property of the association consisting of property supplied by a public authority must be returned to the public authority that supplied the property or to a body nominated by that public authority.
The purpose of this provision is to minimise the risk to associations of appointing inappropriate persons to the management committee. The prohibition applies to a very specific and limited set of individuals to ensure that the overall pool of suitable persons who can act as committee members is not unduly limited.
Members of an incorporated association need to be confident that suitable persons are running their association. For this reason, the new law will provide for the following persons to be disqualified from being committee members:
an undischarged bankrupt or a person whose affairs are under insolvency laws;
In the case of bankruptcy or insolvency, the person will be disqualified until their bankruptcy becomes discharged or their affairs are no longer under insolvency laws (i.e. usually around 3 years). Where the disqualification is as a result of a conviction, the person will be disqualified for a period of 5 years from conviction, except where the conviction results in imprisonment, in which the case the period of 5 years will run from the time of the person’s release from custody.
The new law will also provide for a disqualified person to apply to the Commissioner for approval to accept an appointment or act as a member of a management committee of an incorporated association.
Under the new law, the disqualification for a “conviction” does not apply to a “spent conviction” because, under the Spent Convictions Act 1988 (WA), a spent conviction is not regarded as a conviction. Therefore, persons who have spent convictions CAN be committee members.
The committee is responsible for maintaining the documents and records of the association, but these are the property of the association. The new law requires any committee member who has possession of these documents when he or she ceases to be a committee member to ensure that they are delivered to a current member of the committee as soon as possible.
The Act recognises that there are persons who do not hold a formal committee position who nevertheless may be in a position to influence the management committee and as such should be recognised as officers for the purpose of the duties provisions in Part 4 Division 3. e.g. senior employees or past committee members who are still actively involved in the association and have the capacity to influence the decisions of the management committee.
The term ‘officer’ is defined as meaning any of the following-
Are the duties set out in the new law really new duties which wouldn’t otherwise apply if they had not been included in the new law? Are the duties the same as the duties imposed on company directors? If yes, why are they the same? If not, why not?
The purpose of including the duties in the new law is simply to codify the duties that already exist at common law. The Supreme Court of WA has noted that it is probable that committee members owe in the same measure, the common law and equitable duties which law and equity have imposed on company directors. This is why the duties in the new law are based on the Corporations Act 2001 (Cth).
The new law requires a committee member to disclose material personal interests.
Material personal interests are not defined in the new law, or in other legislation which uses this term. This allows the term to be applied flexibly to a range of circumstances.
The term has, however, been considered by the courts in the context of the Corporations Act 2001 (Cth). The courts have held that a personal interest is material if it has the capacity to influence the director’s decision making in relation to a particular matter.[1]
The determination of whether a personal interest is material involves careful judgment on the part of the committee member. The committee member will have to a) identify any personal interest and b) ask themselves whether their personal interest can influence their decision making in relation to a particular matter.
Material personal interests can be either pecuniary (financial) or non-pecuniary (non‑financial) interests.
Examples of material personal interests include:
[1] E.g. McGellin v Mount King Mining (1988) 144 FLR 299; Grand Enterprises Pty Ltd v Aurium Resources Ltd [2009] FCA 513
The new law includes a number of defences to assist a management committee member defend themselves against a claim of breach of duty. The purpose of the defences is to ensure that those officers who acted in ‘good faith’ i.e. had good, honest intentions, even if producing unfortunate results, are not penalised unnecessarily.
Discharging the duty of care and diligence (section 44) may include being prepared for meetings (including reading any papers and financial statements), understanding in broad terms the association’s financial position, following up on action items, keeping informed about the association’s operations and activities and asking questions. It would also include ensuring compliance with relevant laws affecting the association, such as, but not limited to, occupational safety and health, environmental and employment legislation.
The duty specifically includes a business judgment rule defence which would afford protection to committee members who may have made decisions that turned out to be “bad” but who otherwise were acting in good faith in exercising their judgment as an officer of the association if they rationally believe that the judgment is in the best interests of the association. Importantly, the new law provides that an officer’s belief that the judgment is in the best interests of the incorporated association is a rational one unless the belief is one that no reasonable person in the position of an officer would hold.
More generally, the new law provides a defence to a breach of duty under the Act or an equivalent duty at common law or in equity where the reasonableness of the reliance of an officer of an incorporated association on information or advice given to the officer arises (section 49).
It is considered appropriate to include a defence to a breach of duty where an officer has reasonably relied on information or professional or expert advice from certain persons (e.g. an employee, professional advisor, another officer of the association or a sub‑committee of the association) and the reliance was placed in good faith and after making independent assessment of the information, given the officer’s knowledge of the association and its structure and complexity.
In settling the duties and defence provisions, consideration has been given as to whether the legislation should provide an indemnity provision which would require every incorporated association to indemnify its office holders for liabilities they incur in good faith while performing their duties. The recently amended Victorian Act (Associations Incorporation Reform Act 2012) contains such a provision.
The limits on exemptions and indemnities in section 199A of the Corporations Act do not apply to incorporated associations. As a result, it is possible for incorporated associations to adopt rules which discharge committee members from liability for breaches of their duties to the association, and/or indemnify committee members against liability to third parties.
During the course of finalising the new law, the concept of an indemnity was discussed at stakeholder meetings, and while stakeholders were in favour of the concept, some concern was expressed at the possibility that this might place a significant cost impost on associations, particularly small to very small associations, as the requirement would likely necessitate the taking out of insurance (specifically directors and officers insurance).
While an indemnity would not mandate an association taking out directors and officers insurance, if an association was required to pay a committee member under an indemnity, and insurance was not available, the payment would need to come from the association’s own assets (including any cash assets and/or by liquidating assets, if necessary). The Government’s concern is that small associations without significant turnover may not have the financial substance, or the need, to take out D&O liability insurance.
As a result of stakeholder feedback, and after further consideration of the matter, it was decided that an indemnity should not be mandatory under the WA legislation. Rather, the decision whether to indemnify or not should be a matter for each individual association.
An association’s rules define the rights and duties of individual members and those of the members of the committee, who are elected to run the organisation on a day-to-day basis. It is for this reason that the rules, rather than the regulating legislation, should address the indemnity issue. The decision to grant an indemnity must be informed by the association’s objectives and an assessment of the risks that the association faces.
In order for a resolution to be a special resolution it must be passed at a general meeting of the incorporated association and be passed by the votes of not less than three‑fourths of the members of the association who cast a vote at the meeting (section 51).
Before the general meeting, written notice of the proposed special resolution and the time and place of the general meeting at which it is proposed to move the resolution must be given to each member of the association, as required under the rules. The notice must also set out the wording of the proposed special resolution. Importantly, if these requirements are not complied with the special resolution will have no effect.
The new law adopts a flexible approach as to the contact information that a member must provide to their association, as well as limits on what can be done with that information, in recognition of the strong public interest in the protection of personal privacy.
The new law will continue to restrict access to the register of members to members only.
Members may provide a post office box or email address for contact instead of a residential address for inclusion in the register of members (section 53).
A person must not use or disclose information in the register of members except for a purpose that is directly connected with the affairs of the association or that is related to the administration of the Act. A substantial fine will apply (section 57).
The new law expressly prohibits the use of information obtained from the register of members for advertising purposes unless this has been approved by the incorporated association (section 57).
Further, the rules of an incorporated association may require a member who wishes to copy the register of members to provide a statutory declaration setting out the purpose for which the application is made and declaring that it is connected with the affairs of the association (section 54).
Also, in relation to the register of associations and lodged documents that are held by the Commissioner, the new law also provides for the Commissioner to withhold a person’s personal information from a document to be inspected or copied, or an extract of the document, in circumstances prescribed by the regulations (section 162).
An incorporated association must also maintain a record of the names and addresses of the persons who are members of its management committee or hold other offices of the association provided for by its rules. An office holder’s ‘address’ can be a residential or business address; post office box address; or an email address.
While greater emphasis should be placed on maintaining the privacy of association members, this should not come at the expense of a member’s legal right to inspect or otherwise copy the register of members, as this is fundamental to the democratic operation of an incorporated association.
In order to balance the needs of both associations and their members, the new law will:
A statutory declaration (where required) confirms the ‘good intentions’ of an applicant member. Section 169(2) of the Criminal Code 1913 (WA) provides that it is a crime for a person to knowingly make a statement that is false in a material particular in a statutory declaration. Such a person is liable to imprisonment for 5 years.
The new law also provides that a person must not use or disclose information in the register of members except for a purpose that is connected with the affairs of the association or that is related to the administration of the Act. A substantial fine will apply
The purpose of this provision is to enable the Commissioner to use the power to direct that a general meeting be convened as a means in which to help resolve a dispute or matter concerning an association. This action could act as a ‘circuit breaker’ and allow the association to resolve an issue itself, rather than having to pursue the appointment of a statutory manager, which would only be considered as an option of last resort as it involves a higher level of intervention.
The Commissioner must be of the opinion that there is a dispute or matter affecting the proper conduct of the affairs of an incorporated association, and that the giving of a direction may assist in or towards the resolution of the dispute or matter (section 60).
An association is classified into one of three tiers, for the purposes of determining their financial reporting obligations under the new law.
Yes. The new law has been drafted with flexibility so that the thresholds can be changed by amendments to regulations to take into account the changing circumstances of associations.
Section 65 of the new law enables an incorporated association, within three months of the end of a financial year, to apply to the Commissioner for a declaration that the association is a tier 1 or tier 2 association for the purposes of a particular financial year. This is to allow for unusual or non‑recurring circumstances that may have caused an association’s revenue to temporarily exceed the tier 1 or tier 2 threshold.
The new law allows the Commissioner to take a flexible approach to ensure than an unnecessary compliance burden is not placed on incorporated associations. For example, if the association has been a tier 1 association in the past, and is likely to return to being a tier 1 association in the future, the Commissioner may make the declaration.
The incorporated association should provide information to show that the increase in revenue for the financial year is temporary and not expected to continue for future financial years. For example:
The current Act requires associations to prepare accounts showing the financial position of the association and present these to members at the annual general meeting, but does not specify the form that these accounts must take. The new law is more specific about the information that must be provided to members:
The new law allows tier 1 associations to use the cash or accrual methods of accounting in preparing their financial statements.
A tier 1 association using the cash method of accounting must prepare a:
A tier 1 association using the accrual method of accounting must prepare a:
The financial statements need not be reviewed or audited unless members make a resolution to that effect or if the Commissioner directs a review or audited.
The new law requires tier 2 and tier 3 associations to prepare financial statements that comply with Australian accounting standards.
Pursuant to the accounting standards, the financial statements must include a statement of:
These statements, together with the notes to the statements and the management committee’s declaration (as to solvency and compliance with Part 5) together form the financial report of a tier 2 or tier 3 association.
Tier 2 and tier 3 associations must have their financial reports reviewed and audited respectively.
The meaning of financial statements depends on whether an association is a:
A tier 1 association must prepare financial statements (but not a financial report). Section 68(2) provides that the financial statements may be prepared using either the cash or accrual methods of accounting.
Financial statements using the cash method of accounting must contain a:
Financial statements using the accrual method of accounting must contain a:
The statements must give a true and fair view of the financial position and performance of the association, but are not required to comply with the Australian accounting standards.
The new law requires tier 2 and tier 3 associations to prepare financial statements that give a true and fair view of the financial position and performance of the association and comply with the Australian accounting standards.
Pursuant to the accounting standards, the financial statements must include a statement of :
The accounting standards[2] require accrual accounting, so the financial statements required for tier 2 and tier 3 associations must be based on accrual accounting.
[2] AASB 101 Presentation of Financial Statements (para 27).
Only tier 2 and tier 3 associations prepare a financial report. Section 63 provides that a financial report includes:
It is up to each incorporation association to determine who should prepare their financial statements. There are no minimum qualifications with the respect to the preparation of financial statements, only for the review and audit of financial statements.
Given that a tier 1 association will be allowed to use cash or accrual methods of accounting to prepare basic financial statements it is possible that these could be prepared by someone without a professional accounting qualification, provided they are able to undertake basic bookkeeping.
In contrast, tier 2 or tier 3 associations must prepare financial reports that comply with accounting standards. This would require someone who has professional accounting experience in financial reporting. This person could be, but is not required to be, a member of a professional accounting body.
The regulations will provide that a review must be undertaken by a member of a professional accounting body and an audit must be undertaken by a member of a professional accounting body holding a public practice certificate.
The accounting standards are the standards issued by the Australian Accounting Standards Board (“AASB”), which is an Australian Government agency under the Australian Securities and Investments Commission Act 2001 (Cth). One of the key functions of the AASB is to make accounting standards under section 334 of the Corporations Act 2001 (Cth).
In order to minimise the reporting burden on tier 1 associations (who generally have more simplified affairs, generate relatively small amounts of revenue and whose members are in a better position to monitor its affairs), tier 1 associations may prepare basic financial statements using either the cash or accrual methods of accounting.
If tier 1 associations were required to comply with accounting standards, they would not be able to use cash accounting, because the accounting standards require the accrual accounting basis of accounting to be used in the preparation of financial statements.[3]
[3] Except for the preparation of cash flow information.
The management committee’s declaration is a declaration by the management committee stating whether, in the management committee’s opinion:
The declaration must be made in accordance with a resolution of the management committee, and be dated and signed by 2 members of the management committee who are authorised by the management committee to make the declaration.
A review provides a negative (limited) form of assurance about the financial statements i.e. the reviewer’s opinion is expressed in the negative - that nothing has come to the auditor’s attention to suggest that the financial reports have not been prepared in accordance with the applicable reporting framework – in this case being the Act which requires the reports to be true and fair and to comply with accounting standards.
An audit is a positive (reasonable) form of assurance on whether the financial report is prepared, in all material respects, with the applicable financial reporting framework i.e. it is expressed in the positive.
The difference between a review and an audit is in the scope of the work performed. There is more work undertaken in an audit because of the higher level of assurance required.
The qualifications will be specified in the Regulations. It is intended that the minimum qualification for undertaking a review is membership of a professional accounting body and, for an audit, membership of a professional accounting body and a public practice certificate.
Note that, unlike the Corporations Act and the Australian Charities and Not-for-profits Commission Act, the auditor need not be a registered company auditor, as there is a known shortage of registered company auditors in WA, particularly in rural areas.
The Commissioner may direct an association to have the whole or part of its financial records audited and an auditor’s report lodged with the Commissioner. This is a special audit.
The auditor’s report must state whether the incorporated association’s financial records have been properly kept and give a true and fair view of the association’s affairs.
Yes. If you have lodged financial reports with the ACNC in compliance with the ACNC Act and regulations, these will be in a form suitable for presentation to members at the annual general meeting.
The accounting and financial reporting requirements will apply from the first financial year of an association that commences on or after 1 July 2016. For example, if your association’s financial year runs from 1 July to 30 June, your association must comply with the new financial reporting requirements from 1 July 2016. However, if your association’s financial year runs from 1 January to 31 December, your association will be required to comply with the new financial reporting requirements from 1 January 2017.
No. Associations will continue to report to their members only, rather than lodge annual financial statements with the Commissioner. However, the Commissioner can intervene on an exceptions basis e.g. the Commissioner may require documents relating to the financial affairs of an association to be produced, and may also require a special audit to be carried out of the whole or a part of an association’s financial records.
The regulations will also require incorporated associations to lodge basic information in the form of a short annual information statement so that the Commissioner can be satisfied that an association remains eligible for incorporation and intends to continue operating as an association. Such information, which can be submitted online, will include such matters as whether the association is holding annual general meetings and its revenue for the financial year.
Yes.
The purpose of the new law is to provide for the registration of incorporated associations that are constituted for small-scale and non-profit activities.
The most common reason incorporated associations request a transfer of incorporation is because the size or nature or the association’s activities mean the association may no longer fall within the objects of the Act. For example, if the association intends to engage in commercial activities.
The transfer of incorporation provisions acknowledge that, while an association may wish to move its incorporation to another legislative scheme, the association will want to continue operating - it is just the legislative scheme under which it operates that changes. This is especially the case where an incorporated association legitimately ‘outgrows’ the associations model (which is not-for-profit based).
A transfer of incorporation involves an incorporated association transferring to a different legislative scheme eg. Corporations Act 2001. Under a transfer of incorporation, the overall identity of the association is unchanged as a result of the transfer - the objects/purposes remain the same, the members remain the same, and in many cases the committee members remain the same. The entity continues to operate. It just does so under a different regulatory scheme.
At the time the current Act was passed in 1987, there was no provision for a transfer of incorporation to a different legislative scheme (the Corporations Act 2001 did not exist). Associations relied on a Commissioner‑directed transfer of undertaking under the Act. However, in 2010 transfer of incorporation provisions were introduced, and as such, the transfer of undertaking provisions in the current Act are no longer required as the Act’s transfer of incorporation provisions are sufficient to deal with future transfer requests.
Incorporated associations wishing to change legislative schemes can now apply tailor‑made legislative provisions to their situation, rather than having to request the Commissioner exercise the discretion under the Act to direct the incorporated association’s undertaking be transferred to another body corporate.
It should be noted that the removal of the transfer of undertaking provisions (and hence external regulation of a transfer of an association’s undertaking) will not impact on the ability of an incorporated association to enter into contracts or acquire, hold, deal with, and dispose of any real or personal property in pursuing its objects or purposes. That is, an association will continue to have the capacity to transfer part or whole of its undertaking without having to rely on the Act. However, associations will need to take into account the potential tax and other legal and financial issues in making that decision e.g. transfer duty.
Part 7 of the new law enables two or more associations that wish to amalgamate to apply to the Commissioner for approval to incorporate the new body.
The proposed amalgamation must be consistent with the rules of each existing association and cannot be made unless-
On the appointment of a statutory manager the members of the management committee are suspended from office and the statutory manager has the functions of the management committee, including the committee’s power of delegation (section 111).
Except as provided by section 114 (i.e. by order of the State Administrative Tribunal or by appointment of the Commissioner as part of the revocation of the appointment of the statutory manager), a member of the management committee of an incorporated association cannot be appointed or elected so long as the statutory manager is in office in respect of the association.
The appointment of a statutory manager will be an option of last resort where the incorporated association is not functioning effectively in accordance with its functions or purposes or the Act, and the appointment of a statutory manager is likely to improve the functioning of, and is in the best interests of, the association.
As such, the use of a temporary statutory manager is linked to evidence of serious dysfunction in the operations of an association. Intervention in this context is used as a ‘last resort’ alternative to having the incorporated association wound up. As an option of last resort, it will only be used in a minority of cases where it is believed there is the potential to improve the functioning of an otherwise dysfunctional association.
The State Administrative Tribunal may, on application by the Commissioner, the incorporated association or the statutory manager, vary or revoke an order appointing a statutory manager. In considering the application, the SAT may give any directions it considers necessary or expedient.
The new law provides options in response to instances of management committee dysfunction that are not sufficiently serious to justify the appointment of a statutory manager, such as:
The appointment of a statutory manager continues in force until it is revoked by the State Administrative Tribunal or if any of the following occurs:
Before revoking the appointment of a statutory manager, the SAT must:
Members of the management committee who are elected or appointed in accordance with the above procedures take office on the revocation of the statutory manager’s appointment, and in the case of members appointed by the Commissioner, subject to section 118 (Additional powers of Commissioner) they hold office until the next AGM of the association after the revocation of that appointment.
The expenses of and incidental to the conduct of an association’s affairs by a statutory manager are payable from the association’s own funds. This is considered appropriate given the nature of associations as member-driven and member-focused entities, which operate for the benefit of members.
The rate of remuneration is either certified by the Commissioner (where the statutory manager is a public service employee) or determined by the State Administrative Tribunal (where the statutory manager is not a public service employee).
Voluntary administration is a process designed to quickly resolve the future business and affairs of an insolvent or near-insolvent association. During the period of voluntary administration, the association is placed under the control of an independent person who carries on the association’s operations, investigates the association’s affairs and reports to the creditors on each of the available options:
During the period of administration, the association is protected from actions by creditors. This gives the administrator time to try to work out a way to save the association or, if this is not possible, to administer the association’s affairs in a way that results in a better return for creditors than would result from an immediate winding up. However, because the period of administration is so short, creditors are not precluded for any substantial period from taking action against the association if a resolution of the association’s affairs is not viable.
Given that winding up is provided for in the new law, voluntary administration would provide an alternative to winding up for incorporated associations that are otherwise economically sound (in terms of being able to generate a profit on a sustained basis) to resolve temporary insolvency or financial difficulties.
A winding up is a more formal process involving a liquidator. The association can decide which process is more appropriate, however, if the association chooses a cancellation of incorporation, the Commissioner may refuse to cancel its incorporation where the Commissioner is of the opinion that a formal winding up is appropriate. The grounds for forming this opinion may include the scale or nature of the association’s activities, the value or nature of its property, or the extent or nature of its dealings with the public.
A committee member has a duty to prevent an association incurring debts while it is insolvent or that cause it to become insolvent.
A committee member breaches this duty if:
An association is insolvent if it is unable to pay its debts as and when they fall due.
A committee member should ensure that the association keeps adequate financial records that correctly record and explain transactions and the association’s financial position and performance. The committee member should keep themselves regularly aware of the association’s financial position and performance. This may include seeking expert advice.
Under the financial reporting provisions (see section 63(3)(a)) the committee of a tier 2 or tier 3 association is required to make a declaration as to the solvency of the association.
This is a declaration as to solvency at a particular point in time (being the date of the declaration) which is made annually.
In order to avoid breaching the duty with respect to the incurring of debt, the committee has an ongoing obligation to monitor the association’s solvency.
Insolvent trading is a serious matter which attracts a penalty of up to $5000. However, unlike the Corporations Act, under the new law the committee members are not personally liable for the debt.
There are a number of defences available:
Where cancellation is initiated by the association, the new law provides several different options for cancellation to allow an association to choose the method best suited to its circumstances and needs.
Any incorporated association that is solvent, and wishes to cease its activities, may pass a special resolution to voluntarily wind up. The winding up provisions of the Corporations Act will apply to the process, which will be supervised by a liquidator. Formal winding up will be essential where an association has outstanding commercial or legal liabilities to be resolved, and may also be the preferred option for an association with significant assets or more complex affairs.
As an alternative, an association that has assets, but believes that its affairs can be effectively finalised by the management committee without formal winding up can apply to the Commissioner for cancellation and lodge a proposed plan for distribution of its assets. The distribution plan must comply with the requirements of the new law and the rules of the association, and must also be approved by the Commissioner.
A third, simplified option is available for an association which has no assets or liabilities. An application can be made to the Commissioner providing a copy of the special resolution of members approving the application, together with a resolution of the management committee confirming that the association has no remaining assets or liabilities.
In addition to the three options available for voluntary cancellation, cancellation may be initiated by the Commissioner in some circumstances.
The Commissioner can refuse to approve a distribution plan if the distribution is not in accordance with the rules of the incorporated association, or with the requirement of section 24 of the new law that the distribution must be to a not-for-profit entity.
The plan may also be refused if the Commissioner is of the view that the distribution should not take place because there is potential for a claim against the assets by another party. This concern may be as a result of a request from a member of the public to refuse the application, or a compliance activity that is in progress.
If a distribution plan is refused, and the incorporated association is of the view that the reasons for refusal can be addressed, the association can address those matters, have a new plan approved by members, and resubmit the application.
If the incorporated association is not able to address the issues, it will need to reconsider its application for cancellation, including whether it should instead elect to finalise its affairs by voluntary winding up, or make a request under section 169 to the State Administrative Tribunal to have the Commissioner’s decision reviewed.
When an incorporated association with surplus property applies for cancellation, and its distribution plan is approved by the Commissioner, the Commissioner will fix a time limit for implementation of the distribution plan by the association.
Once the distribution of assets is complete, the incorporated association will prepare, and lodge with the Commissioner, a certificate confirming that all surplus property has been distributed in accordance with the plan.
On receipt of the certificate, the Commissioner will notify the incorporated association in writing of its cancellation, and of the date on which the cancellation will take effect. Notice of the cancellation may also be published in the Gazette.
Section 144 of the new law provides a list of grounds on which cancellation can be initiated by the Commissioner. They include situations where the incorporated association is not eligible to be incorporated; it has ceased operating without being wound up or cancelled; or it has failed to comply with a direction of the Commissioner or remedy a breach of the Act.
Before cancelling an incorporated association, the Commissioner will be required to provide notification to the association of the intention to cancel, allowing 60 days for the association to respond and demonstrate that the grounds for cancellation do not apply. Where the Commissioner decides that the cancellation should proceed, the association will have a right to apply to the State Administrative Tribunal to have the Commissioner’s decision reviewed.
Section 156 of the new law provides that regulations may be made requiring associations to provide information to the Commissioner.
The regulations will require incorporated associations to lodge basic information in the form of a short annual information statement so that the Commissioner can be satisfied that an association remains eligible for incorporation, has provided current contact information and intends to continue operating as an association. Associations will have the option of submitting the information online through the Associationsonline portal.
The Commissioner will keep a Register of Incorporated Associations, which will contain basic details of the status of incorporation of the association and its contact address. Members of the public will have access to the Register through the Associationsonline portal and will be able to obtain an extract of information from the Register.
The Commissioner will also keep copies of the rules of each association (including any amendments) and all documents required by the Act to be lodged with the Commissioner. Members of the public will be able to purchase copies of these documents. They will also be able to purchase a copy of the duplicate certificate of incorporation of an association held by the Commissioner.
Section 169 of the new law provides a list of 18 decisions of the Commissioner that are ‘reviewable decisions’ by the State Administrative Tribunal (the SAT) and can be challenged by an affected person. The section also describes the person, or class of persons, that will be considered to be an affected person in relation to each reviewable decision.
The following decisions of the Commissioner are reviewable by the SAT:
Under the new law the powers available to the Commissioner to undertake investigations will be those in Part 6 (Divisions 1-4) of the Fair Trading Act 2010.
The Commissioner will be empowered to make any investigation or inquiry thought necessary for carrying out the functions of the Commissioner under the new law, and authorised investigators will be able to:
Historically, the compulsory powers available to investigators under the current Act have been used very sparingly, a reflection of the fact that most incorporated associations are small volunteer-run organisations. It is anticipated that this will continue to be the case in relation to the compulsory powers provided to investigators by these provisions. However, in light of the potential significant damage to members and the public that may be caused where larger associations are mismanaged, there is a need for sufficient powers to be included in the new law to enable the Commissioner to respond to those situations.
All incorporated associations will be required to include in their Rules procedures for dealing with disputes between members of the association or disputes between members and the association.
These provisions should assist associations to resolve disputes without outside intervention, which is in line with the policy intention that associations should, to the greatest extent possible, be managed by their members.
Where a dispute cannot be resolved internally, the association, or a member of the association involved in the dispute, may apply to the State Administrative Tribunal for a determination. The SAT will be able to refer the matter for mediation, or make appropriate orders.
There will also be powers under the new law for the Commissioner to convene a general meeting of the association or apply to the SAT for the appointment of a statutory manager where a serious dysfunction within the association has given rise to a dispute that could be resolved by that action.
To allow time for an existing incorporated association to ensure that its rules comply with the new law, the general requirements for content of rules (section 22) in the new law will not apply to an existing association until the expiry of a transition period of 3 years after the new law commences (1 July 2016). This should give existing incorporated associations plenty of time in which to ensure their rules comply with the new law.
If an association has not adopted compliant rules by the end of the transition period, the model rules apply as the rules of the association to the extent that the association’s rules do not address a matter referred to in Schedule 1 Division 1, or comply with any applicable requirement under Schedule 1 Division 2.
There is a mistaken view that people who volunteer their time in not-for-profit community organisations do not have to comply with any legal duties because they are ‘volunteering’.
A committee member has been elected (or invited on to the committee) by the incorporated association’s members and are trusted to make decisions on behalf of the association. Effectively, the members are entrusting the steering of the association to the committee members for the period they are on the committee. In return, by becoming a committee member they agree to act in the best interests of the association and are accountable for the decisions they make. Just like they have to comply with the law as a private citizen, committee members also have to comply with the law in relation to incorporated associations.
The duties in the new law set the basic standards of acceptable conduct. A breach of duty is a rare event and will usually be accompanied by a significant degree of deliberate wrongdoing or gross negligence. If a person is sufficiently committed to the role of a committee member and acts in good faith with integrity, diligence, honesty and accountability, they should not incur any liability.
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