Incorporated Association Reform
In late November 2019 the Associations Incorporation and Other Legislation Amendment Bill 2019 was introduced into the Queensland Parliament. It will apply to some 22,000 incorporated association as well as some 3,200 ACNC charities that are also registered under the Queensland Collections Act for fundraising purposes. It will finally relieve Queensland charities of duplicated annual financial reporting under the Associations Incorporation Act (AIA) and also the Collections Act. Plans are for the changes to be implemented before the reporting deadlines for of 2020-21 reporting period. There are also a number of important reforms for incorporated associations including new governance standards and obligations for office holders.
NOTE: FREE Upcoming ‘Honest Conversation’ webinar where you can ask questions about the amendments directly
The Associations Incorporation Act has not undergone substantial reform since 2007. A major review of the Act commenced in 2003, and culminated in the 2006-2007 reforms to auditing requirements and mandatory insurance. The basis for these reforms was the recognition that ‘one size does not fit all’. It was flagged at the time that further work was being carried out on the issues of eligibility; types of associations; dispute resolution and conflicts of interest, as these were considered complex matters requiring further policy development.
In 2010, the Queensland Government conducted consultation on improving the Associations Incorporation Regulation 1999. In November 2011, Parliament enacted amendments to the Act, to allow for a seamless transition to a company structure for those incorporated associations wishing to become a national corporate ASC body. In 2012 a further policy paper and consultation was held, but a change of government disrupted the implementation of any recommendations. With the ACNC being created on 3 December, 2012 there was the opportunity to remove duplicative financial reporting which some States facilitated, but faced a number of hurdles in Queensland.
In September 2014 the government again consulted on reforms to AIA with stakeholders, but it was five years before a Bill was presented to Parliament.
Financial Reporting Streamlining
The Bill amends the financial reporting requirement provisions under both the Associations Incorporation Act and the Collections Act to allow for ACNC-registered entities to be exempt from the State-based reporting requirements. These ACNC registered associations represent almost 17 per cent of all associations incorporated in Queensland.
A power will be given to the OFT to direct an association or fundraising entity to be audited and statements filed and access financial information in respect of exempted entities, if thought prudent.
Small associations usually regarded as within the “small” or “medium” category for a financial year, can seek permission to remain unaudited if an unusual payment (an insurance payout or grant payment) would otherwise result in it reporting as a larger association (incurring audit costs).
The AIA did not spell out the duties of the management committee officers and the common law applied. The proposal is to specifically list the duties of officers in the legislation. Although not identical to the ACNC duties, they follow the broad outline of those duties. Officers will be required to:
• exercise their powers and discharge their duties with care and diligence, in good faith in the best interests of the association, and for a proper purpose;
• not improperly use their position to gain, directly or indirectly, a pecuniary benefit or material advantage for themselves or another person; and
• not improperly use information obtained from their position to gain, directly or indirectly, a pecuniary benefit or material advantage for themselves or another person.
Management committee members must:
• disclose material personal interests;
• disclose remuneration or benefits paid/given to management committee members and senior staff members, and their relatives; and
• prevent insolvent trading of the association.
Disclosure of benefits and remuneration will occur at the AGM for all management committee members, senior staff and close relatives to those persons.
There are penalties under the proposed legislation for breaches of duty and non-disclosure of conflicts of interest and benefits.
There are defences of making informed business judgements and relying on reasonable and informed advice.
Internal disputes can severely hamper the life of incorporated associations and if judicial intervention is required, then the AIA mandates that this is by the Supreme Court. Such proceedings are usually expensive with significant delays and often cause internal disputes to fester for years and wrongs go unchecked because of the cost of doing so. The Government has not chosen a more suitable venue such as QCAT or the Magistrates Court. It seeks to introduce a requirement for the rules of an association to provide a grievance procedure and require parties to a dispute to attempt to resolve the matter internally before seeking judicial adjudication.
A new provision will require the rules of an incorporated association to set out a grievance procedure, consistent with the principles of the provision, for dealing with any dispute under the rules between a member and another member, a member and the management committee, or a member and the association.
If the rules of the association do not set out a grievance procedure that is consistent with the prescribed principles in the new provision, then the rules of the association are taken to include the model rules providing the grievance procedure. An incorporated association will not be able to exclude the operation of this provision which is possible for other rules.
The prescribed principles for the grievance procedure include:
• The procedure must include mediation;
• It may (not must) provide for a person to decide the outcome of the dispute;
• Such mediator or other adjudicator must be unbiased;
• A member may appoint any person to act their behalf;
• Each party to the dispute is to be given an opportunity to be heard on the dispute; and
• The association must not take disciplinary action against the member and their representative until the grievance procedure has been completed.
As it is unlikely that the vast majority of associations will have dispute resolution clauses that cover off on all of the principles, the new legislative grievance procedure will prevail. Associations that wish to have their own grievance procedure will have to consider amending their rules to cater for the mandated principles as well as their own.
The Bill also takes the opportunity to address a number of issues such as:
• Modernising the process for OFT investigations of incorporated associations;
• Simplified mechanism for voluntary cancellation of incorporation;
• Provisions to allow for a formalised process to appoint a voluntary administrator;
• Removing the requirement for an incorporated association to use a common seal; and
• The ability for an association to conduct general meetings using communications technology without the use of such technology being addressed in the association’s rules.
This is one reforming Bill that all incorporated associations should understand. For those registered with the ACNC there will be less annual financial report filing with the OFT, and this to be welcomed.
The other amendments to impose specific duties on officers with penalties and in relation to imposed internal dispute resolution clause will require all officers to pay attention to possible implications. Committee procedures should be checked to ensure that there is a standing declaration of conflicts of interest and at the beginning of each meeting specific conflicts are identified and dealt with. A special watch should be established when the association is approaching insolvency to ensure duties are not breached.
It is highly advisable to review your association’s rules once the Act comes into force to check for inconsistencies and provide for a complying grievance procedure.
Thanks Emeritus Professor Myles McGregor Lowndes for this article.
The Office of Fair Trading (OFT) has published useful information for associations and nonprofits.
Incorporated associations are advised that in the current circumstances, OFT will allow a grace period to an association of a further 6 months to hold its AGM, if required, without the need for the association to make a written application. This will enable associations to comply with their obligations in the Associations Incorporation Act 1981, which requires an association’s annual general meeting (AGM) to be held within 6 months of the end of their financial year.
Further information is available on the OFT website.
Australian Charities and Not-for-profits Commission
The ACNC has published a dedicated webpage to assist charities affected by COVID-19.
The ACNC advice telephone line will be closed until further notice but enquiries can be submitted via the online enquiry form.
The ACNC has granted a blanket extension for Annual Information Statements due between 12 March 2020 and 30 August 2020, extending the due date until 31 August 2020. This includes bushfire-affected charities that had previously been granted an AIS submission extension to May.
Visit the ACNC – Charity operations and COVID-19 page for information about Federal Government support for charities, procedural and governance matters and other resources.
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