New Associations Law

New Associations Law

QUESTIONS AND ANSWERS

A12935643

TABLE OF CONTENTS

PART 2 - INCORPORATION OF ASSOCIATION

The new law no longer includes the permitted trading test. Why has the restriction on trading been removed?

Will the removal of the restriction on trading allow commercial ‘for-profit’ businesses to become incorporated associations?

The Australian Tax Office website indicates that not-for-profit organisations qualify for certain tax benefits and concessions, will these continue to apply to incorporated associations which have no restriction on trading?

The new law includes a list of approved purposes which an association must be formed and carried on for in order to be eligible for incorporation under the Act. What is the purpose of including approved purposes?

The new law provides that an association is not eligible to be incorporated under the Act if it is formed or carried on for the purpose of securing pecuniary profit for its members from its transactions. What does ‘pecuniary profit’ mean, and what sort of situations could this encompass?

Will the legal liability of office bearers for liabilities incurred by an association change with the new law?

PART 3 - RULES

The new law provides that an association’s rules must either be the model rules prescribed by the Regulations or its own rules. What is the reason for this? Why can’t an association have a combination of the model rules and its own rules?

Has the new law changed, or introduced new requirements regarding the matters that must be provided for in the rules of an incorporated association that are detailed in Schedule 1 of the Act?

How will changes to the model rules over time apply to those associations that adopt the model rules?

How long will existing associations have in order to make sure their rules/constitution comply with the new law?

Where can the surplus property of an incorporated association go when it winds up or its incorporation is cancelled?

PART 4 - MANAGEMENT

The new law disqualifies some people from being on the management committee of an incorporated association. What types of people are disqualified?

If a prospective committee member has a spent conviction, does that count as a ‘conviction’ which will then disqualify that person from being on the management committee of an association?

What obligations do committee members have when they leave the management committee?

What is the purpose of defining the term ‘officer’ so broadly? Who is an ‘officer’ for the purposes of the duties that apply?

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?

What is a “material personal interest”?

What provisions are included in the new law to assist a management committee member defend themselves against a claim of breach of duty?

Will the new law follow the Victorian model so that both officeholders and directors will be personally liable for loss/damage they cause but entitled to an indemnity from the association if they acted in good faith?

What are the requirements in the new law relating to the passing of a special resolution?

How will the new law protect the privacy of association members? Will association members still be required to provide their residential address?

What provisions are included in the new law regarding a member inspecting or copying the register of members? Will an association be able to refuse a request to inspect or copy the register of members? Why or why not?

Why does the new law include a power for the Commissioner to direct that a general meeting be convened?

PART 5 - FINANCIAL RECORDS, REPORTING AND ACCOUNTABILITY

What are the three tiers?

Can the thresholds be changed?

What if there is a one-off increase in revenue in a year which results in the association moving to a higher tier where the reporting requirements are higher?

What kind of information would an association need to provide to the Commissioner in applying for a declaration that it is a tier 1 or tier 2 association?

What is the difference between the financial reporting requirements under the new law and the current Act?

What is the difference between financial statements and a financial report for the purposes of the new law?

Will we have to start using a professional accountant to prepare our financial statements?

What are the accounting standards?

Why doesn’t a tier 1 association have to comply with accounting standards?

What is the management committee’s declaration?

What is the difference between a review and an audit?

What are the qualifications of a reviewer and auditor under the new law?

What is a special audit?

Can our association use the same financial reports that we lodge with the ACNC for the purposes of complying with the new law?

When will existing incorporated associations have to comply with the financial reporting requirements in the new law?

Given the new requirements, will associations have to start lodging financial statements with the Commissioner?

PART 6 – TRANSFER OF INCORPORATION

Does the new law enable an association, who may have ‘outgrown’ the associations model to transfer its incorporation to another legislative scheme?

Why have the Act’s transfer of undertaking provisions been removed from the new law?

PART 7 - AMALGAMATION

What is the process that must be followed if two or more associations want to amalgamate?

PART 8 – STATUTORY MANAGEMENT OF INCORPORATED ASSOCIATION

Part 8 of the new law provides for the Commissioner to apply to the State Administrative Tribunal (the SAT) for a statutory manager to be appointed to an association. What happens when a statutory manager is appointed?

When would a statutory manager be appointed to an association? Is this a long-term or a short-term initiative?

What is the process for varying or revoking an order appointing a statutory manager?

What other dispute resolution processes are included in the new law?

When can the appointment of a statutory manager be revoked?

Who pays for the expenses and costs of a statutory manager?

PART 9 – ADMINISTRATION AND WINDING UP

What is a voluntary administration under the new law and when would it be used?

How is a voluntary winding up different to a cancellation of incorporation where there is surplus property involved? Who/what makes the decision as to which process an association must follow?

What does the duty of committee members with respect to the incurring of debt involve?

What does “insolvent” mean?

How can a committee member ensure that they fulfil their duty with respect to the incurring of debt?

What are the consequences of a committee member being found guilty of insolvent trading - Will they be liable for the debt incurred by the association?

What defences are available for insolvent trading?

PART 10 – CANCELLATION OF INCORPORATION

The new law includes a number of different types of cancellation of incorporation. What is the difference between each type?

In what circumstances can the Commissioner refuse to approve a distribution plan? What can an association do if this happens?

At what point does a cancellation of incorporation occur/take effect where an association has surplus property to be distributed?

In what circumstances would the Commissioner initiate the cancellation of an association?

PART 12 - ADMINISTRATION

Does an incorporated association have any ongoing obligation to provide information to the Commissioner?

What information and records are to be kept by the Commissioner and can the public access these?

PART 13 - REVIEW

Who can challenge a decision of the Commissioner and how?

PART 14 – INVESTIGATION AND ENFORCEMENT

What are the Commissioner’s powers in terms of investigating associations?

PART 15 - MISCELLANEOUS

What process is included in the new law for resolving disputes between members of an incorporated association or between a member and an association?

PART 16 – REPEAL OF ASSOCIATIONS INCORPORATION ACT AND TRANSITIONAL PROVISIONS

What are the consequences of an association not making its rules compliant with the new law within the 3-year transition period?

PENALTIES GENERALLY

Why should volunteer committee members be penalised for breaching the Act (e.g. for breach of duties) when they are not paid to perform their duties and give of their own free time?

PART 2 - INCORPORATION OF ASSOCIATION

The new lawno longer includes the permitted trading test. Why has the restriction on trading been removed?

The concept of ‘permitted trading’ fails to acknowledge the fact that the growth in trading activity in the notforprofit sector is largely as a result of growing pressure on notforprofits to be financially selfsustainable, combined with the growing reliance on the notforprofit 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 notforprofit 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.

Will the removal of the restriction on trading allow commercial ‘for-profit’ businesses to become incorporated 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 ‘notforprofit’ 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.

The Australian Tax Office website indicates that not-for-profit organisations qualify for certain tax benefits and concessions, will these continue to apply to incorporated associations which have no restriction on trading?

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 notforprofit organisation as being the prohibition on securing pecuniary profit for members. This prohibition remains in the new law.

The new law includes a list of approved purposes which an association must be formed and carried on for in order to be eligible for incorporation under the Act. What is the purpose of including approved purposes?

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 new law provides that an association is not eligible to be incorporated under the Act if it is formed or carried on for the purpose of securing pecuniary profit for its members from its transactions. What does ‘pecuniary profit’ mean, and what sort of situations could this encompass?

The term ‘pecuniary profit’ is associated with financial profit or gain.

The purpose of these provisions is to preserve the notforprofit status of incorporated associations. A notfor-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 lawalso 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.

Will the legal liability of office bearers for liabilities incurred by an association change with the new law?

No, it will not change. Section19 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.

PART 3 - RULES

The new lawprovides that an association’s rules must either be the model rules prescribed by the Regulations or its own rules. What is the reason for this? Why can’t an association have a combination of the model rules and its own rules?

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”.

Has the new law changed, or introduced new requirements regarding the matters that must be provided for in the rules of an incorporated associationthat are detailed in Schedule 1 of the Act?

There are a number of mattersthat 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 circumstances (if any) in which payment may be made to a member of the management committee out of the funds of the association (Item 6(g));
• the notification of members or classes of members of general meetings of the incorporated association and their rights to attend and vote at those meetings (Item 8);
• the number of members, expressed as a percentage of membership, who may at any time require that a general meeting of the incorporated association be convened (Item 10);
• The day in each year on which the financial year of the incorporated association commences (Item 12); and
• The manner in which surplus property of the incorporated association must be distributed or dealt with if the association is wound up or its incorporation is cancelled (Item 19).

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.