The long journey to incorporated association reform – don’t get lost

Background

In 2020, the Parliament of Queensland passed the Associations Incorporation and Other Legislation Amendment Act 2020 (2020 Amendment Act). The 2020 Amendment Act introduced changes to the Associations Incorporation Act 1981 and the Collections Act 1966.

Some amendments were not in force while consultations were to take place to develop regulations to complement that Act. Due to COVID-19 the consultations were delayed for several years, until 23 June 2023 when the Associations Incorporation and Other Legislation Amendment Regulation 2023 (2023 Regulations) was passed.

Because of these delays and to allow those affected to prepare for the changes, there is a progressive implementation of the new amendments and regulations. As this can be confusing, we have chronologically set out the new provisions as they came or will come into operation.

Many of the reforms will require a review of the association’s policies and perhaps changes to its rules in some cases. There are also reforms to the financial reporting of associations to both the government and members.

22 June 2020

The 2020 Amendment Act had a number of impacts immediately on 22 June 2020. The more important changes are:

Disclosure of Committee Member Conflicts of Interest

The new section 70B provides that a member of the management committee of an incorporated association who has a material personal interest in a matter being considered at a management committee meeting must, as soon as the member becomes aware of the interest, disclose the nature and extent of the interest to the management committee. The member must also disclose the nature and extent of the material personal interest at the next general meeting of the association.

Management committee members must ensure that relevant details of a material personal interest are recorded in the minutes of the meeting at which they were disclosed and are provided to a member of the association on request.

The new section 70C provides that a member of the management committee of an incorporated association who has a material personal interest in a matter being considered at a management committee meeting must not be present while the matter is being considered or vote on the matter, unless the management committee determines otherwise.

Impact

Review the policy and process of the management committee and as well as the adequacy of the association’s conflict of interest register.  It may be appropriate to conduct education about these provisions for committee members as well as inclusion in the committee member induction manual.  Note that this reform may cause a major departure from past practices, particularly the disclosure at the association’s general meeting.  Such conflicts of interest are often a cause of internal disagreement and dispute.

Statutory Committee Member Duties

There is a raft of new provisions that place into statute the legal duties and responsibilities of management committee members and officers. The new section 70E provides that an officer of an incorporated association must exercise their powers and discharge their duties with a degree of care and diligence that a reasonable person in the same position would exercise.  An officer of an incorporated association who makes a business judgement is considered to have acted with the required degree of care and diligence if the officer:

• makes the judgement in good faith for a proper purpose;
• does not have a material personal interest in the subject matter of the judgement;
• is informed about the subject matter of the judgement to the extent the officer reasonably believes to be appropriate; and
• reasonably believes the judgement is in the best interests of the association.

The new section 70F requires an officer of an incorporated association to exercise their powers and discharge their duties in good faith in the best interests of the association and for a proper purpose.

The new section 70G provides that an officer of an incorporated association must not improperly use their position to gain a pecuniary benefit or material advantage for themselves or another person, or cause detriment to the association.

The new section 70H provides that a person who obtains information because the person is, or has been, an officer of an incorporated association must not improperly use that information to gain a pecuniary benefit or material advantage for themselves or another person; or cause detriment to the association.

The new section 70I provides that a person who was a management committee member of an incorporated association or took part in the management of an incorporated association at the time the association incurred a debt commits an offence if the association was insolvent at the time the debt was incurred or becomes insolvent by incurring that debt or by incurring at that time debts including that debt; and immediately before the debt was incurred, there were reasonable grounds to expect that the association was insolvent; or there were reasonable grounds to expect that, if the association incurred the debt, the association would become insolvent.

A maximum penalty of 60 penalty units ($9,288 currently) applies for a breach of these provisions.

There are defences that a person can rely upon, such as the debt was incurred without their consent or they had reasonable grounds to believe that the association was solvent.

Impact:

These statutory duties and concepts may be new to many committee members, and education may be necessary for them to be informed. Induction procedures for new committee members should also include information on these duties as well as updating governance codes or guides.

Eligibility of Committee Members

The eligibility of management committee members has altered. While a person who has been convicted of an indictable offence or a summary offence[1] with a period of imprisonment is ineligible, a person who has been convicted can sit after a rehabilitation period of five years.

Impact:

Consider altering your nomination form or declaration of fitness to stand as a management committee member to cater for these provisions.

Corporate Seal

An incorporation association was required to have a corporate seal[2] that was affixed to important contracts and countersigned by two persons being either the secretary, management committee member or person authorised by the management committee. The seal is no longer required by law, but an association can execute contracts using a seal or by the signatures of 2 persons being either the secretary, management committee member or person authorised by the management committee.

If the association’s rules require it to have a corporate seal or to execute documents by seal, then this will still apply.

Impact:

Consider whether your policy relating to authorisations to contract on behalf of the association requires updating. If your rules have a requirement for a corporate seal, then consider whether this might be removed by alteration of your rules.

Meeting by Technology

If an incorporated association uses technology such as video conferences to hold its meetings, then the use of this technology no longer needs to be set out in its rules.

Impact:

As use of technology to facilitate meetings becomes more acceptable, then it is a prudent course to clearly set out the use and procedures of such matters in writing. This may be in the rules or bylaws/policy of the association. This will assist in lessening the risk of disputes and challenge to the legality of meetings and their decisions.

Financial Troubles

If your association strikes serious financial trouble there are new provisions in relation to voluntary administration[3], voluntary winding up, winding up and cancellation of incorporation.

Penalties

The maximum penalties under the Regulations were increased from 4 to 20 penalty units which currently amounts to $3,096.

29 July 2022

Incorporated associations that are also charities registered with the Australian Charities and Not-for-profits Commission will no longer be required to file an annual summary of financial affairs with the Office of Fair Trading.

Changes to an association’s office bearers, their addresses or the association’s address still need to be notified to the Office of Fair Trading.

1 July 2023

Reporting Thresholds

The reporting thresholds for incorporated associations have altered and this will affect the reporting financial requirements of associations.

Large associations (previously Level 1)—from current assets or revenue of more than $100,000 to either:

• current assets of more than $1 million;
• total revenue of more than $500,000.

Medium associations (previously Level 2)—from current assets or total revenue between $20,000 and $100,000 to either

• current assets between $300,000 and $1 million;
• total revenue between $150,000 and $500,000.

Small associations (previously Level 3)—from current assets or revenue less than $20,000 to current assets of less than $300,000 and total revenue of less than $150,000.

The new thresholds will require:

• external review by a registered company auditor, accountant holding the prescribed qualifications, or person approved by the chief executive if annual revenue exceeds $150,000, or current assets exceed $300,000; and
• audit by a registered company auditor, accountant holding the prescribed qualifications, or person approved by the chief executive when annual revenue exceeds $500,000, or current assets exceed $1 million.
• for small associations that are not required to have an audit by any other law, then the president or treasurer must verify the financial statements. The verification statement must state ‘The association’s financial records show the association keeps adequate financial records to correctly record and explain transactions to enable a true and fair financial statement to be prepared’.

Impact:

The Association should identify what classification it now falls within, and this may mean that it is no longer required by the Act to conduct an audit. However, associations should ascertain that their rules do not specify that an audit is required or any other legislative provision or grant condition similarly requires an audit.

1 July 2024

Grievance Procedure

From 1 July 2024, an incorporated association must either follow the grievance procedure in the model rules or adopt a formal grievance procedure in its own rules. An association can adopt its own grievance procedure at any time, but it must meet the requirements set out in section 47A of the Associations Incorporation Act.

The procedure sets out a specific process for a mediation to occur within certain time frames if a written notice is given by a member. There is a specific procedure for the appointment of a mediator.

The management committee, in certain situations, may not be required mediate where a dispute is frivolous, vexatious or relates to the Liquor Act 1992 and some other situations.

Impact

It will be important for the association to carefully consider whether the default model rules in relation to a grievance procedure are suitable or whether their rules need to be altered to provide a custom grievance procedure that is more suitable to their circumstances. As rule changes require a special resolution at the member’s meeting, this might require prior planning to meet the commencement of the provision. It is important to ensure that any bespoke rule complies with s 47A of the Act.

Remuneration Disclosure

All incorporated associations will need to disclose remuneration to benefits and remuneration given to management committee members, senior staff and their relatives.

Remuneration includes salary, allowances and other entitlements, but does not include reimbursement of out of pocket expenses. The regulation refers to AASB accounting standards definition of compensation which will include:

• short-term employee benefits, such as wages, salaries and social security contributions, paid annual leave and paid sick leave, profit- sharing and bonuses (if payable within 12 months of the end of the period) and non-monetary benefits (such as medical care, housing, cars and free or subsidised goods or services) for current employees;
• post-employment benefits such as pensions, other retirement benefits, post-employment life insurance and post-employment medical care;
• other long-term employee benefits, including long-service leave or sabbatical leave, jubilee or other long-service benefits, long-term disability benefits and, if they are not payable wholly within twelve months after the end of the period, profit-sharing, bonuses and deferred compensation;
• termination benefits; and
• share-based payment.A relative, of a person, means a spouse, parent, sibling, child, grandparent or grandchild of the person.

A senior staff member is defined as a person who makes, or participates in making, decisions that affect the whole, or a substantial part, of the activities of the association, or has the capacity to significantly affect the association’s financial standing.

This disclosure will occur at the association’s annual general meeting, even if the amount to report is zero.

Remuneration and benefits may be disclosed as the total value given to all persons, but must include the number of people who benefited.

Impact

For many incorporated associations, committee members are not specifically remunerated, but may receive entitlements not available to ordinary members such as an entertainment allowance or concessional use of facilities which may require reporting.  The regulation may also catch free or subsidised goods or services, whether the goods or services constitute sufficient value to be considered benefits.  Advice should be taken to ensure compliance with the provision in the context of your association and all benefits included in the association’s policies to avoid misunderstandings.  A difficult situation may arise where a small association only has one employee with reporting potentially breaching confidentiality, even though aggregated.

Summary

It has been a long journey for the reform of incorporated association legislation and regulations since Bill was introduced in 2019 and understandably easy for volunteer office bearers to lose sight of all the alterations to the regulatory environment.

Some of the reforms will ease the regulatory burden, but others are clearly focussed on providing a higher standard of behaviour by committee members and transparency to both members and the regulators.

If you have been putting off understanding how the new legislation and regulations apply to your association, now is the time to find out.

[1] Criminal offences may be indictable or simple. Indictable offences are either crimes or misdemeanours.

Indictable offences cannot be dealt with summarily (i.e. in the Magistrates Court, a Court of summary jurisdiction) unless expressly stated.  Simple and regulatory offences can be dealt with summarily.

[2] A company seal is usually an ink stamp with the association’s full name on it.

[3] Voluntary administration is designed to resolve a association’s future. An independent registered liquidator (the voluntary administrator) takes full control of the company. This allows time to find a way, if possible, to save the association.