June 2022 updates for incorporated association governance
The legal landscape that the Incorporated Associations (IAs) operates within, has recently undergone a major overhaul, resulting in the assent of the Associations Incorporation and Other Legislation Amendment Act 2020 in June 2022. As a result, a staggered rollout of amendments to IA’s governing legislation is now underway.
These amendments will better align IA’s with other entities incorporated under the Corporations Act, streamline operational practices, reduce burdensome red tape, and improve the overall internal governance of incorporated associations. Since its assent, multiple stages of changes have already been implemented to achieve these goals, with further changes being progressively incorporated until 2023.
Amendments to date
Prior to the most recent round of updates, amendments have been instituted to:
- statutorily permit the use of technology in the conducting of general meetings;
- provide clarity on the use and adoption of the constitutional Model Rules;
- increase maximum penalties for prescribed offences against the relevant Regulations;
- introduce voluntary administration and voluntary cancellation options for IA’s in financial distress or those without outstanding liabilities wishing to cease operations; and
- reduce the lock-out period for persons convicted of certain offences from sitting on management committees to five years.
Amendments implemented 22 June 2022
The most recent rollout of amendments, which occurred on 22 June 2022, has resulted in incorporated associations being required to update their policies, procedures, and governing bodies to ensure compliance. As evident from the below list of changes, while there is a positive move to reduce red tape for operational activities, improvement of internal management standards are front and centre, with new duties and obligations placed on IAs and their committee members.
Use of a ‘Common Seal’
IAs are no longer required under statute to affix a common seal when executing documents. However, if IA’s wish to institute this in a practical sense, they must also vote to amend their governing rules to specify that the affixing of their common seal is no longer required.
Secretary minimum age
The Secretary position with all IA’s must be held by someone who is 18 years of age or older. This amendment has been brought in to assist with improving the overall internal governance of IAs and bring them back into alignment with the standards required for other committee positions.
Updates to the Duty of Care and Diligence for management committees
Under the new amendments, all committee members will be obligated to use due care and diligence whilst carrying out their functions, to ensure their conduct is in the best interests of the association. Not only has further clarity been provided for the duties owed by committee members, the penalty for any breaches has also been defined, with a maximum penalty of 60 penalty units (currently $8,625.00).
Duty to prevent insolvent trading
To better align incorporated associations with entities duly incorporated under the Corporations Act, IA committee members will now owe a duty to prevent the incurrence of a debt if there are reasonable grounds to suspect that the association is or will become insolvent as a result of that debt. As with the duty of care and diligence, a penalty has been instituted for any breaches of this new duty, making committee members liable up to the maximum penalty (60 penalty units).
Duty of Members not to profit from position and Duty to disclose material personal interests
Similar to that of the Corporation Act’s director’s duty to avoid conflicts of interest, committee members and officers of IAs are now expressly prohibited from seeking to use their position (or information obtained as a result of their position), to gain a benefit or cause detriment to the association. In addition to the duty to avoid conflicts, committee members are now obligated to disclose all material personal interests in matters before the committee and to not be in attendance during discussions and abstain from voting on these matters unless permitted by the rest of the committee. These new duties also prescribe a maximum penalty akin to that of the above-mentioned duties.
Future amendments
With this recent roll-out of amendments being but one in a series, government bodies are predicting a further round of amendments to come into effect in August 2022, with additional updates to be determined in alignment with the results of stakeholder consultations currently underway.
Assistance and direction
If you are part of an IA committee, were contemplating becoming a committee member or were looking to create a new IA, the team at Sajen Legal may be able to assist by providing guidance and clarity to ensure you and your IA remain compliant in this evolving area of law.
Tagged in: Duty of care, Incorporated Associations, insolvent trading