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New laws to affect incorporated associations


Earlier this year, the Victorian Parliament passed the Associations Incorporation Reform Act 2012 ("Act"). The Act will replace the Associations Incorporation Act 1981 when it comes into force on 26 November 2012.

 

Written by

Bill Hazlett
Partner
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There will be a number of changes: 

1. Trading activities permitted

The most important change for associations is the removal of the prohibition on trading. The Act permits associations to engage in trade or trading activities, provided they relate to the association's purposes.

However, the prohibition against an association securing pecuniary profit for its members remains. Consequently, an association is not permitted to distribute any surplus income or assets to its members.

2 Annual financial reporting

The current "prescribed" and "non-prescribed" reporting obligations are replaced by a three-tiered approach based on an association's total revenue:

  • Tier one associations: less than $250,000 – no need to have financial statements either audited or reviewed; however, a majority of members present at the general meeting may vote to do so.
  • Tier two associations: $250,000 - $1 million – financial statements must be reviewed by an independent accountant; however, a majority of members present at the general meeting may vote to have the accounts audited.
  • Tier three associations: more than $1 million – must have financial statements audited.

There is also a general provision which allows an association to apply to Consumer Affairs Victoria ("CAV") for an exemption from the requirement to lodge financial statements either generally or for a specified year.

3. Indemnity of office holders

Under the Act, an association must indemnify its office holders against any liability incurred in good faith by the office holder in performance of his or her duties. If an association does not have insurance cover, the indemnity is only available to the extent of the association's assets.

4. Statement of purposes

The rules of an association (and not a separate document) must now include a statement of purposes. So, we recommend reviewing statements of purpose to ensure an association's activities are compliant with its purposes.

5. Contracts and other documents

The Act simplifies the process required for an association to validly execute contracts or documents, subject to any greater restriction provided for in the association's rules.

6. Disciplinary and grievance procedures

The Act introduces specific requirements for an association's grievance and disciplinary procedures.

7. Technology at meetings

The Act allows meetings to be conducted via new technology (e.g. via teleconference or webinars), provided the technology allows meeting participants to "clearly and simultaneously communicate with each other". This enables general meetings and committee meetings to be held in different locations.

8. Rules

Under the Act, the topics which an association must adopt in its rules have been extended to include the following:

  • an association's name and purposes;
  • the rights, obligations and liabilities of members;
  • the procedures for resignation and cessation of membership;
  • the process for appointment and termination of the secretary;
  • the procedures for preparing and keeping minutes of general meetings;
  • provision for members to access minutes of general meetings, including financial statements submitted at a general meeting;
  • right of access (if any) by members to minutes of committee meetings; and
  • disposition of any surplus assets on the winding up or dissolution of the association.

9. Other amendments

The Act will:

  • replace the term "public officer" with the term "secretary";
  • define the term "office holder" and clarify their duties;
  • enable members to apply to the Magistrates' Court to seek remedies against an association for oppressive conduct;
  • allow CAV to investigate the affairs of an association and if necessary, apply to the Magistrates' Court to appoint a Statutory Manager to conduct the affairs of an association;
  • extend the ambit of the conflict of interest provisions to include a non-financial interest;
  • exclude committee members who have a "material personal interest" in a matter from a committee meeting while the matter is discussed and voted on;
  • introduce specific events by which a committee member will be taken to have vacated their office; which will apply in addition to the situations outlined in an association's rules;
  • clarify the minimum rights of members, in particular the right of access to an association's records and attendance and voting at general meetings;
  • require an association to maintain a register of its members and ensure that access to the information is restricted if appropriate; and
  • allow for an association's records to be kept in a language other than English. However, records must be made available in English when requested by a member or CAV.

Next steps

New regulations and model rules
CAV is currently in the process of finalising the Associations Incorporation Reform Regulations 2012 ("Regulations"). The Regulations are currently only available in draft form and will be finalised by the CAV prior to their commencement date of 26 November 2012. The Regulations also include the new association model rules.
We will forward a further update as soon as the final Regulations and model rules are available.

If an association operates under the existing model rules, the association has 12 months from the commencement of the Act to either adopt the (final) model rules or to draft its own rules and have those rules approved by CAV. If the association has not taken either of these steps at the end of the 12 month period, the new model rules will automatically apply.

If an association operates under its own rules that have previously been approved by CAV, it can continue to operate under those rules until the association either adopts the (final) model rules or it alters its rules and has the changes approved by CAV.

If an association operates under its own rules, they will no longer be valid to the extent they are inconsistent with the Act and the (final) Regulations. If an association's rules do not cover all of the matters required to be included by the Act, the relevant (final) model rule will automatically be deemed to be included in the association's rules.

Alternative Structures?

The Australian Sports Commission has recommended national and larger sporting associations convert to a company limited by guarantee structure to then be governed by the provisions of the Corporations Act 2001. However, each business structure has advantages and disadvantages and will affect organisations in different ways.

Accordingly, we recommend associations contact us if they wish to consider other possible structures or to update their own rules to comply with the Act.

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