NFP reform coming together

Posted by Judith Fox on 03/09/2012

There has been a great deal of angst over the reform to the NFP regulatory framework over the past months. The version of legislation to establish the Australian Charities and Not-for-profits Commission (ACNC) that was issued at the start of the year was deeply worrying, as it mixed up prescriptive detail about governance arrangements for charities and other NFPs with the statutory and enforcement powers of the new regulator. Meanwhile, the pace of reform was so cracking that it threatened to crack the sector.

So by the time the revised version of the bill to establish the ACNC was introduced to parliament, anxiety levels were high. But the revised bill showed that the government has heeded the concerns of stakeholders. It was no longer a jumble of competing considerations, but expressly sought to establish the ACNC in a clear manner, with governance and external conduct standards and the financial reporting framework set aside, as they will be dealt with in regulations.

It wasn’t perfect, by any means, but it was a massive improvement on the original. And as it was referred to the House of Representatives Standing Committee on Economics, the remaining areas requiring attention were picked up in the Committee’s very balanced report. The committee made recommendations in 11 key areas where improvement was still required, while commending the many positive features of the bill.

CSA appeared before the Committee to talk about our concerns, which were to do with:

  • the duplication of reporting that would occur without a referral of powers (as exists with the Corporations Act)
  • governance and external conduct standards and the reporting framework, which have yet to be exposed for consultation, making it hard to know how the requirement in the exposure drafts for charities to comply with them will apply
  • the liability of directors, trustees and management committees for the conduct of their organisations, which appeared to be more onerous than in the Corporations Act.

The Committee acted on these concerns and recommended that:

  • the Commissioner have discretion to accept reports or material prepared for other agencies and levels of government as reports for the purpose of the reporting framework under the bill, which would solve the duplication problem
  • the government consider incorporating existing or sector-developed governance standards into the bill through regulation, in addition to a default set of governance standards, which would give an opportunity for sector-driven governance guidelines to be developed, as happened with the ASX Corporate Governance Council’s principles and recommendations
  • Treasury redraft Division 180—Obligations, liabilities and offences, of the Australian Charities and Not-for-profits Commission Bill 2012, with a view to clarifying its intent and operation, given the level of concern with its current wording.

The government accepted all of the Committee’s recommendations and the bill was further revised. It has now been referred to the Parliamentary Joint Committee on Corporations and Financial Services and the Senate Standing Committees on Community Affairs.

On the issue of duplication of reporting, we know that some jurisdictions plan to ‘turn off’ their incorporated associations legislation if they will be covered by the new bill, just as they are with the Corporations Act. We intend to speak to various states to encourage a positive outcome to these discussions.

Meanwhile, Treasury has confirmed that governance standards will be principles-based and flexible, to take into account the diverse range of organisations in the sector. Importantly, the ACNC itself can take part in the consultation on what the governance standards should be, and we think that will be a key factor in both aligning the ACNC with the NFPs it regulates and ensuring that its educational role remains uppermost in everyone’s mind. We also read the Committee’s recommendation as providing room for current standards, such as those contained in the Corporations Act, to continue to apply.

On the directors’ liability front, the current version of the bill reduces the ability to pierce the corporate veil and impose personal liabilities on directors of companies and corporate trustees. The bill does not impose upon directors of bodies corporate the same obligations imposed on the body corporate itself. This is because of the potential to sue the body corporate directly. Also, a director of a body corporate will not be taken to have committed any offence arising under the proposed legislation that is committed by the body corporate. This is the most significant departure of the current bill from the previous draft, which imposed personal obligations on directors.

In light of these changes, CSA has expressed support for the passage of the bill. It’s not 100 per cent perfect, but it’s fit to go. We think that it’s important that the ACNC get up and running, and be able to fully participate in the ongoing consultation on all other aspects of the regulatory reform, from governance standards and the financial reporting framework to the definition of charity and tax concessions. Reporting deadlines have been set back to allow charities time to put in place arrangements for the new framework, and the ACNC has assembled a very impressive staff so far whose knowledge of and expertise in the NFP sector can only engender confidence.

All in all, the reform process is coming together.

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