Winter is here and so are the new changes for Incorporated Associations: Are you prepared for personal liability?

By Harrison Humphries, Director and Jade Scheuerle, Law Clerk, Clifford Gouldson Lawyers

• Certain amendments to the Associations Incorporation Act 1981 (Qld) will come into effect on 22 June 2022 however some require further consultation and/or regulation and will not come into practical effect until mid to late 2023.
• Incorporated associations will be required to implement an internal grievance policy.
• Management committee members ought to be aware they could be personally liable for breaches of new statutory duties.

Changes to the Associations Incorporation Act 1981 (Qld) (Act) aimed at reducing red tape and improving internal governance of incorporated associations in Queensland have steadily been implemented since 2021, with those remaining coming into effect on 22 June 2022 in accordance with the Associations Incorporation and Other Legislation Amendment (Postponement) Regulation 2021.

The Office of Fair Trading recently advised some of the outstanding amendments, including those that:

• necessitate the implementation of an internal grievance policy
• reduce the reporting obligations of some incorporated associations
• introduce the duty to disclose remuneration and other benefits require further consultation and/or regulation and won’t therefore come into practical effect until mid to late 2023.

The amendments that will become effective as of 22 June 2022, include those that:

• render it optional for an incorporated association to use a common seal when executing contracts or documents, however, the association will need to amend their rules to specify if they are not using a common seal
• require secretaries of incorporated associations to be 18 years or older
• extend the investigative powers of Office of Fair Trading inspectors to include the ability to enter premises and seize property.

Importantly, management committee members will owe a duty of care to their incorporated association, meaning they may be penalised if they:

• deliberately fail to act in the best interests of the association
• abuse their powers as a management committee member
• fail to avoid conflicts between their duties to the association and their personal interests or
• fail to exercise due care, skill and diligence when discharging the requirements of their respective management committee positions.

If a management committee member fails to ensure their incorporated association fulfils its reporting requirements, the Office of Fair Trading may issue a show cause notice asking the association to provide reasons why its registration should not be cancelled.

The new management committee duties are set out in the Act, however, management committee members should be aware they could be personally liable for breaches of their following new statutory duties:

1. a duty of care and diligence that requires management committee members to exercise their powers and discharge their responsibilities with the degree of care and diligence that a reasonable person in the same position would exercise
2. a duty of good faith, meaning management committee members must exercise their powers and discharge their duties in good faith in the best interests of the association and for a proper purpose
3. a duty to avoid an abuse of power requiring management committee members to not improperly use their position to gain, directly or indirectly, a pecuniary benefit or material advantage for themselves or another person, or cause detriment to the association
4. a duty to avoid insolvency, meaning a person who was a management committee member or took part in the management of an incorporated association at the time the association incurred a debt will commit an offence if:

a. the association was insolvent when the debt was incurred or became insolvent by incurring either that debt or multiple debts including that debt

b. immediately before the debt was incurred, either:

i. there were reasonable grounds to expect that the association was insolvent or

ii. there were reasonable grounds to expect that, if the association incurred the debt, the association would become insolvent

5. a duty to disclose material personal interests, meaning if a management committee member has a material personal interest in a matter being considered at a management committee meeting, the member must disclose the nature and extent of the interest to the management committee as soon as the member becomes aware of the interest. The member must also disclose the nature and extent of the interest at the next general meeting of the association

6. a duty to record material personal interests by ensuring details of the disclosure of material personal interests are recorded in the minutes of the management committee meeting at which the disclosure is made and if a member of the association asks for the details, they must be given to the member

7. a duty to abstain from voting in certain situations if a management committee member has a material personal interest in a matter being considered at a management committee meeting. The member must not be present while the matter is being considered at the meeting and must not vote on the matter

8. a duty to disclose remuneration and other benefits, meaning if prescribed remuneration is paid or benefit provided to a management committee member or senior staff member and/or certain of their relatives, the management committee must ensure the prescribed details are presented to the association’s annual general meeting in the way prescribed by the regulation.

This duty applies to any person who participates in the management of an association, however, the practical effect of this duty does not come into effect until regulatory guidance is published in mid to late 2023.

In considering whether a management committee member has performed a duty, unless the contrary is proved, the member’s reliance on information or advice is taken to be reasonable if that information or advice was prepared by:

• an employee whom the member reasonably believed to be reliable and competent in relation to the matters concerned or
• professional advisors or experts in relation to matters that the member reasonably believed to be within that person’s professional or expert competence or
• another management committee member in relation to matters within that member’s authority; or
• a sub-committee of which the management committee member was not a member in relation to matters within the sub-committee’s authority.

Incorporated associations are also required to implement an internal grievance policy. Any disputes between members and the management committee or the incorporated association itself must be resolved through the association’s grievance policy, which must include mediation. The policy must be detailed in the association’s constitution and either adopt the model rules to be released in mid to late 2023 or the association’s own policy drafted in compliance with section 47A of the Act.

In terms of reducing red tape, incorporated associations that are also registered as a charity with the Australian Charities and Not-for-profits Commission (ACNC) and report to the ACNC are unlikely to need to lodge their annual summary of financial affairs with the Office of Fair Trading (OFT) or pay the annual lodgement fee, but this is expected to be confirmed in the coming year.

Harrison Humphries can be contacted on 07 4688 2188 or via his paralegal at alison@cglaw.com.au.

Material published in Governance Directions is copyright and may not be reproduced without permission. The views expressed therein are those of the author and not of Governance Institute of Australia. All views and opinions are provided as general commentary only and should not be relied upon in place of specific accounting, legal or other professional advice.