Is your incorporated association ready for the new governance requirements to come into effect by June 2022?

Changes to governance requirements for incorporated associations in Queensland are to come into effect by June 2022 because of the amendments to the Associations Incorporation Act 1981 (Qld) brought by the Associations Incorporation and Other Legislation Amendment Act 2020 (Qld). Incorporated associations should be reviewing their governance arrangements and documents to ensure that they reflect the new requirements and establish the processes to ensure compliance by the time the new changes come into effect by June 2022. This note discusses some of the key changes and what actions associations incorporated in Queensland should be taking to prepare.

What are the key changes to governance requirements of associations?

Key changes to the governance requirements for incorporated associations are scheduled to come into effect by June 2022 due to the changes to the Associations Incorporation Act 1981 (Qld) (Act). This was effected by the Associations Incorporation and Other Legislation Amendment Act 2020 (Qld) (Amending Act). While most of these provisions were originally expected to be introduced by June 2021, this has now been postponed to 22 June 2022 (unless commenced earlier by proclamation). The reason for the postponement is to allow the government to conduct a consultation process to amend the Associations Incorporation Regulation 1999 (Qld), with this consultation process still to commence. We note that some other changes to the Act have commenced on 22 June 2020 and are outside the scope of this note.

Below is a summary of the key changes, noting the key changes to governance requirements.

Common seals and execution of contracts

The Amending Act will make common seals optional (although associations may continue using their seal if they wish to do so) and allow associations to execute contracts and other documents without a common seal.

Eligibility of secretary

The Amending Act will require the appointed secretary to be 18 or older to align the requirements with those of other management committee members.

Duties of management committee members

The Amending Act will impose the equivalent of directors' duties on the management committee members. These include:

1. Disclose material personal interests. To disclose the nature and extent of any material personal interest (other than an interest that arises only from the person's position as an employee or member of an association) in a matter being considered at a management committee meeting:

  • to the management committee, as soon as the member becomes aware of the interest; and
  • at the next general meeting of an association,

with the relevant details of a material personal interest recorded in the minutes of the meeting at which they were disclosed and provided to association members on request;

2. Abstain from voting where a member of the management committee has a material personal interest (other than an interest that arises only from the person's position as a member of an association) in a matter being considered at a management committee meeting. They should also not be present while the matter is being considered or vote on the matter, unless the management committee determines otherwise. In this case the decision of the management committee must be recorded in the minutes of the meeting, disclosed at the next general meeting of an association and provided to association members on request;

3. Duty of care and diligence to exercise their powers and discharge their duties with the degree of care and diligence that a reasonable person in the same position would exercise;

4. Duty of good faith to exercise their powers and discharge their duties in good faith in the best interests of an association and for a proper purpose;

5. Use of position and information not to improperly use their position or information obtained because of their position to gain a pecuniary benefit or material advantage for themselves or another person, or to cause detriment to an association;

6. Duty to prevent insolvent trading not to incur a debt if:

  • the association is insolvent when the debt is incurred or becomes insolvent by incurring that debt, or by incurring debts including that debt; and
  • immediately before the debt was incurred, either:
    • there were reasonable grounds to expect that an association was insolvent; or
    • there were reasonable grounds to expect that, if an association incurred the debt, an association would become insolvent;

7. Duty to disclose remuneration and other benefits. This will ensure that the prescribed details of the remuneration paid or other benefits given to members of the management committee and senior staff and their respective relatives are presented to an association's AGM in the way prescribed by regulation (which is yet to be announced); and

8. Duty to keep financial records to ensure an association keeps proper financial records.

Penalties apply for non-compliance with the above duties.

The duties set out in items 3 to 5 above apply to all officers of an association, including management committee members, secretary, treasurer, president and any manager appointed by the management committee.

The duty set out in item 6 above applies to management committee members and any person who participates in the management of an association.

Defences

Available defences to breach of duties will include:

  • Business judgment defence. An officer of an association who makes a 'business judgment' is considered to have acted in compliance with the duty of care and diligence referred to in item 3 above and the officer's equivalent duties at common law and in equity, if the officer:
  • makes the judgment in good faith for a proper purpose;
  • does not have a material personal interest in the subject matter of the judgment;
  • is informed about the subject matter of the judgment to the extent the officer reasonably believes to be appropriate; and
  • reasonably believes the judgment is in the best interests of an association;

A business judgement is any decision to take or not to take action in relation to a matter relevant to the operations of an association.

  • Reasonable reliance. It is reasonable for an association's officers to rely on the information or advice of others if it was given or prepared by any of the following persons listed below. The reliance should also have been made in good faith and after making an independent assessment of the information or advice, having regard to the officer’s knowledge of an association and the complexity of the structure of an association:
  • an employee of the association whom the officer reasonably believes to be reliable and competent in relation to the matters concerned;
  • a professional advisor or expert in relation to the matters that the officer reasonably believed to be within that person’s professional or expert competence;
  • another officer of an association in relation to matters within the other officer’s authority; or
  • a sub-committee of the association which the officer was not a member in relation to matters within the sub-committee’s authority; and
  • Insolvent trading defence. It is a defence to the offence referred to in item 6 above if the accused proves that the debt was incurred without their express or implied authority or consent. Also, when the debt was incurred, if the accused did not participate in the management of an association, or had reasonable grounds to expect that an association was solvent and would remain solvent even if it incurred the debt and any other debts that it incurred at that time.

Financial reporting

The Amending Act will introduce several financial reporting obligations on management committee members. We anticipate that associations that are registered with the ACNC would be exempt from these requirements to avoid duplicated annual reporting. We also expect that a regulation may prescribe particular documents that management committee members must ensure are presented at an AGM.

Internal grievance procedure

Associations will have to have a grievance procedure policy for dealing with any disputes between its members and the management committee or an association itself. This must be detailed in the association's rules and comply with the Act (unless the association relies on the model grievance procedure).

The grievance procedure must include a mediation process for dealing with any dispute. It must provide that if a member has initiated a grievance procedure in relation to a dispute between the member and an association, the association must not take disciplinary action against the complainant member in relation to the matter or the subject of the grievance procedure until the grievance procedure has been completed.

If an association's rules do not set out a grievance procedure consistent with the Act, it will be taken to include the provisions of the model rules providing for a grievance procedure (which are yet to be developed).

There will also need to be reasonable attempts made at dispute resolution under the grievance procedure before an association or a member can apply to the Supreme Court for directions.

How can associations prepare for the changes?

While most of the new requirements reflect the basic governance principles and common law duties that officers of associations would generally be expected to observe, management committee members will be personally liable for breach of the new statutory duties from their commencement date.

Incorporated associations should be reviewing their governance arrangements and documents to ensure that they reflect the new requirements and establish the processes to ensure compliance by the time the new changes come into effect by June 2022. Incorporated associations will also need to decide whether they prefer to rely on the model grievance procedure (once it is developed) or introduce their own custom grievance procedure in the rules. This all may take some time if any changes to the association's rules are required. Any changes would need to be approved by the association's members and registered with the Office of Fair Trading before they could come into effect. Associations should consider addressing these matters before holding an AGM in the second half of the year.