New governance standards for the regulation of entities registered with the Australian Charities and Not-for-profits Commission (ACNC) have now been released. The governance standards are contained within the Australian Charities and Not-for-profits Commission Amendment Regulation 2013 (No. 1) (Cth) (Regulations).

The Regulations provide guidance as to the requirements which will, subject to our comments below, be applicable from 1 July 2013 to charities and not-for-profits registered with the ACNC (Registered Entities). The Regulations are currently subject to a Motion to Disallow, and this Motion is expected to be voted on by the Senate on 14 May 2013. If the Motion is approved, the governance standards will not come into law in their current form.

The five governance standards can be summarised as follows:

  1. Purposes and not-for-profit character of an entity

A Registered Entity must be able to demonstrate (by reference to its governing rules or its operations) its purposes and character as a not-for-profit entity, make information about its purposes readily available to the public, and comply with its purposes.

  1. Accountability to members

A Registered Entity must take reasonable steps to ensure that it is accountable to its members and provides them with an adequate opportunity to raise concerns about the governance of the Registered Entity (for example, by holding an annual general meeting with a question and answer session).

  1. Compliance with Australian laws

Compliance with Australian laws sets a minimum benchmark by which all entities should govern themselves to protect the interests of the public. A Registered Entity must not engage in conduct, or omit to engage in conduct, if the conduct or omission may be dealt with as an indictable offence (and in some circumstances, a summary office) under Australian Law, or with the imposition of a civil penalty of 60 penalty units or more.

  1. Suitability of responsible entities

A Registered Entity must take reasonable steps to ensure that none of its responsible entities (such as its trustees or directors of trustees) are disqualified from the management of corporations (pursuant to the Corporations Act 2001 (Cth) (Corporations Act), or otherwise disqualified for acting as a responsible entity by the ACNC.

  1. Duties of responsible entities

Registered Entities must take reasonable steps to ensure that its responsible entities comply with the following duties:

5.1 to exercise the responsible entity’s powers and discharge the responsible entity’s duties with the degree of care and diligence that a reasonable individual would exercise those powers and discharge those duties;

5.2 to act in good faith in the Registered Entity’s best interests, and to further the purposes of the Registered Entity;

5.3 not to misuse the responsible entity’s position;

5.4 not to misuse information obtained by the responsible entity in the performance of his or her duties as a responsible entity;

5.5 to disclose perceived or actual material conflicts of interest of the responsible entity;

5.6 to ensure that the Registered Entity’s financial affairs are managed in a responsible manner. The extent of this duty will have regard to the registered entity’s size and circumstances and the complexity of its financial affairs;

5.7 not to allow the Registered Entity to operate while insolvent (as defined in the Corporations Act);

(together the Duties).

The Duties mirror the duties owed by directors (Directors’ Duties) which currently apply under the Corporations Act. If the governance standards come into effect as they are currently drafted, the Directors’ Duties will no longer apply to Registered Entities.

Instead, Registered Entities will need to take reasonable steps to ensure that their responsible entities comply with the Duties. Currently, it is the individuals themselves who are responsible for upholding the Directors’ Duties.

In all other cases, the Duties do not represent an exclusive list of obligations Registered Entities will be subject to. Other duties imposed under common law and equity will remain in force after the Regulations come into effect.

In addition to the Duties, Standard 5 also provides for four ‘protections’, which can be used as defences against a claim of breach of the Duties.

If the Regulations become law, the governance standards will apply to Registered Entities from 1 July 2013. However, where Registered Entities have governing rules that prevent them from complying, the governance standards will not apply until 1 July 2017. This should provide such Registered Entities with enough time to amend their governing rules accordingly.

In addition, if a Registered Entity is an incorporated association subject to a law of a State or Territory and:

  1. that law sets out the duties owed by responsible entities to a Registered Entity; and
  2. the Registered Entity and each of its responsible entities is complying with that law

then the Registered Entity will be taken to comply with governance standard 5. This exemption will cease as and from 1 July 2017.