In the last week of sitting for 2019, the Queensland State Government introduced legislation seeking to modernize the regulatory regime governing the 22,000 incorporated associations operating in Qld.
Among the long-awaited amendments is the application of the Voluntary Administration process to Qld associations. This is a huge leap forward for struggling NFPs that had limited options to deal with financial constraint. Under the current law, the only real option is to apply to the Supreme Court for the appointment of a provisional liquidator.
Interestingly, in her first reading of the Bill, the QLD AG mentioned the ability for struggling associations to rely upon Part 5.3A of the Corporations Act but left out the fact that she has created the new offence of trading whilst insolvent in an association!
Under the proposed Section 70I of the Act, a member of a committee of management, that allows an association to incur a debt whilst insolvent, is guilty of an offence with a maximum penalty of 60 penalty units ($8,007).
There is no doubt that many not for profit associations, have excelled at the ‘not for profit’ aspect of their enterprise. Up until now, this was largely a no recourse issue. It is going to be interesting to see how the Government intends upon enforcing this new offence.
Those associations that have already dealt with their affairs, will be able to voluntarily de-register the association much the same way you can with a company.
There will be also be a greater emphasis placed on members of management committees to act in the best interest of the association with the introduction of obligations akin to the fiduciary obligations imposed on company directors.
One other final amendment of note is the requirement for Associations to incorporate a dispute grievance process. On the face of it this might seem like an onerous obligation, but a mechanism has been included to allow existing Associations to adopt the Model Rules in replacement of their existing rules. This was previously only available at the point of incorporation.
Advisors to associations in Qld have a perfect opportunity to reach out to these not for profit workhorses and see what they can do to tidy up some long-standing governance issues that a lot of volunteer organisations carry.
More importantly for management committees, a failure to act on insolvency carries real potential personal responsibility. Nothing motivates like self-interest, even in well-meaning volunteers.
Speaking from experience, getting people to volunteer their time is difficult. Only time will tell if the imposition of further potential personal obligations upon volunteer committee members will lead to better outcomes for the community that relies so heavily on associations.
The Bill has been referred to Committee and will likely become law next year.