Newsflash: Directors get out of jail free!

ACNC Watch

 

Total read time: 5 minutes (approx.)

 

This article explores the new rules for the 6,000 charities which are also registered with ASIC.

 

The Australian Charities and Not-for-profits Commission (ACNC) has set up shop and there are some practical implications for charities which are also registered with ASIC.

 

There are now around 6,000 charities on the ACNC register which are also registered with ASIC.  They include:

  • public companies limited by guarantee;
  • proprietary companies limited by shares;
  • registered Australian bodies; and
  • foreign companies.

 

If you are a director or secretary of one of those 6,000 charities, you need to know who you now report to and who makes the rules for you.

 

The rules!

 

Previously, and up until 1 July 2013, directors, secretaries and other officers of companies faced potential fines and imprisonment if they failed to comply with the directors’ duties in the Corporations Act 2001.  From 1 July 2013, the directors’ duties sections of the Corporations Act will no longer apply if your charity is on the ACNC register[1].

 

Before 1 July 2013

 

Until 1 July 2013, all companies will have to comply with the directors’ duties in the Corporations Act, including:

  • the duty to act with care and diligence and comply with the business judgement rule;
  • the duty to act in good faith and in the best interests of the company;
  • the duty to not misuse one’s position;
  • the duty to not misuse information;
  • the duty to disclose conflicts; and
  • the duty to not allow the company to operate while insolvent.

If a director, secretary or other officer fails to comply with these directors’ duties, they will be liable under the Corporations Act.

 

After 1 July 2013

 

As of 1 July 2013 there will be no personal liability for directors who fail to comply with directors’ duties.

 

On 1 July 2013, the Corporations Act directors’ duties will cease to apply and instead charities will be required to comply with the ACNC’s governance standards.   The governance standards essentially bring across the standards listed above into Regulations which are attached to the ACNC Act 2012.

 

The governance standards have not yet been finalised, but as they stand, a charity could be removed from the ACNC register and no longer be a charity if one of its directors fails to comply with the duties listed above.  The ACNC will also have the power to remove directors from charities if they contravene one of the governance standards.

 

The interesting part is that the governance standards require the charity to comply, not the directors or officers themselves.  If the charity fails in its duty of ensuring that the director disclose conflicts, for example, then the most the ACNC can do to that director is remove the director from being a director of charities.  The ACNC cannot impose fines or imprisonment on directors for failure to comply with directors’ duties.  This new regime is much more lenient on the directors of companies which are charities, and essentially gives directors a ‘get out of jail free card’.

 

The requirements…

 

The ACNC is aiming to cut down on red tape and is looking for opportunities for collaboration between Government and State departments so that charities do not have to report to many different places.  This has not been achieved quite yet.  While we wait for the development of the much anticipated one-stop-shop, we have summarised your obligations to help you navigate the current three-stop-shop in the table below.

 

As well as complying with the new ACNC requirements, companies which are registered with ASIC still must comply with some sections of the Corporations Act, and report certain information to ASIC.  Companies also have reporting obligations to the ATO.  We have summarised below the main requirements and have identified whether the requirement has changed, and which body charities must now report to, both now and after 1 July 2013.

 

Before contemplating your obligations, it is essential that you understand what endorsements you hold.  Your organisation may simply be a tax endorsed charity, or it may be a health promotion charity, a public benevolent institution or a charitable institution.  Your entitlement to certain tax concessions depends on your charity status and, consequently, your reporting obligations in relation to those concessions also depend on your charity status.

 

If you fail to comply with any of the requirements listed below, you will be liable under the relevant legislation – whether it is the Corporations Act or the ACNC Act.

 

Click here to download a PDF of the below table.

ClementineTable-Pic

 

 

 

 


[1] Unless your company is a Commonwealth company or subsidiary as defined by the Corporations Act.

About Clementine Baker

Clementine Baker is a Lawyer in Mills Oakley’s Sydney Not-for-Profit team. Clementine has expertise in a range of issues relating to the not-for-profit sector and also in family law.

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