non-profit-fact-sheets
What is a Disqualified Person?
Published: April 16, 2024
Read Time: 7 minutes
If your Australian charity or not-for-profit is unsure whether an individual serving on its board or committee (or applying to serve) is a Disqualified Person, the first step is to understand the definition of a ‘Responsible Person’.
The next is to review whether the rules set out by regulators have been followed. Under the Corporations Act 2001 (Cth), Australia has strict governance standards that ensure charities make reasonable efforts to check whether the people they select as board members, committee members, and trustees are not disqualified from managing a corporation or from being selected as a Responsible Person.
Governance Standards in Australia are the charity sector rules that require charitable organisations to operate within the boundaries of the laws. Organisations that conduct charity work are accountable to the public and are expected to act responsibly when it comes to their governance, processes, relationships, and activities. These regulations exist to ensure members of the public maintain confidence in the people who run charities and that these organisations are not mismanaged.
Disqualified Person vs Responsible Person
The Australian Charities and Not-for-Profits Commission (ACNC) defines a ‘Disqualified Person’ as an individual acting such as a board or committee member who may not be eligible to serve on the board of a charity despite being assigned the role of a ‘Responsible Person’ within the organisation. Any person who has been convicted of a serious offence or misconduct such as dishonesty or poor financial decision making can negatively affect the reputation and well-being of a corporation or may put the organisation at risk. This person, regardless of their role, is considered ‘Disqualified’ in the eyes of the law.
A Responsible Person is an individual appointed by a charity as a board or committee member or a trustee. Examples of Responsible People can include an officer, chair, or secretary, depending on the charity structure. The ACNC describes Responsible People as individuals who have been given the responsibility to govern and run a charitable organisation, usually as a member of the board, trustee, or committee member.
Read our fact sheet to learn more about common leadership roles within not-for-profit boards.
NFP Structures & Responsible People
Different legal structures will have various ways of naming their Responsible People. However, the ACNC sets out the rules for appointing board and committee members and defines a Responsible Person differently than the Australian Taxation Office. The ATO bases its definition on the Income Tax Assessment Act 1997 and states that non-profits receiving public funds must form a committee with a majority of ‘Responsible People’ to remain in compliance with taxation law. This is an important requirement for receiving public funding and maintaining the DGR status.
Below are the key titles used by each NFP structure to describe the ‘Responsible People’ who lead the organisation.
| Structure | Responsible People |
|---|---|
| Incorporated Association | Committee Members |
| Company Limited by Guarantee | Company Directors |
| Indigenous Corporations | Corporation Directors |
| Trust | Trustees and Directors |
| Co-operative | Directors |
| Organisation Incorporated by Act of Parliament | Trustees, Directors or Council Members |
| Charity with insolvency arrangement | Bankruptcy Trustee, Receiver, Administrator or Liquidator |
| Unincorporated association | Depends on structure and internal governance |
An important difference between each type of charity is that it is subject to its legislation. For example, incorporated associations and trusts are regulated by state and territory governments, while companies limited by guarantee are subject to the Corporations Act 2001. Indigenous corporations must meet the requirements of the CATSI Act 2006.
Governance Standards for Charities
Australian Governance Standards for Charities state that a charitable organisation must make sure that their Responsible Persons are not disqualified from managing the corporation. Any person who has been disqualified in the last 12 months cannot become a Responsible Person.
Governance Standard 4
Governance Standard 4 states that a charitable organisation must take steps to ensure its board members, committee members, and trustees are not disqualified from managing a corporation. If a person poses a risk to a charitable organisation’s position or work, they should be removed as a Responsible Person and meet the definition of a Disqualified Person.
Governance Standard 5
Governance Standard 4 states that a charitable organisation must take steps to ensure its board members, committee members, and trustees are not disqualified from managing a corporation. If a person poses a risk to a charitable organisation’s position or work, they should be removed as a Responsible Person and meet the definition of a Disqualified Person.
What are the duties of Responsible People?
If you've been identified as a 'Disqualified Person', it’s likely you failed to meet the duties a Responsible Person must meet to remain in good standing with the ACNC.
These duties begin with acting with reasonable care and diligence, avoiding misusing your leadership position or information you may have access to, and disclosing any potential conflicts of interest. They involve ensuring the financial affairs of the charity are managed responsibly, avoiding operating the charity while it is insolvent and acting in the best interest of the organisation and its charitable purposes.
Specifically, several offences can disqualify you from running a charity.
What offences can make a Responsible Person a Disqualified Person?
If a person holding or being considered for a board member, committee member, or trustee position is convicted of a serious offence in Australia or a foreign country, they cannot be appointed by a charity as a Responsible Person. The following actions disqualify a person from managing a corporation in Australia:
- Making or participating in making a decision that affects a corporation, actions that can significantly affect a corporation’s finances.
- Offences that contravene the Corporations or CATSI Acts and are punishable by prison time of more than 12 months.
- An offence that involves dishonesty and imprisonment for at least three months.
- An offence in a foreign country punishable by more than 12 months of prison.
- A previous conviction less than five years old.
- A court extends a previous disqualification period.
A court or regulator can also disqualify you from managing a corporation if you have had a previous court order in New Zealand preventing you from being a director, or an Australian court, or if ASIC or ORIC has assigned you a Disqualified Person status and it is still current.
What should you do if someone is a Disqualified Person?
Charities must ensure their leaders understand the process of becoming disqualified and the duties of responsible people. You should take the necessary steps to ensure you don’t name a Disqualified Person to your board, a committee, or a trust. Your selection committee should perform a search using the ASIC Disqualified Persons Register before officially selecting the trustee, board member or committee member. Your organisation should also have each Responsible Person sign a declaration that confirms they are not disqualified from serving.
The banned and disqualified register is a public database of people who have been disqualified from managing a corporation, auditing self-managed superannuation funds (SMSFs), or practising in the Australian financial services or credit industry. The register provides information about banned organisations. The Disqualified Trustees Register lists individuals in Australia who have been disqualified from being a trustee or the director of a trust.
The register is managed by the ATO. Indigenous organisations are also required to do their due diligence and search the Register of Disqualified Officers. According to the CATSI, a “person who is disqualified under Pt 6-5 of the Corporations (Aboriginal and Torres Strait Islander) Act 2006 is automatically disqualified from managing companies registered under s206B(5) of the Corporations Act 2001.” (ASIC).
What Happens to Banned and Disqualified People?
Individuals can be disqualified from becoming a director if they fail to comply with the law or if the ATO, ORIC, or ASIC have concerns about their suitability. Under Australian law, a disqualified person must remove themselves from the position of board director, committee member, or trustee as soon as they no longer meet the standards of the Corporations Act or have been deemed disqualified by a regulator.
If a charity identifies a Responsible Person as a potential Disqualified Person, it must take appropriate action. This includes ensuring the person is no longer serving on the board of the charity.
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Better Boards connects the leaders of Australasian non-profit organisations to the knowledge and networks necessary to grow and develop their leadership skills and build a strong governance framework for their organisation.
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