PILCH - Pending reforms for Victorian incorporated associations in 2011

The Victorian Government has now passed legislation which makes a number of additional changes to the Associations Incorporation Act 1981 (the legislation that regulates all incorporated associations in Victoria). These changes are expected to commence on 1 July 2012.

PilchConnect made a submission in response to the Bill when it was first released, suggesting a range of improvements that could be made, as well as several objections to aspects of the Bill – particularly where we found the proposed changes to be confusing or unnecessarily complex. This submission was referred to by the Greens in the parliamentary debate about the recent changes. We are seeking election committments from all of the major parties in Victoria that they would re-write, simplify and consolidate the bill to make it easier to use and understand. We have included a link to our full submission and the parliamentary debate at the end of this page.

The rest of this page provides Victorian community organisations with an overview of the changes, which are set out in the Associations Incorporation Amendment Bill 2010 (Vic). This summary refers to the key reforms - it is not a complete list of all the changes. If you would like to know about all of the changes, we have included a link to the full Bill and Explanatory Memorandum at the end of this page.

Please Note: The changes to the law that are discussed on this page were passed by Parliament in August 2010, however they have a delayed implementation. This means that the changes are not yet applicable. While the reforms were initially expected to come into force on 1 December 2011, the default date for commencement has now been extended to 1 July 2012.

What are the key changes to the Associations Incorporation Act?

Below we have summarised the main changes that are introduced by the Associations Incorporation Amendment Bill 2010 (the Bill):

Additional duties for Committee or Board members

The Associations Incorporation Act 1981 (the AI Act) currently sets out certain legal duties that all people involved in governing a Victorian incorporated association need to comply with (ie. Committee of Management or Board members). These include:

a duty to not misuse the position or information gained from it;
a duty to disclose conflicts of interests and deal with them in a certain way; and
a duty to return documents to the association (this duty was added in April 2009).

The reforms introduce some minor changes to clarify the wording of these duties, however the major change proposed is the addition of a number of further duties, and extending these duties to not only committee members, but the public officer/secretary, and an employee who makes decisions affecting the whole, or substantial part of the association. The reforms introduce the following new duties:

a duty to exercise powers and discharge duties with care and diligence;
a duty to act in good faith in the best interests of the association and for a proper purpose;
a duty to prevent the organisation from trading while it is insolvent.

The changes will be introducing civil penalties (fines of up to $20,000) that will apply to Committee or Board members who fall short of these duties, however a number of defences are included in the reforms, including:

a 'business judgement' defence for informed decisions made in good faith in the interests of the association; and
a 'reliance on information' defence where a decision has been made with reliance on information provided by a competent person.

New requirement for the organisation to indemnify Committee or Board members

The Bill introduces a new section that will require all incorporated associations to indemnify (pay for or reimburse) each member of the committee against any liability incurred in good faith by that member on behalf of the incorporated association in the course of performing his or her duties.

When implemented, this section will mean that the incorporated association’s funds may be used to pay for the fines or other penalties personally incurred by a committee member when they have acted in good faith. However it will not extend to indemnify Committee members where there actions are deemed to be reckless or negligent.

We note that currently, many organisations have drafted their Rules to ensure that committee members are indemnified for personal loss - this change will simply make it a requirement of all associations.

Please note that an indemnity is different from 'professional indemnity insurance' which protects against financial loss arising from negligent or misleading and deceptive professional services, for example if you are giving health or legal services. For more information on types of insurance, please see our Guide: Insurance and risk management for community organisations.

Annual reporting obligations: New three-tiered reporting scheme

Currently, under the AI Act there is a two-tiered reporting scheme for incorporated associations. Under the current rules, associations that are not 'prescribed' (ie. those groups that have annual revenue of less than $200,000 or assets less than $500,000) must provide a signed annual statement to Consumer Affairs Victoria (CAV), but do not have to provide audited accounts. 'Prescribed associations' (ie. those groups that have annual revenue of more than $200,000 or assets more than $500,000) must have their accounts audited and have to provide CAV with a copy.

The new reforms, when implemented, will change the existing reporting structure by introducing a three-tiered reporting regime. To give you a quick feel for these changes, the following is a summary of the three-tiered reporting proposals:

First Tier

Incorporated associations with annual revenue less than $250,000:

First-tier organisations will continue to report to CAV on the same annual basis as currently applies for 'non-prescribed associations' (see definition above). These organisations will continue to complete and lodge their Annual Statement Form with the Registrar at CAV.

Second Tier

Incorporated associations with annual revenue between $250,000 and $1 million

After the end of each financial year, associations that fall into this category will be required to obtain a written statement that its accounts have been kept in accordance with good accounting practice.
This statement must be prepared by a person who is a member of either:
- CPA Australia;
- ICAA;
- NIA; or
- any other person approved by CAV.
The person who prepares this statement should be independent of the incorporated association, and must not be a member of the committee or an employee of the group.
The organisation will be required to provide the accounts and statement to CAV.
This is not a 'formal audit' and will therefore be cheaper to prepare.

Third Tier

Incorporated associations with annual revenue that exceeds $ 1 million

Third-tier organisations will continue to report to the Registrar on the same basis as currently applies to 'prescribed associations' (see definition above).
These groups are required to have accounts audited and to submit a copy of the audit report to members together with their financial statements at the Annual General Meeting (AGM).

Prohibition on trading to be removed

Currently, the AI Act stipulates that an incorporated association is not to trade, either in its own right, or as a trustee - however there are some limited (and complicated) exceptions to this rule. This provision in the AI Act is a historical one and arguably no longer reflects the operations of today's not-for-profit sector.

The reforms will abolish the current prohibition on trading, allowing incorporated associations to engage in trade or trading activities in pursuance of, and in support of, its purposes.

However, it is worth noting that the distribution of profit or surplus assets to members (or former members) of the organisation - either while the organisation is operating or upon winding up - will remain prohibited under the reforms.

Clarification of the rights of members

The reforms makes a number of changes designed to clarify the rights of members of incorporated associations, including provisions that relate to the circumstances in which members can inspect or get a copy of the Rules, the membership register (see above) and the minutes of general meetings. The reforms also clarify member's rights to:

access the rules of the association and minutes of general meetings;
be notified of the date, time and place of all general meetings of the incorporated association;
attend and vote at general meetings (if their membership allows for voting); and
if proxies are permitted and the committee sends out any proxy forms, to be sent a proxy form.

These changes also will require each association to ensure that their own Rules set out the rights, liabilities and obligations of members.

Grievance and disciplinary procedures

The reforms clarify the requirements for an association's grievance procedures, and introduce new requirements for disciplinary procedures.

The reforms to the requirements for an association's grievance procedures will mean that:

an assocation's grievance procedures must give each party to a dispute an opportunity to be heard; and
any outcome must be determined by an unbiased decision maker.

The reforms also introduce new requirements for an association's disciplinary procedures (but note: it is not compulsory for an association to include disciplinary procedures in its rules). Under the reforms, if an association proposes to take disciplinary action against a member, the association must comply with its own disciplinary procedures and must ensure:

a member who is the subject of the disciplinary procedure is informed of the grounds upon which the disciplinary action is proposed;
that member is given an opportunity to be heard; and
any outcome arising from a disciplinary proceeding is determined by an unbiased decision maker.

An outcome must be reached as soon as is reasonably practicable, while ensuring that the member is properly informed of the grounds and given an opportunity to be heard.

What do these changes mean for our community organisation?

These changes are not yet in place

Please note that while the reforms have been passed through Parliament, they will not actually commence until a later date. At this stage, it is looking like these changes will be brought into effect on 1 July 2012 (note: this has changed from 1 December 2011).

To keep informed about the changes, you can subscribe to our e-bulletin and we will keep you up-to-date with the progress of the Bill (email connect@pilch.org.au to subscribe to our e-bulletin).

These changes will only affect Victorian incorporated associations

If your community organisation is an incorporated association established in Victoria (that is, your organisation has been incorporated under the Victorian Associations Incorporation Act 1981), your organisation will be required to comply with these new laws once they come in to effect.

For example, all of your Committee of Management members will need to be aware of their new duties, and your financial reporting practices may have to be changed as a result of the proposed three-tiered reporting regime. The changes may require many organisation to amend their rules to bring them in line with the new provisions.

New 'Model Rules' being drafted

Given the significant changes to the AI Act contained in these amendments, there will be a re-drafting of the Model Rules, to ensure that they reflect the reforms. This drafting process is currently being looked at by CAV, and it is expected that those organisations that rely on the Model Rules for their governance will be advised of the changes once they are closer to completion.

When will these changes come in to effect?

It is expected that the reforms will come into effect on 1 July 2012, which will allow enough time for new Model Rules and education campaigns to be developed and delivered.

These latest reforms follow the 2009 reforms to Victorian incorporated associations, which saw a number of earlier changes to the AI Act. While some of those 2009 amendments came into force immediately, some were deferred to a later date - similar to these latest reforms. The 2010 reforms will be implemented at the same time as the remaining 2009 amendments.

How can I find out more about the upcoming changes?

PilchConnect is closely tracking the progress of these reforms. To stay informed of developments, subscribe to our e-bulletin by entering your email address at www.pilch.org.au/subscribe. If you would like to talk to us about the changes, please call PilchConnect on (03) 8636 4400.

PilchConnect has made a detailed submission to the Victorian Government about the reforms, including many areas where we think it could be improved and simplified for community organisations. A link to the PilchConnect submissions on the issue (made in March 2010), is set out in the Related Links section below.

You can read the full Exposure Draft of the Bill and other explanatory material provided by Consumer Affairs Victoria on their website. We have included a link to the page under the 'Related Links' section at the bottom of this page.