On 24 August 2021, the Government introduced the Associations Incorporation (Miscellaneous) Amendment Bill 2021 (the Bill) into the House of Assembly.
The Bill represents the most important reform of the Associations Incorporation Act 1985 (SA) for many years, and potentially indicates a 'ramping up' of regulation of the association structure.
The key changes are summarised below.
1. Minimum of Five Members
Proposed section 18(4a) introduces a requirement for an association to have a minimum of five members, all of whom must have voting rights.
This is a fundamental policy shift. Consumer & Business Services (CBS) has for many years allowed associations to have less than five members; indeed, it has been possible to incorporate an association with no members at all.
Many existing associations will have taken advantage of that policy position to simplify their affairs. That advantage will now be lost, and such associations will need to incur compliance costs to amend their Constitutions, and adapt their internal management arrangements. Fortunately, there will be a 12 month transition period in which to attend to this.
In this regard, it is worth noting the section merely requires that the five members have 'voting rights', not 'equal' voting rights. So perhaps steps can be taken to ensure that the 'main' member retains control via preferential voting powers, or veto rights.
2. Minimum of Three Directors
Proposed section 29(1a) will provide that the committee of an association must consist of at least 3 members who are ordinarily resident in Australia, and are all aged 18 years or over.
This change brings the Act into line with the rules relating to Companies Limited by Guarantee in the Corporations Act 2001 (Cth), although only one of the three Directors is required to be ordinarily resident in that context (not all three of them).
We suspect that most existing associations will already meet this new requirement. But for those who don't, there will again be a 12 month transition period within which to comply.
3. Powers of associations
Proposed changes to section 25 will allow an association to restrict the list of powers contained in that section, but will prevent them from expanding that list.
The policy rationale for this change is unclear. The list of powers in section 25 is quite short, and was never intended to be exhaustive. Many associations will have adopted additional powers – for example, in order to provide comfort that they have the power to enter into a particular transaction, or to appease the requirements of their lenders etc. Proposed section 23(1a) would appear to render those additional powers of no effect.
4. Model Rules
Proposed section 23B will allow the Regulations to prescribe model rules for associations generally, or any class of associations. Importantly, this includes the ability to specify rules that are:
- mandatory (which will apply to every relevant association of their own force, and override any other provisions that are inconsistent);
- replaceable (which will apply unless expressly excluded); and
- recommended (which will only apply if adopted).
Existing associations will be grandfathered from this change, unless they alter their Constitutions 'after the commencement of the model rules': refer proposed section 23B(9). (In this regard, the commencement date for the new model rules is currently unknown. However, it is to be hoped that it will at least be deferred to the end of the 12 month transition period that applies to the new minimum membership and director requirements. If this is not done, many existing associations are likely to trigger the application of the model rules simply by making amendments necessitated by other changes in the Bill.
5. Governance Principles
Proposed section 23A(1a) contemplates that the Regulations may include 'minimum internal governance principles' which associations (or a class of associations) will have to observe.
- no detail has been provided as to what these governance principles may require; and
- it appears that no grandfathering will apply.
6. Annual Verification Statements
Proposed section 8 will require all associations to file an annual verification statement in accordance with the Regulations. This is an important change, as currently only Prescribed Associations (being associations with gross receipts exceeding $500,000 per annum) are subject to annual filing requirements.
However, there is an ability to exempt a class of associations from the new requirement via the Regulations. It is hoped that this will be used to carve out registered charities (who already lodge annual statements with the ACNC), but only time will tell.
7. Additional Enforcement Powers
The Bill gives the Commissioner a raft of new and improved enforcement powers, including:
- questioning persons: section 10;
- entry and inspection: section 11;
- notices regarding non-compliance: section 13;
- changing an association's rules: section 23C;
- declaring disqualified persons: section 30A;
- requiring a review or audit of the association's accounts: section 35(3);
- calling meetings: section 39AA;
- appointing an administrator: section 40C;
- deregistration: section 43B;
- naming possibly defunct associations: section 44AA; and
- appointing a public officer: section 56.
8. Principal Place of Operations
Item 1 of Schedule 1 will require an association that 'solely or primarily operates in a particular jurisdiction' to notify CBS of that fact within 6 months of the commencement of the amending legislation.
The policy rationale for this notification requirement is unclear.
9. Other Changes
Other changes proposed by the Bill include:
- replacing the concept of 'gross receipts' with a new definition of 'revenue', which:
- will include devises and bequests (currently excluded); and
- may also include membership fees and subscriptions (currently excluded).
This is relevant to the definition of 'Prescribed Association'. In that regard, the annual threshold has been left at $500,000, although this figure is now in the Act (rather than the Regulations):
- proposed section 23A(1)(i)(viia) will require associations to have a broadly framed dispute resolution clause in their Constitutions. (In this regard, we suspect that few existing associations will have a complying clause, so many of them may need to undertake amendments);
- more detailed rules relating to 'material personal interest': sections 31 and 32;
- removal of the general obligation of officers of Prescribed Associations to act with reasonable care and diligence (although perhaps this may be replaced by something in the proposed minimum internal governance principles?);
- imposing a positive obligation on associations to indemnify their officers from liabilities incurred in good faith in the course of performing their duties: section 39B(1)(b);
- rules relating to maintaining a membership register: section 39E;
- the extension of the section 42 procedure to allow transfers to other associations incorporated under the Act (and not just to bodies incorporated under other legislation);
- more detailed rules relating to distribution of assets on winding-up: sections 43 and 43AA;
- increase of the deregistration threshold from $5,000 to $20,000;
- provision for remote meetings of members: section 50A; and
- new offences for hindering authorised persons and providing false information: sections 57A and 57B.