Author Archives: Alice Husband

About Alice Husband

Alice brings to CRH Law a passion for working with the not-for-profit sector, especially in relation to employment law and the complex legal and human issues that arise during the growth of successful community business organisations.

Board oppression – a cautionary tale

The recent decision of the NSW Supreme Court in Lukaszewicz v Polish Club Limited[1] highlights the mistakes a Board can make when trying to manage divisions within an organisation.

The 129 page decision gives some insight into a long-standing dispute between Club members and the Board which ultimately led to some members suing the company as well as four individual Directors. The court found that some of the steps the Board took to try and manage that dispute were in breach of the Corporations Act as they oppressed a minority of the Club members.

What is oppression?

Under the Corporations Act a member of a company (including a not-for-profit company) has a right to apply to the court for an order to stop oppressive conduct by the company.[2]

The remedy is designed to guard against the risks of majority rule. It provides a way for a court to intervene where the Board of a company is making decisions that aren’t in the interests of the members as a whole, or that are unfairly prejudicial or “oppressive” against a particular member or minority group of members.

The courts have made it clear that members cannot use an oppression action as a way to challenge any and all management decisions of a company. A Board is allowed to make decisions in good faith in the interests of the company even if those decisions have the effect of disadvantaging some members. However, the court may intervene if the Board makes a decision that is so unfair that no reasonable Board of Directors would have made it.

What did the Polish Club Directors do wrong?

The court found that, although the Directors had not breached the company’s Constitution and had not acted with any improper motive, they had nevertheless engaged in oppressive conduct contrary to the Act by:

  • regularly refusing to admit members who were unknown personally to the directors and who could have held views contrary to the Board;
  • seeking out and admitting new members who were known to share the same views as the Board; and
  • exercising disciplinary powers against members who did not share the views of the Board.

The court effectively said that the Directors’ conduct had the capacity to stack the membership of the Club and dilute the influence of dissenting members. This amounted to oppressive conduct.

What are the lessons for Directors?

This case serves as a reminder that conduct can be oppressive even where there is no intention to oppress and where there is no breach of the Constitution. The court’s focus will be on the objective reasonableness of a decision and its impacts on a member or members.

Directors should ensure that the reasons for significant or contentious decisions are well documented. Where appropriate the Board should consider consulting with members to explain important decisions and seek feedback about how negative impacts can be minimised.

Organisations with large or active memberships may also benefit from having specific checks and balances in their constitutions to manage the risks of membership stacking.

[1] [2019] NSWSC 446

[2] Oppression remedies are also available to some incorporated associations, depending on the state or territory in which they are incorporated.

Campaigning for change this election

The election campaign is now in full swing and charities have some three weeks before the election to get their message across.

Charities are often closely scrutinised when they take part in political debate and we don’t expect this election campaign to be any different.

To avoid getting themselves into hot water, charities should make sure they are familiar with their legal obligations when it comes to political advocacy.

Swim between the ACNC flags

A charity is perfectly within its rights to campaign and advocate on certain issues if these activities will further its charitable purpose.  (In fact, a charity’s right to engage in public debate about charitable issues is protected by the Australian constitution).

To advance its charitable purpose, a charity can do things like:

  • compare and critique the policies of various parties
  • debate or seek explanation of proposed laws or policies
  • publish information or research on current or proposed laws or policies
  • meet with candidates or elected politicians to promote the charity’s purpose
  • host, promote or participate in public debates.

However, a charity will lose its charity registration if the ACNC finds that it has a prohibited purpose of:

  • promoting or opposing a political party or a candidate for political office
  • engaging in or promoting activities that are unlawful or contrary to public policy (meaning the rule of law, our constitutional system, the safety of the public, or national security)

In charity law there is a distinction between an activity and a purpose. The same activity (for example, critiquing the policy of a party) can be permissible if it is done to promote a charitable purpose, and impermissible if it is done to promote a prohibited purpose.  Generally speaking, a ’one-off’ activity is unlikely to be enough to demonstrate that a charity has a prohibited purpose.

This area of the law can get tricky, but the ACNC website contains some useful guidance.

Don’t overlook electoral laws

Last year the government passed amendments to the Commonwealth Electoral Act which may affect a charity that campaigns on election issues.

If a charity spends more than $13,500 in the 2018-19 financial year for the purpose of influencing the way people vote in an election (“electoral expenditure”):

  • it will need to report to the Australian Electoral Commission
  • it must not use a donation from a foreign donor to incur electoral expenditure.

If a charity spends more than $100,000 in the 2018-19 financial year on electoral expenditure it may also need to report to the AEC as a “political campaigner”.  Political campaigners are also restricted in the way they can use foreign donations.

More information can be found on the AEC website.

Charites should also be aware of the laws regulating electoral advertising and which prohibit a person from:

  • publishing an advertisement, pamphlet, video or other material containing matter relating to an election without also publishing the name and address of the person who authorised it;
  • publishing anything that is likely to mislead or deceive a voter in relation to the casting of a vote; and
  • claiming or suggesting that a political candidate supports the activities of a particular association or charity unless the candidate has provided written authorisation to that effect.

Consider any contractual limitations

In 2013 the Gillard government outlawed “gag” clauses in federal funding contracts. However, funding contracts may still require money to be spent on frontline services and some may even prohibit spending on government lobbying.

Recent media coverage also suggests that the federal government is relying on legal advice to claim that it is unconstitutional to provide funding to charities to engage in advocacy work. A number of peak bodies have been affected.

If your charity has any doubts about what kinds of political advocacy it can legally engage in, please let us know and we can navigate the grey areas with you.

Aged care complaints and staff wellbeing

With the announcement of the Royal Commission into Aged Care Quality and Safety, we are seeing a marked increase in complaints being made by aged care clients and their families.

There are many things to consider when responding to a complaint. However, one issue that we are turning our minds to more and more is the health and safety of employees.

It’s not uncommon for a person to be stressed, frustrated, angry or upset by the time they decide to make a complaint. Indeed they may have every right to feel that way. However, our concern is where a complainant takes out those emotions on the employees they encounter throughout the complaints management process.

We have seen instances of employees being sworn at, shouted at, and accused of incompetency and corruption. We have also seen complainants bombard employees with emails and phone calls, make repetitive complaints about the same issue, and issue unreasonable demands about how their complaint should be managed and resolved.

All of this behaviour has the very real potential of causing harm to an employee’s mental health.

Organisations will be aware of their duties under workplace health and safety legislation to ensure, so far as is reasonably practicable, the health and safety of their employees. In fact, all persons at a workplace (including employees, clients, contractors and visitors) have a duty to take reasonable care to ensure that their behaviour does not adversely affect the health and safety of other persons, and to comply with any reasonable instructions given by the employer.

Repeated unreasonable behaviour by a complainant towards an employee, which creates a risk to the employee’s health and safety, may also meet the definition of bullying under the Fair Work Act. The Commission has confirmed that its jurisdiction is not limited to bullying between employees – it extends to any bullying that takes place while the victim is at work. The Commission has a broad power to order employers and third parties to prevent further bullying.

With this in mind, and with the Royal Commission on the horizon, perhaps the time is ripe to consider whether your organisation’s complaint management policies, processes and training adequately contemplate the need to safeguard the health and safety of staff, and whether your employees are equipped to deal with challenging behaviour by complainants.

CRH Law can assist with all aspects of resident complaints or the development of policies and procedures to ensure the issues raised in this article are adequately addressed.

Excuse me, do you have ID?

The government is proposing that directors of charity companies will need to obtain their own unique “Director Identification Number” (DIN), as part of a suite of reforms to combat unscrupulous phoenixing activity and modernise the Australian Business Register and ASIC registers. The introduction of DINs will allow the government and others to trace a director’s relationship across companies, enabling better tracking of directors of failed companies and preventing the use of fictitious identities.

The new DIN system, set out in the Treasury Laws Amendment (Registries Modernisation and Other Measures) Bill 2018, will require directors of:

  • companies registered under the Corporations Act;
  • Australian Registrable Bodies registered under the Corporations Act (commonly these are incorporated associations licenced to operate outside of the state or territory in which they were established); and
  • Indigenous corporations established under the Corporations (Aboriginal and Torres Strait Islander) Act 2006;

to apply to the registrar for a DIN. There are no exceptions for directors of registered charities.

An existing director will have 15 months from the commencement of the laws to apply for a DIN, while new directors will need to apply for a DIN within 28 days of being appointed as a director, including as an alternate director for a short period of time.

If a director fails to apply for a DIN in accordance with the Act they commit a criminal offence punishable by a fine of $12,600, and a civil penalty of up to $200,000.

Interestingly, the new laws also propose to extend liability to any person who is “involved” in a contravention. This could see liability extended to others including other directors, the company secretary, the CEO, and potentially even the company itself if it has been knowingly concerned in the contravention. The civil penalty for a company is a maximum $1 million. It will therefore be crucial for charities to ensure that these new requirements are reflected in their recruitment practices, policies and procedures.

The new laws are currently open for consultation until 26 October 2018. If they are passed, they will commence on a date to be fixed by the government – which is likely to be after some of the other reforms to the registers have been implemented.

Queensland prepares for the national NDIS Worker Screening Check

In anticipation of the new national NDIS Worker Screening Check, due to commence on 1 July 2019, the Queensland government has passed the Disability Services and Other Legislation (Worker Screening) Amendment Act 2018.

The Act permits Queensland police to share a person’s criminal history with other states and territories for the purpose of employment screening for disability work. It also clarifies that Queensland’s yellow card system will apply to sole traders (self-employed workers) who provide NDIS disability services. The yellow card system will continue to apply in Queensland until the new national system commences.

When the new national system is rolled out, a worker will need a clearance if they:

  • are involved in the direct delivery of supports and services to people with disability;
  • are likely to have more than incidental contact with people with disability as a normal part of their duties; or
  • are key personnel of a registered NDIS provider, such as those who hold executive, senior management and operational positions.

From 1 July 2019, a national database will be available with a register of cleared and excluded workers from all states and territories.

The basic framework of the national system was agreed upon in an Intergovernmental Agreement earlier this year. More information about the national system will be released closer to 1 July 2019.

Consultation begins on reforms to Deductible Gift Recipient system

The government has now opened consultations in relation to the first of its reforms to the Deductible Gift Recipient (DGR) system.

Last year, the government announced a suite of 7 reforms, and this Consultation Paper describes how the first two of these reforms will be implemented. The government has said it will continue to engage with the sector in relation to the remaining changes.

What are the reforms?

There are currently 54 DGR categories that an organisation, or a fund controlled by an organisation, can be endorsed under. Each has a different set of eligibility criteria and reporting requirements. The reforms outlined in the Consultation Paper are designed to simplify the system by:

  • requiring that all DGRs must be registered charities; and
  • proposing that that certain public fund requirements be abolished.

The Paper outlines the transition arrangements that would require existing DGRs to apply for charity registration from 1 July 2019 – 30 June 2020. Rather than going through a comprehensive assessment process, the ACNC would automatically grant charitable status to applicants who provide basic information about their purpose, structure and governance.

Who is affected?

Charity registration is already a pre-requisite for endorsement under 40 DGR categories.  Therefore, the requirement to register as a charity will only affect organisations that are endorsed, or are seeking endorsement, in the following categories:

  • funds that provide money for hospitals or public ambulance services with DGR status;
  • funds for the purpose of providing religious instruction in government schools;
  • school building funds and rural school hostel building funds;
  • approved research institutes;
  • funds for the relief of necessitous circumstances ;
  • environmental organisations;
  • cultural organisations; and
  • funds operated by volunteer emergency based services.

It is proposed that in exceptional circumstances, the Commissioner be allowed to exempt an organisation from the requirement to register as a charity. These circumstances are listed in the Consultation Paper.

The reforms will also affect organisations endorsed under one of the 24 DGR categories that require them to establish a public fund. The government is proposing to abolish the requirement that public funds be managed by persons with “a degree to responsibility to the general community” because of some public office or position they hold in the community. Instead, people who manage public funds must simply comply with the ACNC Governance Standards.

What are the implications?

The reforms will largely be felt by those organisations or funds with DGR status that currently aren’t required to be charities. Once registered, they will need to comply with charity law and report to the ACNC, or risk losing their DGR status.

Some organisations that aren’t eligible for charity registration may need to restructure so that their DGR fund is operated by a special vehicle charity.

In terms of the registration of these new charities, while the simplified application process will help to streamline the transition, it is unclear whether the ACNC will ever require them to go through the full assessment process that applies to other organisations seeking charitable status.

How to participate

Submissions are open until 21 September 2018, but any organisation that wishes to be involved in meetings with the government about the reforms must register its interest by this Thursday 30 August.

If you have any questions about the proposed reforms and how they may affect your organisation’s DGR endorsement, please contact us.

Improving the regulation of charities: the review of the ACNC

Earlier this year we wrote about the commencement of the five-year review of the legislation governing the Australian Charities and Not-for-Profits Commission.  Yesterday the Review Panel published its final report, which contains a number of sound suggestions for the improvement of charity regulation in Australia. Here are the ten issues that caught our attention.

1. The objects and powers of the ACNC

The Review Panel found that the objects of the ACNC continued to be relevant, and that it was not necessary to introduce the two new objects proposed by the Commissioner, including in relation to monitoring the “effective use of resources” by charities. It also did not think it was necessary to give the Commissioner additional legislative powers.

2. Fixing Fundraising

The #fixfundraising campaign was heard loud and clear by the Review Panel, which agreed that fundraising reform is sorely needed to introduce a national framework and reduce red tape for charities. The most appropriate mechanism for this is through the existing Australian Consumer Law.

3. Reducing reporting obligations for small charities

Currently charities are categorised as small, medium or large depending on their annual revenue. The Review Panel has recommended that the revenue thresholds be increased for each category, so that the new threshold for small charities is $1 million (increased from $250,000). The result will be that approximately 80% of charities in the sector will be classified as “small” charities and will only need to provide basic financial information to the ACNC, rather than reviewed or audited financial statements.

4. Funding for advocacy litigation

The Review Panel observed that it is very difficult to distinguish the difference between permissible issues based advocacy, and advocacy that indicates the existence of a disqualifying political purpose. It proposed that the ACNC be resourced to conduct test case litigation to resolve these ambiguities in the law.

5. Removing the exemption for basic religious charities

In a recommendation that could prove controversial, the Review Panel has proposed that Basic Religious Charities no longer be exempt from reporting to the ACNC. However it recommended that certain safeguards be put in place, including that the Commissioner not be allowed to replace the responsible persons of a charity and that the Commissioner be able to refrain from publishing their financial reports.

6. Clarifying directors’ duties

The Review Panel identified that there is a lack of clarity when it comes to the duties of charity directors. In particular, it noted that the ACNC Governance Standard 5 (which relates to directors duties) does not directly apply to directors, but rather requires a charity to ensure that directors comply with the standard. To resolve this uncertainty and ensure that directors can be held accountable, it recommended that the directors’ duties in the Corporations Act that were “switched off” following the introduction of the ACNC should be “switched on” again.

7. Addressing the risks of misconduct

Perhaps prompted by the recent RSL scandals, the Review Panel has recommended that all charities be required to disclose related party transactions in their Annual Information Statements, and that large charities (with an annual revenue of over $5 million) disclose information about the remuneration given to directors and executives.

8. Relaxing secrecy provisions

The Panel observed that the ACNC’s inability to comment on its investigations or publish information about important registration or revocation decisions is harmful to the perception of the ACNC as an effective regulator. It has recommended that the ACNC be permitted to make disclosures about its regulatory activities when it is necessary to protect public trust and confidence in the sector.

9. Clarifying the Commissioner’s role

The Review Panel made some recommendations to clarify the Commissioner’s role and the governance of the ACNC more generally. In particular it proposed that the Commissioner’s duties and functions be explicitly set out in the Act (including education and research functions); that the courts have judicial oversight over all decisions made by the Commissioner; and that the Commissioner be supported by an executive committee comprising the Assistant Commissioners, and a more independent Advisory Board with the ability to give advice directly to the Minister.

10. National scheme

Finally, the Panel made it clear that there were still a number of areas of state regulation that were contributing to duplication and red tape for charities. It expressed a desire for a truly national regulatory scheme to be progressed noting that “in the absence of a national scheme, charities and not-for-profits will continue to be subject to an unacceptable level of unnecessary red tape and the Panel considers that other efforts to reduce compliance will merely be interim steps.”

The Panel has made a number of well-considered recommendations and we now wait to see what the government will do to implement them.

Update on proposed political advocacy laws

Last year we wrote about the government’s proposed changes to political advocacy laws in the Electoral Legislation Amendment (Electoral Funding and Disclosure Reform) Bill 2017.

Over 200 submissions were received by the Joint Standing Committee on Electoral Matters. These submissions raised a number of serious concerns with the Bill, including the potential chilling effect it could have on advocacy by charities.

The Committee has released its report on the Bill and made 15 recommendations to government. While still supporting the introduction of a registration scheme for entities that engage in political advocacy, the Committee recommended that:

  • an entity should only need to register if it spends money on political advocacy at a level that could reasonably be expected to have a significant impact on voter behaviour;
  • an entity’s disclosure requirements should be proportionate to its expenditure;
  • there should be greater clarity around the definition of “political expenditure” so that non-political issue advocacy by charities is excluded; and
  • the proposed penalties in the Bill should be reduced.

The Committee supported the proposed ban on foreign donations being used for the purpose of election campaigning. However, it said that requiring charities to obtain statutory declarations from donors to prove they were Australian residents was inappropriate and amounted to unnecessary red tape.

It remains to be seen how the government will respond to the Committee’s recommendations.

Five year review of the ACNC

 

Five year review of the ACNC

Last year the ACNC celebrated its five year anniversary. After surviving a rocky start and calls for its abolition in 2014, the ACNC has gone on to become a trusted regulator in the charity and not-for-profit sector.

The legislation that established the ACNC in 2012 included a requirement that the legislation be reviewed after five years. Late last year the Terms of Reference for the review were released, clarifying that the review would focus on the following issues:

  1. the relevance of the objects of the ACNC legislation;
  2. the effectiveness of the regulatory framework established by the legislation;
  3. whether the powers and functions of the Commissioner are sufficient; and
  4. whether any amendments are required to the legislation, including in relation to the Commissioner’s powers.

The ACNC’s wish list

The ACNC has provided a submission to the review which includes some 40 recommendations, ranging from recommendations to amend the objects of the legislation, create further powers for the Commissioner and to fine tune the legislation to address gaps, inconsistencies and contradictions that currently create uncertainty for the regulator.

We discuss three of the more interesting recommendations below.

  1. The ACNC has proposed that two new objects be added to the ACNC Act:
    • “To promote the effective use of the resources of not-for-profit entities; and
    • To enhance the accountability of not-for-profit entities to donors, beneficiaries and the public.”

The Commissioner has explained that the new objects are not intended to create restrictions or impose limitations on charities, but to enable the ACNC to analyse charity performance and educate the public about the effectiveness and outcomes of registered charities.[1]

Many commentators have, however, expressed concerns about the difficulty of pinning down an objective standard of effectiveness and the appropriateness of the ACNC promoting this in a sector that otherwise celebrates a diversity of missions and methods.

  1. The ACNC recommends that the Commissioner be given the discretion to:
    • extract information from a charity’s AIS, including financial information, and display it on the face of the register; and
    • display information on the register in a graphical format to make it more accessible to users.

Few charities would argue that the ACNC should not make reported information more accessible to donors. However it is unclear how the discretion would be applied in practice, and whether it would be used to negatively highlight charities’ spending on certain lawful activities, and whether it would impact the current uniformity of the register.

  1. The ACNC has requested that the secrecy provisions be relaxed to permit it to publish:
    • reasons for approving or rejecting a charity’s application for registration;
    • reasons for revoking a charity’s registration; and
    • information about investigations and enforcement action taken by the ACNC, when it is in the public interest to do so.

These amendments would enhance transparency in the ACNC’s regulation of the sector, creating precedents for other charities and keeping the public abreast of the ACNC’s enforcement activities.

Contribute to the review

The review is a good opportunity for charities to provide feedback about the functioning of the ACNC and to highlight any areas in which it could better meet its objects of (a) maintaining trust and confidence in the NFP sector, (b) supporting and sustaining the sector, and (c) promoting the reduction of unnecessary red tape.

The terms of reference say that the review should be informed by public submissions, by international experience, through round table discussions and by consultation. Submissions are open until 28 February.

[1] Commissioner’s Column, 25 January 2018, http://www.acnc.gov.au/ACNC/Comms/Com_Col/CC20180125.aspx