Newsflash: Directors get out of jail free!

February, 2013

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.

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 apply1 and instead charities will be required to comply with the governance standards. We discuss the governance standards in more detail later in this issue of Third Dimension, but 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.

As well as complying with the new ACNC requirements, companies which are registered with ASIC still must comply with certain sections of the Corporations Act, and report certain information to ASIC. Companies also have certain 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 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.

Nature of the Obligation

Has this obligation changed?

Date of change2:

To whom do you report?

 

Or to whom are you responsible?

Before change?

After change?

Initial application

Apply to register a company,a foreign company or a registrable Australian body

No

ASIC

ASIC

Apply to register a charity

Yes, 3/12/2012

ATO

ACNC

Apply for endorsement as a public benevolent institution (PBI)

Yes

ATO

ACNC

Apply for endorsement as a health promotion charity (HPC)

Yes

ATO

ACNC

Apply for endorsement as a deductible gift recipient (DGR)which is not a PBI or HPC

No

ATO (or other relevant body e.g. for environmental organisations)

ATO or other relevant body e.g. AusAID or ROCO

Reportingupdates

 

 

 

Name– Apply to change a company name or omit the word “Limited” from a company name where the charitys Constitution does not prohibit payments to Directors without Directors’ approval or payment of Directors’ fees

No

ASIC

ASIC

Name– Apply to change a company name or omit the word “Limited” from a company name where the charitys Constitution prohibits payments to Directors without Directors’ approval and prohibits Directors’ fees.

No

ASIC

Charities can drop the word

‘limited’ without having to apply to ASIC.

Constitution– Notify changes to or adoption or repeal of a Constitution or governing rules

Yes

 

3/12/2012

ASIC

ACNC

Constitution– Send copy of Constitution to members who request a copy

Yes

 

3/12/2012

ASIC

There is now no equivalent legal requirement

Objects  – Notify changes to objects clause or company activities that could alter tax status

Yes

ATO

ACNC (and possibly also ATO)

Shares– Notify changes to share structure of a company or issue of shares

No

ASIC

ASIC

Members– Notify changes to member register

No

ASIC

ASIC

Responsible people  – Notify of the appointment, resignation or retirement of directors, secretaries and alternate directors or submit personal details of directors and secretaries

Yes

 

3/12/2012

ASIC

ACNC

AddressAdvise of change of company address (including registered office address)

Yes,

 

3/12/2012

ASIC

ACNC

Foreign  companies– Notify changes of details of a foreign company or a registered body including address, directors, constitution/governing rules, name etc

Yes

 

3/12/2012

ASIC

ACNC

External administration– Notify external administration of a company

No

ASIC

ASIC

Reporting–annual obligations

 

 

 

AGM– Hold an Annual General Meeting

Yes

ASIC

There is no legal requirement but an AGM is recommended under governance standard 2.

Annual StatementsReview details on the Annual Statement sent by ASIC and pay the annual review fee

Yes

 

3/12/2012

ASIC

No one, unless the last annual review date was before registration with the ACNC, in which case the Company must pay the annual review fee to ASIC.

Annual Information Statements Lodge an annual information statement with the ACNC

Yes

 

3/12/2012

No one

ACNC

Annual financial report  Lodge an annual financial report with ACNC complying with new financial reporting regulations

Yes, from 1/07/2013 (with the first report due after 1/07/2014)

No one

ACNC

Franking creditsLodge an annual refund of franking credits form (if the organisation receives any franked dividends)

No

ATO

ATO

Fringe benefit  taxLodge an FBT return claiming any rebate or exemption your organisation may be entitled to

No

ATO

ATO

ATO auditsRespond to any audit or information request conducted by the ATO

No

ATO

ATO

Financial auditsRespond to audits/complete audits

Yes

ASIC

ASIC and large charities

and some medium charities undertake audits for annual financial reports to ACNC

GSTRegister for GST and complete GST returns if the organisations earnings exceed the threshold of $150,000 per annum

No

ATO

ATO

PAYGRegister and submit PAYG withholding to the ATO for any employees for whom you withhold PAYG.

No

ATO

ATO

Self-reviewConduct annual self-reviews of the organisations continued entitlement to endorsement as a Charity and/or DGR, keep records of the self-review and advise the ATO if the companys status changes

No

ATO

ACNC (and possibly also ATO)

Miscellaneous

 

 

 

Office  hoursKeep office open during certain hours on business days

No

ASIC

ASIC

Member  approval  – Obtain member approval for certain things

Yes

ASIC

ASIC, but using the conditions from the governance standards

 

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

The draft Governance Standards propose having a transitional period of 18 months from the commencement of the changes on 1 July 2013, unless compliance requires a change to the Charity’s governing documents in which case the Charity would have four years from 1 July 2013 to comply with that rule.

Contact Mills Oakley

For more information, please contact:

vera-visevic-mills-oakley

Vera Visevic | Partner
T: +61 2 8289 5812
E: vvisevic@millsoakley.com.au

Privacy Policy | Terms of Use