20 Dec 2012

Governance standards for the Not-for-Profit sector

by David Landy, Nick Miller, Jacqueline Christie

The draft governance standards for the not-for-profit sector are open for comment until 15 February 2013.

The Government released a consultation paper on governance standards for the not-for-profit (NFP) sector on Monday 17 December.

The governance standards are intended to reflect a minimum set of outcomes for registered charities, rather than mandate "best practice governance" or detailed procedures and requirements necessary for effective NFP governance.

Six draft governance standards are proposed in the Consultation Paper.

1. Purposes and NFP character of a charity: the registered entity must demonstrate its purposes and character as a not-for-profit entity, make information available about its purposes available to the public and comply with its purposes and its character as a not-for-profit entity.

2. Accountability to members (for those entities with members): the registered entity must take reasonable steps to ensure that it is accountable to its members and that its members have an adequate opportunity to raise concerns about governance of the registered entity.

3. Compliance with Australian laws: the registered entity not engaging in conduct, or omitting to engage in conduct, that may be dealt with as an indictable offence under Australian law or by way of a civil penalty of $6,600 or more.

4. Responsible management of financial affairs: the registered entity must take reasonable steps to manage its financial affairs in a responsible manner.

5. Suitability of responsible entities: the registered entity must take reasonable steps that its responsible entities are not disqualified from managing a corporation or disqualified by the Commissioner during the preceding 12 months from being a responsible entity of a registered entity. After taking those steps, the registered entity must be and remain satisfied that each responsible entity meets those requirements, or if it is unable to be or remain so satisfied, take reasonable steps to remove that responsible entity.

6. Duties of responsible entities: the registered entity must take reasonable steps to ensure that its responsible entities are subject to, and comply with, the following duties:

  • to exercise the responsible entity’s powers and discharge the responsible entity’s duties with the degree of care and diligence that a reasonable individual would exercise if they were a responsible entity of the registered entity;
  • to act in good faith in the best interests of the registered entity, to further the purposes of the registered entity;
  • not to misuse the responsible entity’s position;
  • not to misuse information obtained in the performance of the responsible entity’s duties as a responsible entity of the registered entity;
  • to disclose perceived or actual material conflicts of interest of the responsible entity, including related party transactions; and
  • not to allow the registered entity to operate while insolvent.

These are subject to exceptions where:

  • Protection 1 : The responsible entity, in the exercise of the responsible entity’s duties, relies, on certain information, in good faith, and after the responsible entity has made an independent assessment of the information.
  • Protection 2: The responsible entity makes a business judgement decision in relation to the registered entity.
  • Protection 3: In relation to the duty not to allow the registered entity to operate while insolvent, the responsible entity had reasonable grounds to expect, and did expect, that the registered entity was solvent or the responsible entity took all reasonable steps to prevent the registered entity from incurring the debt.
  • Protection 4: The responsible entity could not take part in the management of the registered entity at the relevant time because of illness or for some other good reason.

The closing date for submissions on these draft standards is 15 February 2013.

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Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.