On 1 September 2016, the changes to the Associations Incorporation Act 2009 (NSW) made in the Associations Incorporation (Amendment) Review Act 2016 (NSW) came into effect.
One of those changes was the introduction of a new duty which has the capacity to expose committee members of incorporated associations to personal liability.
Section 30A
Section 30A of the Associations Incorporation Act 2009 (NSW) now provides that:
“It is the duty of each committee member to carry out his or her functions for the benefit, so far as practicable, of the association and with due care and diligence”.
This reflects, but does not exactly replicate, the duty of good faith and the duty of due care and skill imposed on directors of companies under the Corporations Act 2001 (Cth).
What is “the benefit of the association”?
The duty to act for the “benefit of the association” requires committee members to act in the best interests of the association as a whole.
Before approving any resolution, committee members should think about whether the resolution would be of benefit to the association’s members as a general body, and whether it will help to achieve the objects set out in the association’s constitution. This will help committee members to determine whether or not the particular resolution is in the best interests of the association as a whole.
Committee members will likely not act for the “benefit of the association” if they approve a resolution for the primary purpose of making a personal gain, helping a third party to make a gain, or benefitting a particular sub-group of members.
What is “due care and diligence”?
The duty to act with “due care and diligence” requires each committee member to exercise the same level of care and diligence that a reasonable person with the same knowledge and experience as the committee member would exercise in the circumstances.
This likely means that a committee member who has special expertise, such as an accountant who is appointed as a treasurer or financial controller, may be required to exercise a higher standard of care and diligence than other committee members when they are acting within their field of expertise.
Section 30B
Section 30B provides some comfort for committee members. It says that committee members will not be exposed to personal liability if for anything that they do “in good faith for the purpose of exercising the committee member’s functions” under the Act.
Committee members will likely meet the requirements of s 30B if they exercise their powers honestly and not for an ulterior or improper purpose or motive.
JFM Law is happy to advise incorporated associations with all compliance issues. For further information please contact us on (02) 9199 8597 or email us to speak to one of our qualified and helpful people.
The information contained in this post is current at the date of editing – 24 May 2024.
