Cost efficiencies in restructuring or winding up a Qld Incorporated Association.
Queensland has approximately 22,900 incorporated associations. They range in size from local sporting, hobby or interest groups—that collect a nominal membership fee to cover meeting and other costs—to large corporate style businesses, particularly in the hospitality industry, that turn over multi-millions in revenue.
We have previously written about how the somewhat dated Associations Incorporation Act 1981 legislation in Queensland struggled to keep in check the wide range of association sizes/types, and in particular the tensions that go with the historic volunteer-based structure and governance when operating large corporate style businesses.
Recent law changes in Queensland affect all Incorporated Associations (IAs) and impose many new duties upon management committee members. This article focuses on some of the new duties committee members should be aware of, and the new ways that an IA can be restructured or wound up.
Changes in effect (since 22 June 2020)
Voluntary administration introduced
IAs can now appoint a voluntary administrator (VA). The management committee would usually appoint a VA to restructure the business to avoid liquidating the business.
Prior to these law changes, appointing a VA involved multiple court applications and running concurrent administrations, which increased the voluntary administration’s costs significantly. These changes will reduce those costs and work to achieving the goal of a successful restructure.
Voidable transactions introduced
The Associations Incorporations Act 1981 (Qld) is amended to introduce the voidable transaction provisions of the Corporations Act 2001. This means that an IA is placed into liquidation a liquidator may recover various types of voidable transactions including:
- Unfair preferences.
- Uncommercial transactions.
- Unfair loans.
- Unreasonable director-related (committee member) transactions.
- Undervalued transactions.
Changes expected by 30 June 2021
Duty to prevent insolvent trading
The Corporations Act imposes a duty upon directors not to trade a company while insolvent. Until now, management committee members have not had a similar duty imposed upon them.
From 30 June 2021 management committee members will have a duty not to trade while the IA is insolvent. If insolvency is expected or the IA is about to become insolvent, the management committee must appoint an external administrator to avoid committing an offence.
If the IA is insolvent at the time a debt was incurred, or becomes insolvent by incurring the debt, the management committee members have a duty to prevent the association from trading while insolvent. It will be an offence for a person who took part in the management committee unless they:
- can prove that the debt was incurred without their authority or consent
- can prove they did not take part in the association’s management when the debt was incurred because of illness or “some other good reason”
- had reasonable grounds to expect that the association was solvent when the debt was incurred and would remain solvent.
Duty of care and diligence
Management committee members must carry out their functions in association’s best interests, and with due care and diligence. Penalties will apply for breaches of these duties. It is expected that these duties will be similar to those imposed upon company directors under the Corporations Act.
A full summary of the changes can be found on the Queensland government’s website click here.
If you are a part of a management committee or advising an IA that is looking at undertaking a restructuring or is potentially facing insolvent trading, please reach out for a no obligation discussion with one of our registered liquidators. The law for these types of entities law does vary in other states and to get in contact with your Worrells partner in the state the association is incorporated in.