How do the duties of an officer of an association differ from the duties of the director of a company? Dennis Martin, Director of Snedden Hall & Gallop Lawyers, explains that incorporated associations are governed under state or territory legislation rather than the Corporations Act and operate slightly differently.
This is part 3 of a three-part blog series. In part 1, we look at 4 key directors duties and part 2 discusses significant cases that have shaped directors’ duties.
In the ACT, the Associations Incorporation Act 1991 applies. There are a number of benefits that are similar to a corporation including: the capacity for the organisation to continue even though its members may change, acquire, hold and dispose of property; sue or be sued; and enter into and enforce contracts in its own name. Incorporated associations are also required to provide financial and information reports as well as comply with auditing requirements.
Duties that apply to incorporated associations
When considering whether or not the duties for officer-bearers of an incorporated association or a company differ, the duties under general law are uncertain. There is minimal case law on this issue. However, it is generally suggested that committee members who are office-bearers owe the same duties as company directors.
Two arguments have been formulated in support. The first is that as both committee members and company directors are acting in an analogous fiduciary relationship to a corporate body, they should have the same obligations. This assumes that the relationship between a company director and a for-profit company is analogous to that of a committee member and a non-profit association.
The second argument is that the courts may equate the general law position for committee members with that for company directors. However, the fact that not all jurisdictions have codified the duties of committee members, and that those that have codified, each enacted a different group of duties, only means that no uniform view exists under the varied Associations Incorporation Acts.
In Commonwealth Bank v Friedrich (1991) it was held that an honorary director will not in itself entitle a person to be held to a lower standard than a paid director. In relation to a voluntary director for an incorporated company limited by guarantee, what constitutes the proper performance of the duties of a director will be dictated by a host of circumstances including, type, size and nature of the enterprise, the provisions of its constitution, the composition of its board and distribution of its work between the board and officers.
There are statutory duties for committee members that mirror the duties for company directors. For example, committee members must disclose to the committee any direct or indirect pecuniary interest that they have in a contract that the committee is a party to. Committee members should not take part in any decision-making where they have such an interest. This is analogous to the director’s duty to disclose and manage a conflict of interest.
Considering the lack of reported cases dealing with the duties of committee member at general law, it would be prudent and sensible for committee members of an incorporated association to hold themselves to the same standard as a company director.
As with a company director, committee members and the public officer are primarily responsible for ensuring an incorporated association complies with its statutory and reporting obligations. Failure to comply with these obligations may lead to the issue of a penalty notice, prosecution, or in some instances, cancellation of the association’s incorporation.
How can Snedden Hall & Gallop assist?
We can assist office bearers in incorporated associations to carry out their duties with due care and diligence for the benefit of the association. Dennis Martin can assist you in understanding your role and can provide advice on the day-to-day issues that you may face as a committee member of an incorporated association. You can contact him for any commercial matter on (02) 6285 8000 or by email.
This is the third in a three-part blog series. Have a look at Part 1: the 4 key duties of a director and Part 2: the major cases that have defined the duties of company directors.