25 May 2021

ACNC Duties: What duties do directors of charities have?

This article was republished in Governance Directions (Volume 73 - Number 6).

The duties of a director (ie responsible person or member of a governing body) of a charity come from two main sources of law: the common law and legislation. The duties at common law are, for the most part, reflected in legislation, although there are some subtle differences. Director’s duties are found in many pieces of legislation, but for a director of a charity, the main sources are the Corporations Act 2001 (Cth) and the Australian Charities and Not-for-profit Commission Act 2012 (Cth) (ACNC Act).

While the duties under the ACNC Act are very similar to the duties under the Corporations Act, there are some telling differences which makes the regulatory landscape for charitable companies and their directors somewhat difficult to navigate.

The ACNC Act

In 2009, the Productivity Commission was tasked to look into the not-for-profit sector. In its Research Report (2010), it found several structural issues, including that the current regulatory framework for the sector is complex, lacks coherence and sufficient transparency.

The ACNC Act was subsequently established in 2012 to address such issues.

Some key features of the ACNC Act

  • Registered entities are required to comply with particular obligations, including a set of minimum Governance Standards and external conduct standards. Compliance is a condition of registration.

  • The ACNC Commissioner is responsible for:

(a) the administration of the ACNC Act and assisting registered entities with compliance; and

(b) enforcing the ACNC Act, including gathering information, giving directions and warnings, enforcing undertakings with respect to compliance and suspending or removing responsible persons from office, and cancelling registrations.

 

ACNC director duties

Charities must meet the ACNC Governance Standards to be registered and remain registered with the ACNC. In particular, Governance Standard 5 sets out the duties of responsible persons, who are effectively the directors or members of the governing body of the charity.

ACNC - Duties of Responsible Persons

A charity must take reasonable steps to make sure that the following duties apply to responsible persons and that they follow them:

  1. To act with reasonable care and diligence

  2. To act in the best interest of your charity and for a proper purpose

  3. Not to improperly use information or your position

  4. To manage financial affairs responsibly

  5. To disclose and manage conflicts of interest

  6. Not to allow a charity to operate while insolvent

 

Unlike the Corporations Act, the ACNC duties are owed by the charity itself and not the individual director. This places a greater onus on charities to take proactive steps to ensure that their responsible persons are complying with these duties.

Interaction with Corporations Act

If your charity is registered with the ACNC, some of the obligations that would otherwise apply under the Corporations Act are effectively ‘switched off’ and replaced by the duties under the ACNC Act.

However, the following requirements of the Corporations Act still apply to directors of companies that are registered charities:

  • Criminal offences relating to breaches of duties of good faith and acting for a proper purpose and misuse of position or information (section 184); and

  • The duty to prevent insolvent trading (section 588G).

If your company is no longer a registered charity with the ACNC, you must comply with all ASIC requirements again.

Webinar

Bartier Perry was pleased to present its webinar ACNC Director Duties on 26 May 2021, which explored the following topics:

  • Responsible Person suitability issues

  • Duties of Responsible Persons under the ACNC Act

  • Fiduciary duties and other duties of Responsible Persons

  • Tips to manage risk

To watch the recording of this webinar, please click here.

 

Authors: Michael Cossetto, Eric Kwan and Lucinda Borg