Australia: Uncertain times for volunteer directors

In the past, many people, without hesitation, would volunteer to be a director or board member of a not-for-profit organisation, however, we are in uncertain times as recent litigation has caused concern for some volunteer directors and many more are now seeking some form of protection from their not-for-profit organisations for their potential exposure in these roles.

The concern generally speaking, arises from the disparity between the level of comfort a not-for-profit organisation can provide a volunteer director and the level of comfort of the volunteer director seeks.

For the most part, the duties of a volunteer director are the same as those of any company director under the Corporations Act 2001 (Cth) (the Act), consisting namely of the duty,

  • to avoid allowing the company to trade whilst insolvent
  • to act in good faith
  • to act honestly
  • to act with reasonable care and diligence
  • not to misuse position or information obtained whilst acting as a director
  • to disclose any material personal interest or conflict

If you are a director of a not for profit company under the Act and the company is also registered as a charity with the ACNC (but not as a Basic Religious Charity), then in addition to the duties under the Act you must also observe the 5 Governance Standards, prescribed by the Australian Charities and Not-for-profits Commission Act 2012 (Cth). In particular, you as a director, must ensure that the financial affairs of the charity are managed responsibly.

The ACNC prescribes that:
"As minimum, responsible persons should have good processes to prevent problems and to manage money responsibly", such as "reading financial statements" as well has "having a process to ask questions if they don't understand."

The types of processes for risk management to be implemented will depend on the size of the charity and the nature of its financial affairs.

For example, to ensure uniform observance of the 5 Governance Standards throughout all the operations of the Charity, it is recommended that the employment contracts or handbook of non-director officers and committee members (whether they are volunteers or paid employees) of an entity impose these same obligations on such persons.

Where a charity, registered with the ACNC is not a company incorporated under the Act, but is a legally recognised entity (such as an association) the governing body must also adhere to the 5 Governance Standards.

Importantly, to fulfil the duty of good faith under the Act directors must exercise "independent judgement". In the case of Blackwell v Moray (1991) 5 ACSR 255 the Supreme Court found that a director who simply adopted the preferences of the company's majority shareholder, without exercising independent judgement, had breached his duty of good faith, namely, to act bona fide in the exercise of the discretion required of a director so as to act for the benefit of the entity.

This means that merely turning up to meetings of the board is not sufficient to meet the requirements of acting as a director; a director must be actively involved in exercising independent judgment when it comes to voting on resolutions of the meeting including as a minimum "considering the views of the relevant materials" (Per Cohen J) not just follow the majority decision because it is the "popular" opinion.

Volunteer directors must always declare perceived or actual conflicts of interest.

ACNC offers volunteer directors this advice " Don't be embarrassed to declare a conflict of interest!"
Failure of a director to declare a conflict can, as the ACNC has correctly pointed out on its website, "damage your charity's reputation", and will constitute a breach of the Act.

For example, recently the UK equivalent of the ACNC, the Charity Commission, announced a statutory inquiry into the Manchester based charity "My Community UK" for an alleged failure to manage conflicts of interest.

In another instance earlier this year the Charity Commission advised the Tate Britain to "follow its policies and processes concerning the management of conflicts of interest" after the gallery displayed artworks of Tomma Abts, who was also one of the Tate's trustees.

Of the 23 investigations undertaken by the UK Commission in 2013 nine involved "unmanaged conflicts of interest". Directors should ensure that there are adequate procedures in place as to how to deal with conflicts of interest, if and when they arise.

Directors should take extreme care not to allow their company or not for profit organisation to trade while insolvent. Where an entity continues to trade whilst insolvent, and it is found by a Court that the director has not acted with appropriate care and diligence the directors may lose the protection of the corporate veil and be found personally liable for the company's debts. Additionally, these directors may be the subject of criminal proceedings for their breaches of the Act (S588G of the Act) – A director will be found to have breached his duties if he is aware that there are grounds for suspecting the company of being insolvent and/or a reasonable person in a similar situation in the company's circumstances would have been so aware.

In the 1991 National Safety Case (1991) 9 ACLC 946 the Chairman of a not-for-profit organisation was held personally liable for the losses incurred after he signed an annual financial statement attesting that the company was solvent when in fact it was not.

All companies and not-for-profit organisations that can afford to do so should maintain Directors & Officers Liability Insurance. Most constitutions provide that the entity must at all times maintain such cover. If such cover is unaffordable, entities may indemnify their Directors by Deed.

Insurance and indemnities cannot assist a director who is guilty of any criminal offence or reckless act.

It was noted in Federal Parliaments' Standing Committee on Economics, theACNC Act endeavours to "ensure that the individuals do not seek to hide behind the protection of a corporate veil to protect themselves from acts of deliberate misconduct".

Justice Tadgell said in the National Safety Case at 1012,

"It is in the public interest that, while directors should be held accountable of their conduct, able people should not be deterred from offering their voluntary services for want of adequate protection."

Every effort should be made to inform volunteer directors about their real exposure, without unnecessarily alarming them, to ensure their work continues for the benefit of the charity. In particular, volunteer directors should be steered towards the ACNC website which provides an abundance of useful and accessible plain English advice on good governance and tips as well as warnings about common traps for directors.

The duties of the directors under the Act although not binding on the governing group of these entities may be used as a reference point and benchmark to achieve best practice.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Mondaq Advice Centre (MACs)
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.