Legal Updates

A company limited by guarantee is a type of incorporated legal structure that is suitable for some Not-For-Profit organisations.In a company limited by guarantee, the members of the company have limited liability.  The members agree in writing (‘guarantee’) to pay a nominal amount (usually $10-$100) to the property of the company.  If the company is wound up, the liability of the members is limited to the nominal amount that they have guaranteed.

Benefits of a company limited by guarantee

Some of the benefits of this structure include:

• it is facilitative of not-for-profit status
• as a public company it has the extra scrutiny, transparency and accountability that is required of such companies, giving it a level of credibility and independence that will give confidence to funders and members alike
• it can be established as a ‘special purpose’ company
• it is a straight forward structure familiar to organisations wish to provide funding or be involved
• it provides operational flexibility
• the liability of members is limited to a fixed amount, being the sum of the guarantee
• it allows for perpetual succession
• the company has capacity to enter into and enforce contracts
• the company has the capacity to sue and be sued
• it has all the benefits of corporate status
• the activities of the organisation may be carried out throughout Australia

Checklist to establish a Public Company Limited by Guarantee (PDF)

On 2 October 2014 the Commonwealth Government introduced the Freedom of Information Amendment (New Arrangements) Bill 2014 (Bill) in the Australian Parliament. The Bill proposes to implement the Government's 2014-15 budget measure, Smaller Government – Privacy and Freedom of Information functions. If it passes into law, the Bill would:

• repeal the Australian Information Commissioner Act 2010 (Cth) and abolish the Office of the Australian Information Commissioner (OAIC); and
• amend the Privacy Act 1988 (Cth) (Privacy Act), the Freedom of Information Act 1982 (Cth) (FOI Act) and the Ombudsman Act 1976 (Cth).

From 1 January 2015:

• the Australian Privacy Commissioner would undertake the OAIC's current functions under the Privacy Act, including handling of privacy complaints, undertaking investigations and other regulatory activities, and providing guidance and advice on privacy to individuals, organisations and agencies; and
• the OAIC's functions under the FOI Act would be undertaken by the Attorney‑General’s Department (advice, guidelines, annual reporting), the Administrative Appeals Tribunal (merits review) and the Commonwealth Ombudsman (complaints).

The Explanatory Memoradum for the Bill states that this would largely restore the system for the management of privacy and FOI issues that operated before the OAIC was established on 1 November 2010.For further information on how the OAIC will deal with privacy and FOI matters up to 31 December 2014 please contact us.

The Australian Charities and Not-for-Profits Commission (ACNC) plans to revoke the charity status of 400 organisations it believes are no longer operating.The ACNC says that these charities are being removed from the ACNC Charity Register as they have not been in contact with the ACNC since its establishment on 3 December 2012, have not responded to multiple letters and calls, and have not completed their 2013 Annual Information Statement. The ACNC was also not able to find evidence to suggest these charities are still operating, despite an exhaustive search.If any one of these charities is still operating it is required to contact the ACNC by 14 October 2014 if it wishes to maintain its charity registration.Charities that have their charity status revoked by the ACNC will be unable to access Commonwealth charity tax concessions.An additional 3 200 charities may be progressively removed from the Charity Register over the coming months. Charities are advised to complete their 2013 Annual Information Statement to ensure they maintain their charity status, and do not incur penalties.The full list of charities marked for revocation, and information on how charities can contact the ACNC is available at acnc.gov.au/whereareyou

On 13 June 2014 the Full Federal Court confirmed that a fundraising organisation, The Hunger Project Australia (HPA), can be endorsed as a public benevolent institution (PBI) even though it not directly provide benevolent relief.The HPA decision confirms that fundraising is "activity" within the meaning of an "institution", and is different to merely administering a trust or a fund. This affirms the High Court's approach in Word Investments, where an organisation that fundraised through commercial activity was found to be an "institution" for PBI purposes.In HPA (at paragraph 67) the Court found that:

"The ordinary contemporary meaning or understanding of a public benevolent institution is broad enough to encompass an institution, like HPA, which raises funds for provision to associated entities for use in programs for the relief of hunger in the developing world. The fact that such an institution does not itself directly give or provide that relief, but does so via related or associated entities, is no bar to it being a public benevolent institution. Such an institution is capable of being considered to be an institution organised or conducted for the relief of poverty, sickness, destitution and helplessness." (emphasis added)

Assuming the Government does not seek to change the tax legislation to reverse the Court's decision, new charities that engage in fundraising to support benevolent relief could apply (and organisations that previously applied and were rejected as PBIs could re-apply) to be endorsed as PBIs. Subject to endorsement, these organisations would then be able to access various tax concessions and exemptions including income tax exemption, fringe benefits tax exemption (vs the FBT rebate) and gift deductibility.The Commissioner of Taxation previously took a narrow view that an entity who merely engaged in fundraising activities and did not materially perform charitable works directly for the benefit of the public is not a PBI. However, the Australian Taxation Office has confirmed it will not appeal the Full Court's decision the HPA case.Please contact us if you would like more information about endorsement as a PBI or how to your charitable organisation can access tax concessions, endorsements or gift deductibility.

The Federal Government has announced the dates and locations for the consultation forums to discuss the as yet unreleased replacement arrangements for the Australian Charities and Not-for-profits Commission. The Department of Social Services said an Options Paper, set to be released early July, would explain the ACNC replacement arrangements and provide options on how key functions will be transitioned to the Australian Taxation Office and Australian Securities and Investments Commission. The Department said the consultations would run in addition to written submissions. A submission template will be release in early July.To register for a consultation session, visit the Department's website.

As discussed in our Legal Update of 20 March 2014, the Australian Charities and Not-for-profit Commission (Repeal) (No.1) Bill 2014 (Repeal Bill) was introduced into the House of Representatives on March 19. The Repeal Bill would, if passed, abolish the ACNC. However, the repeal would only take place with the passage through the Parliament of the No.2 bill, which has not been introduced.

Senate committee report

On March 27 the Repeal Bill was referred to the Senate Economics Legislation Committee (Committee) for inquiry and report.The Committee received 155 submissions plus additional information. On 16 June 2014, the Committee tabled its report recommending the Bill be passed by the Senate. Labor and Greens senators tabled dissenting minority reports calling for the ACNC to continue as Australia’s national charity regulator.The Repeal Bill will now return to the Senate for a vote, however at this stage there is no timetable for when that may happen. There is currently only one more week in the Parliamentary sitting calendar before the winter break.The ACNC Commissioner has stated that the ACNC will continue to regulate the sector and perform its legislative functions until future arrangements are known.

Public consultation on how to replace the ACNC

The Department of Social Services has stated that an Options Paper will explain the ACNC replacement arrangements and provide options on how key functions would be transitioned to the ATO and ASIC. The paper will be available on the Department’s website and stakeholders will be invited to provide written submissions, up until four weeks after the last open forum is held.The Department has confirmed that it will conduct open consultations during July and August 2014 on arrangements for replacing the ACNC as national charity regulator. The Department has said that dates and locations would be advertised on the Department’s website before the end of June 2014.

The Australian Taxation Office (ATO) is reminding "missing" charities that they risk losing access to their charity tax concessions unless they confirm to the Australian Charities and Not-for-profits Commission (ACNC) that they are still operating by 30 June 2014.Some charities which were automatically registered with the ACNC need to confirm they are still operating by 30 June 2014 because correspondence sent to them has been returned unopened. It could be that these charities are no longer operating, or simply that their details are out of date. Charities need to:

1. check that they are not on the ACNC’s list of missing charities
2. inform the ACNC if they are no longer operating
3. provide up-to-date contact details, if they are still operating.

If the ACNC does not hear from these charities by 30 June 2014, it will start a process of revoking their registration as charities. If a charity is not registered with the ACNC, the charity will no longer be entitled to access their charity tax concessions. The ATO will revoke their charity endorsement, and remove their endorsement as a charity from the Australian Business Register. For further assistance please do not hesitate to contact us.

From 1 July 2014, income tax exempt funds (ITEFs) will be listed on the ACNC Register, unless the ACNC is advised otherwise. The Charities Act 2013 provided that these funds be registered with the ACNC as charities from 1 January 2014. This change means that these entities are registered with the ACNC, and will now be endorsed by the ATO to access tax concessions as a registered charity, rather than as an income tax exempt fund. The ACNC is delaying publishing information about ITEFs on the Register until after 30 June to enable these funds time to request information about their organisation or responsible persons to be withheld. If you wish to apply for information to be withheld from the ACNC Register details are obtained at http://www.acnc.gov.au/ACNC/FindCharity/About_Register/Withheld_info/ACNC/Reg/With_info.aspx. For further assistance please do not hesitate to contact us.

ASIC has released information to help directors and audit committees develop robust standards as part of its commitment to improve audit quality.

Information Sheet 196 Audit quality: The role of directors and audit committees explains:

• why audit quality is important
• the responsibilities of the auditor
• the roles of directors and audit committees
• the responsibilities of directors for auditor independence
• who should manage the appointment of auditors
• what matters should be considered in setting audit fees, and
• what directors and audit committees can do to promote audit quality.

How this can help your NFP?

• The quality of the independent audit process supports confidence in the quality of financial reports.
• Audit is important to NFP companies, so they can obtain funding and conduct business, and so that stakeholders (such as donors, Government and corporate partners) are confident and informed.
• The quality of audits is also important to a wider group of stakeholders, such as creditors.

INFO 196 suggests directors and audit committees consider:

• non-executive directors recommending auditor appointments and setting audit fees
• assessing the commitment of the auditors to audit quality
• reviewing the resources devoted to the audit, including the amount of partner time and the use of experts
• accountability within the audit firm for quality
• support by company management for the audit process
• two-way communication with the auditor on concerns and risk areas
• ensuring independence of the auditor, and
• reviewing audit firm responses to findings from ASIC audit inspections

A copy of INFO 196 can be found at : http://www.asic.gov.au/asic/asic.nsf/byheadline/Audit-quality--The-role-of-directors-and-audit-committees+?openDocument

The Australian Law Reform Commission (ALRC) recently released a Discussion Paper on a proposed statutory cause of action (i.e. the right to seek judicial redress) for serious invasions of privacy.The paper seeks feedback on some 47 proposals for privacy related reforms. Among these are that new Commonwealth legislation be introduced to provide for a statutory cause of action for serious invasions of privacy, and a new Australian Privacy Principle (APP) should provide a “right to have personal information deleted”.Statutory cause of action – Serious invasion of privacyThe scope of the proposed statutory cause of action for serious invasions of privacy is broad and could substantially change the privacy obligations for organisations across a range of sectors, including the not-for-profit sector. Of significance to the NFP sector is that the ALRC proposes the tort (i.e. the civil wrong) should be available for (among other things) a disclosure of private information to one person (ie not publicly) where this is a serious interference with privacy. For example, if an organisation publishes sensitive health information about an individual to their allied health professional without consent. In this context, the tort will be relevant to all NFP organisations that hold personal information about individuals, including their clients, staff and volunteers. The paper proposes that if a tort of privacy is not introduced:

• legislation should be changed to allow plaintiffs to recover damages for emotional distress in cases where breach of confidence involves a serious invasion of privacy; and
• a new Commonwealth statute should be enacted to provide for a statutory tort of harassment and harmonises existing criminal offences across the States and Territories.

Right to be deletedThe paper also proposes a new Australian Privacy Principle (APP) for deletion of personal information. The proposed APP would require organisations to provide individuals with a simple mechanism to request that personal information which they provided to the organisation be destroyed or de-identified; and require the organisation to take reasonable steps (subject to suitable exceptions) to comply with such a request in a reasonable time or provide the individual with reasons for not doing so.The ALRC is seeking submissions on the discussion paper from interested organisations and community members. The closing date is Monday 12 May 2014.  NFP Lawyers is reviewing the discussion paper. Feedback is welcome by email to joanne.redburn@nfplawyers.com.au by COB 29 April 2014.