What the ACNC review means for directors

The findings of the recent review into the Australian Charities and Not-for-profits Commission could change the way that charities are regulated and even impact the way directors’ duties are applied. AICD Senior Policy Adviser Lucas Ryan GAICD explores how.

The final report of the statutory review of the Australian Charities and Not-for-profits Commission (ACNC) was made public on 22 August 2018. Its recommendations, if accepted by government, will shape the regulation of charities and could impact the responsibilities of directors.

About the review

In December of 2017, the ACNC completed its fifth year of operation, bringing a close to its ‘establishment’ phase as a regulator. This milestone triggered a statutory review (the Review) which was conducted between December 2017 and May 2018.

The government appointed an independent panel to undertake the Review chaired by Patrick McClure AO and including Su McCluskey MACID, Greg Hammond OAM MAICD and Dr Matthew Turnour FAICD.

The government has yet to respond to the findings of the review, many of which would require legislative changes.

Key findings

The Review affirmed the broad support of the ACNC among charities and its recommendations generally suggest only minor refinements to the regulatory framework rather than wholesale changes. Notably, the review did not recommend amendment to the objects or functions of the ACNC, despite this being a requested by the new charities commissioner the Hon. Dr Gary Johns through the ACNC’s submission.

Key recommendations of the Review included:

• Significantly raising the reporting thresholds to less than $1 million for small charities, from $1 million to less than $5 million for a medium charities and $5 million or more for a large charities;
• Reviewing the ACNC’s secrecy provisions to enable the ACNC Commissioner to disclose greater information about their regulatory activity and even investigations;
• Bringing certain tax exempt not-for-profits that are not registered charities under the ACNC regulatory framework; and
• Removing, subject to certain preconditions, the exemptions granted to ‘basic religious charities’.

The Review also recommended the adoption of the ‘#fixfundraising’ campaign’s recommendations to improve the regulation of fundraising. It recommended that the Australian Consumer Law be amended to ensure its broad and clear application to fundraising, that state and territory regulatory regimes be repealed or amended, and that a mandatory code of conduct for fundraisers be developed.

The AICD has been an active participation in the #fixfundraising campaign and has welcomed this recommendation by the review.

Changes to directors’ duties

One of the more surprising recommendations of the Review concerns the application of directors’ duties for people who are directors of charities.

Under the ACNC’s ‘governance standards’, charities are required to take reasonable steps to ensure that their directors are subject to and comply with a set of directors’ duties modelled on those in the Corporations Act 2001 (Cth) (Corporations Act). It was intended that the governance standards would replace directors’ duties for these directors by ‘turning off’ sections 180-183 and 191 of the Corporations Act.

However, the review observed that there was some uncertainty about whether and how this applied. Some have suggested that the duties have not been turned off for individual directors, but only for the company itself. Others make the case that it is uncertain, but the duties under the common law are sufficient to cover any gaps.

It has also been suggested that the governance standards themselves overreach the statutory limitations of the Commonwealth’s power. The governance standards attempt to create a framework for directors’ duties by requiring the charity to hold its directors to their duties. This is because the Commonwealth does not have the power to apply the duties directly to individuals. Whether this creative workaround is enforceable in practice has been questioned and would likely take a test case to resolve.

The Review recommended that the duties for directors of charities under the Corporations Act be ‘turned on’ to resolve any uncertainty.

Repealing the power dismiss directors

The ACNC Commissioner has the power to suspended or remove a director of a charity where they have engaged in certain misconduct. If this power is exercised, the ACNC Commissioner may also appoint one or more persons to act as a director of that charity for a period of time. This may be done without making an application to the court.

This is an unusual power for a charities regulator to have, however it has not been exercised by the ACNC thus far. The Review has recommended that this power be removed.

Basic Religious Charities are already exempt from this particular power. The rationale behind this is that a separation between church and state cannot be achieved if government regulators can unilaterally remove the leaders of religious communities from their role.

The Review has recommended that if this power is removed, and if the reporting thresholds are raised, that the exemptions available to Basic Religious Charities be removed.