Transcript Slide 1

Constitutions for Schools, and
Corporate Governance
Presented by:
Neil Gordon
Partner
8233 5425
[email protected]
Kent Grey
Partner
8233 5402
[email protected]
The Plan
•Constitutions for schools (Neil)
• Application of the Associations’ Incorporation Act
1985 (Act) to those schools that are
incorporated and, in particular, issues relating to
Constitutions/Rules
•Corporate Governance for schools (Kent)
• Roles and responsibilities of school management
committee members, and corporate governance
issues for incorporated associations, generally
The Associations Incorporation Act,
and Constitutions for schools
Neil Gordon
Introduction
• Why are most (SA) independent schools incorporated associations?
• Content of Constitutions
• Background information
• Required content under the Act
• Method of alteration
• Specific content
• Objects
• Powers
• Membership
• Committee composition
• Meetings
• Accounts and Auditing
• Other issues
• Some other thoughts
Structural Options for Incorporated NFP
Organisations (ie Schools)
• Company limited by guarantee
• Incorporated association
Company limited by guarantee
•Advantages
• Separate legal entity
• Limited liability
• National registration
•Disadvantages
• Level of costs
• Regulation requirements
• Corporations Act 2001 (Cth)
Incorporated Association
•Advantages
• Separate legal entity
• Limited liability
•Disadvantages
• State restrictions (though can be
circumvented)
• Annual regulatory costs
• Accounting requirements
Constitutions – Background Information
• Governs day-to-day operation and management
• Legal contract between:
• The School and the School Board/Council
• The School and the association members (if any)
• A member and each other member (if any)
• Sets out the rights and obligations of the:
• School
• School Board/Council
• Members (if any)
Constitutions: Required Content (s 23A)
• Must contain:
• The name and objectives of the association
• Provisions that deal with:
• Membership
• Powers, duties and manner of appointment of the Board/Committee
• Appointment of an auditor (prescribed association only)
• The calling of and procedure at general meetings
• Management and control of funds and property
• The powers of the association and by whom and how they may be
exercised
• Alteration of the constitution.
• Must not contain any provisions that are contrary to or inconsistent
with the Act
Alteration of Constitutions
• May be made by a ‘special resolution’, unless a
provision in the constitution states otherwise
• An alteration:
• Comes into force at the time it is passed
• Must be registered within one month after being
made and must be accompanied my a statutory
declaration made by the public officer
• Must conform to the requirements of the Act
• The School may apply to the Supreme Court for an
order to alter the Constitution if it is impossible for the
alteration to be passed by special resolution
Constitution - Objects
•The ‘ends’ to the means (which are the
powers)
•An incorporated association must be formed
for a permitted purpose or cause
•Must be clearly set out in the Constitution
•(Partial) abolition of the doctrine of ultra
vires
•Have ‘room to move’ and keep objects under
review, BUT beware of tax risks
Constitution - Powers
•The ‘means’ to achieving the ends (objects)
•Constitution must contain provisions that
deal with the powers of the Association and
‘by whom and in what manner they may be
exercised’
•The Act sets out powers which may apply to
the Association, subject to the Constitution
providing otherwise
Constitution – Membership (ie of the
School)
• Must be addressed in Constitution unless School does not
have members
• Should set out:
• classes of membership
• membership application process
• membership fees to be determined by Board
• voting rights (if any)
• the circumstances in which members can convene a
meeting of members
Example (actual) membership clauses to
discuss
Constitution – Membership
clause – example #1
Membership of the School shall be granted upon written application to the Board.
Any person interested in becoming a member of the School shall agree to the
Statement of Faith described in this Constitution and evidence this by being in active
fellowship with a [XYZ] Denomination Church.
Membership will be granted according to the following criteria:
a)
Any parent, primary caregiver or guardian who has a child/children currently
attending the School
b)
Staff currently employed by the School
c)
School members of no more than 6 years since graduation
d)
[XYZ] Denomination Church Members appointed by the [XYZ] Denomination
Church up to a maximum of 3 members
e)
Life Members appointed by the Board
f)
Current Board Members
g)
Any interested person applying to and approved by the Board.
Constitution – Membership
clause – example #2
Membership of the School is open to:
a)
Parents/adult family members/guardians/carers of enrolled students
who have paid membership and tuition fees for all preceding terms at
least 28 days prior to a General Meeting;
b)
Past students with a minimum of 3 years attendance or members of
the School’s old scholars association. Past students must have attained
18 years of age;
c)
Current staff, and past staff with 5 years service;
d)
Persons who have previously fulfilled membership requirements of the
School or who have been members for not less than 3 continuous years
but who no longer have children enrolled at the School;
e)
Persons appointed and currently serving on the School Board;
f)
Adult members of participating [XYZ] Denomination congregations.
Constitution – Membership
clause – example #3
The Members of the School are as follows:
a)
The Parent Members (each person listed in the admission register of
the School as a parent or legal guardian of a School Student unless the
person has notified the secretary of his or her decision not to be a
member of the association);
b)
The Staff Members (each person who is a member of the permanent
teaching and non-teaching staff member … unless the person has
notified the secretary of his or her decision not to be a Member of the
School Community);
c)
The Community Members (any person who does not have children at
the school but who has been accepted by the School for membership of
the Association as a Community Member);
d)
The Student Members (each student in the School in years deemed
eligible by the Committee);
e)
The Principal.
Constitution – Membership clause – possible
structure
• Define each category of eligibility for membership
• Board discretion to create new categories
• No-one under 18 years of age
• The application process
• Board to decide whether to grant membership – discretion
• Duration of membership
• Board to determine (any) membership fees
• Voting rights (if any) attaching to each category of
membership
• Discipline/expulsion process for members
Constitution – Membership (cont.)
• Consider including member disciplinary and expulsion
provisions
• Must apply fair and just processes / natural justice
• Two major rules
• 'Hearing rule’ – member to receive all relevant
information/allegations before preparing reply, and given
right of reply
• 'Bias rule’ – decision maker should be unbiased and act
in good faith
• Constitution may give aggrieved member the right to make
representations to the Board, and then to members in
general meeting, with members voting whether to affirm
Board decision or not
Constitution - Board
• Powers, duties and manner of appointment must be set out in Constitution
• Should specifically address:
• number of Board members
• 'criteria' for membership?
• manner of appointment / election
• (any) restrictions on term in office
• removal from, termination of, office
• casual vacancies
• quorum number
• regulation of proceedings of the Board
• power to co-opt others (but no vote)
• Powers:
• usually a 'general' statement only; but
• Constitution may allow for some decisions to be reserved to members in general
meeting
Constitution – Board (cont.)
• Minimum and maximum numbers rather than a fixed number
• Membership:
• Should 'characteristics' of Board members be specified?
• Should there be rotation and/or time limits on term in office?
• Removal/termination if extended absence without approval?
• Ability for remaining Board members to act if numbers reduce below
minimum
• Stipulated minimum number of Board meetings
• Right to call meetings
• Meetings/resolutions by electronic means / circular resolutions
Example (actual) Board composition clauses
to discuss
Constitution – Board
clause – example #1
The Board shall be constituted as follows:
a)
There shall be a minimum of 9 and a maximum of 12 Board Members
including ex-officio members but excluding appointed persons under (f).
b)
A majority of the Board shall be members of any [XYZ] Denomination
Church.
c)
Election of the Board Members will be done by the Board, from nominees
or otherwise, and shall be presented by the presiding officer to any
General or Annual General Meeting for ratification by members.
d)
The Principal shall be an ex-officio Board Member and shall be entitled to a
vote.
e)
The Board at its discretion may appoint persons to assist as consultants to
further particular projects, such persons not being entitled to vote (or fulfil
normal functions as a Board Member).
f)
The appointment of all Board Members (other than ex-officio) shall be for a
3 year term until the termination of the appropriate Annual General
Meeting with a right of renomination for further 3 year terms if approved
by the Board.
Constitution – Board
clause – example #2
The Board shall be comprised of up to 9 persons for terms of
3 years commencing on 1 July and expiring on the following
30 June.
The Board shall be comprised of:
a)
Up to 2 persons appointed by the South Australian
[XYZ] Denomination School System Incorporated
b)
The Chief Executive Officer of the School
c)
Up to 4 persons elected by the Members of the
School at an AGM
d)
Up to 4 persons appointed by the Board.
Constitution – Meetings (of members)
• The calling of, and procedure at, meetings of members must be addressed in the
Constitution
• The constitution should deal with the following issues:
• Who can convene a meeting – Board / certain number of members?
• How much notice must be given, and in what form
• The quorum for a valid meeting
• The different types of business that may be conducted (‘ordinary’ and ‘special’)
• The chairing of meetings
• Voting procedures (show of hands or poll?)
• Proxies
• Adjournments
• Minutes to be taken at all meetings and recorded appropriately
• A prescribed association must hold an AGM if it has members where the members must
be provided with:
• the audited accounts
• the auditor’s report on those accounts
• the Board’s report
Constitution – Accounts and Audit
• 'Prescribed Association’ – gross receipts of greater than
$500,000 (includes government grants)
• 'Prescribed Associations' must:
• have accounts audited annually
• table audited accounts, auditor's report and Board's
report, at the AGM
• lodge periodic return with OCBA containing:
• A copy of the accounts;
• A signed copy of the association’s committee statement;
• A signed copy of the association’s committee report; and
• A signed copy of the auditor’s report on the accounts
Exemption from lodging accounts with
periodic return
• Section 38 allows a prescribed association to apply for
an exemption from any of the requirements of section
36(1)
• We have successfully obtained exemptions for
numerous SA independent schools from having to
lodge copies of their accounts
• A school can apply for this exemption if its objects are
limited exclusively to school activities
• It is unlikely that the exemption will be available to an
independent school’s foundation
• But does an association with members benefit from
obtaining this exemption?
Constitutions – other clauses
•Clauses to be included for tax purposes:
• Not-for-profit clause
• Winding-up clause
•Indemnification of officers
Not-for-profit clause
Example
Association to be non-profit
The property and income of the Association shall
be applied solely, and exclusively, to the
promotion of its objects and no part thereof shall
be paid or transferred directly or indirectly by way
of pecuniary profit to the members.
Winding up clause
Example
In the event of the winding up of the School, any
surplus assets remaining after the payment of the
School’s liabilities shall be transferred to another
organisation in Australia determined by the
Denomination [XYZ] Churches of SA Assembly
Board, provided such organisation is eligible for
income tax exempt status for the purposes of any
Commonwealth Taxation Act by virtue of its
religious, charitable or educational objects.
Constitutions - Other
•Notifying the tax office of any alterations to a
school’s constitution
•Tax implications for building funds,
scholarship funds and foundations
•Be aware that the law is changing and some
‘unregulated commercial activities’ may be
taxed
Questions?
Corporate Governance for schools
Kent Grey
Introduction
• Definition of corporate governance
• The key elements of corporate governance
• Consideration of why there has been a recent increase
in interest in corporate governance
• Overview of duties and responsibilities of
Board/Committee members of incorporated
associations
• Useful tips and resources
Definition of corporate governance
Corporate governance may be described as…
“… the process by which agencies are directed and
controlled. It is generally understood to encompass
authority, accountability, stewardship, leadership,
direction and control”
(Department of Families, Housing, Community Services and Indigenous
Affairs, Corporate Governance Handbook for Company Directors and
Committee Members 2nd ed, June 2010)
The key elements of corporate governance
• Corporate governance is a practical issue
• Corporate governance compliance cannot be assessed
in a ‘tick the box’ or ‘black and white’ method
• The key elements for corporate governance are
accountability and disclosure
• Successful corporate governance is achieved through
flexibility, trust and unity of all parties involved
The rationale behind corporate
governance
• Basis of agency theory is that:
• Agents/managers are appointed by the shareholders/owners
for the purpose of conducting the business; and
• The agents/managers need to be held accountable to the
shareholders/owners
• Strong parallel with fiduciary relationships
• Means of guaranteeing that the interests of the
shareholders/owners are aligned with the interests of the
agents/managers
• To ensure the best interest of the shareholders/owners are
managed and preserved
• The realisation that ‘one size does not fit all’
Why is corporate governance
important?
• Development of expectations, awareness and social
activism in society
• Necessity of stakeholders having confidence in the manner
organisations are governed
• Constant legislative and regulatory changes
• ‘Trickle-down effect’ from company governance models
What are the duties of Committee
members?
• Four sources of duties:
• The Association’s constitution
• General law
• Associations Incorporation Act
• Commonwealth Legislation
Incorporated associations and corporate
governance
“… an incorporated association has statutory obligations in
relation to the rules and a statutory obligation to call
meetings, keep accounting records and to keep a
register of members…. The [Act] creates an offence
where a committee member fails to take all reasonable
steps to secure compliance with the association’s
obligations under the Act … It has been said that, in
relation to an association, the committee members
are in the same position as a director toward a
company.”
(Justice Johnson, LAI -v- TIAO [No 2] [2009] WASC 22 (22 May 2009) with
Australian Chinese Confucius-Mencius Saint Tao Centre Inc as Second
Defendant)
Duties of Committee Members vs Company
Directors
Associations
Incorporation Act
(SA)
Corporations Act
(Cth)
Not to act fraudulently
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Improper use of information
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Improper use of position
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Due diligence / reasonable
care
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Liability for insolvent trading
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Avoid conflicts / disclosure
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Good faith / honesty
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DUTIES
Duties of Committee Members under
Association Incorporation Acts
ACT
NSW
Qld
SA
Tas
Vic
WA
Associations
Incorporation
Act 1991
Associations
Incorporation
Act 2009
Associations
Act 2010
Associations
Incorporation
Act 1981
Associations
Incorporation
Act 1985
Associations
Incorporation
Act 1964
Associations
Incorporation
Act 1981
Associations
Incorporation
Act 1895
Not to act
fraudulently
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Improper use of
information
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Improper use of
position
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Due diligence /
reasonable care
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Liability for
insolvent trading
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Avoid conflicts /
disclosure
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Good
faith/honesty
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Duty
NT
Who owes Duties?
• An officer of an Association is any of these:
• committee member
• specified officeholders (secretary, treasurer, public
officer)
• someone “concerned” or who “takes part in”
management of affairs
• someone in accordance with whose directions or
instructions the committee is accustomed to act
Who owes Duties?
• Duties owed whether position is paid or voluntary
• Some duties owed by:
• current officers
• current employees
• former officers
• former employees
Duty not to act fraudulently
• Must not act to deceive or defraud Association or
members, or for any fraudulent purpose
• Duty owed by “officers”
• Penalty: $20,000 or 4 years imprisonment
• Personal liability for profit made, damages caused
• Section 39A(1)
Duty not to use information improperly
• Must not make improper use of information acquired for
pecuniary benefit or material advantage:
• for themselves or another person; or
• to cause detriment to Association
• Duty owed by current/former officers, employees
• Penalty: $20,000 or 4 years imprisonment
• Personal liability for profit made, damages caused
• Section 39A(2)
Duty not to use position improperly
• Must not make improper use of position for pecuniary
benefit or material advantage:
• for themselves or another person; or
• to cause detriment to Association
• Duty owed by current officers and employees
• Penalty: $20,000 or 4 years imprisonment
• Personal liability for profit made, damages caused
• Section 39A(3)
Duty to act with reasonable care & diligence
• Must act with reasonable care and diligence while
exercising powers and duties of office
• Corporations Act/company analogy:
• “The degree of care and diligence a reasonable person
would exercise in the company’s circumstances if they
occupied the same office held by, and had the same
responsibilities within the company as, that director”
• What would an ordinary person with the same
knowledge & experience be expected to have done?
Duty to act with reasonable care & diligence
(cont.)
• No “business judgment rule” defence
• Duty owed by current officers
• Duty owed to “prescribed associations”
• Penalty: $1,250
• Personal liability for profit made, damages caused
• Section 39A(4)
Liability for insolvent trading
• A person can be personally liable for insolvent debts of an
Association, where:
• reasonable grounds to expect the Association was
insolvent when debt incurred;
• reasonable grounds to expect insolvency would result if
debt incurred
• Committee members;
• “person who took part in management”
• (Maximum penalty: $5,000 or 1 year imprisonment)
Duty to avoid conflicts & disclose interest
• A Committee Member must at all times avoid a conflict of
interest
Maximum penalty: $5 000
• If a conflict arises the Committee Member must disclose
that interest to the Committee
Maximum penalty: $5 000
• A conflict of interest arises when a Committee Member
has a personal interest in a contract with their Association
Good news – a defence!
• May rely on information, professional or expert advice
from:
• employee of Association
• professional adviser/expert
• another officer (within scope of authority)
• sub-committee
• Reliance must have been made:
• in good faith
• after an independent assessment of information/advice
Board/Committee Members
• Who should be on the Board/Committee?
• the Principal?
• other school ‘employees’?
• Should the majority of the Board/Committee members be
independent?
• question of feasibility for not-for-profit organisations?
• concise definition of ‘independent’?
Board/Committee Members cont.
• Importance of Board/Committee members continually
acting with ‘independence of mind’
• ‘Independence of mind’ is achieved when a
Board/Committee member:
• always acts in the best interests of the association
• is continually honest and fully discloses any possible
conflicts or relevant information
Handy Hints
• A member of a Board or Committee should always:
• be knowledgeable
• be diligent
• be demanding
• be assertive
• be beyond reproach
• be alert
Questions?