1. Terms of reference. This Commission has a reference “to review the law and practice relating to unincorporated associations and incidental matters".
2. Present law; comparative law. The present law and the problems to which it gives rise, and legislation in other places for the incorporation of associations, were discussed in a paper put out by this Commission in December 1977 and headed "Unincorporated Associations: Memorandum and Draft Legislation".
3. A registration scheme. The Commission has been looking at a twofold approach. In the first place attention has been given to legislation for non-profit associations broadly along the lines of Acts and ordinances in other Australian States and Territories and in New Zealand. Such legislation would provide a simple means by which a non-profit association could, at its option, become registered and, as a consequence of registration, incorporated. An association thus incorporated would have a minimum of statutory duties and restrictions.
4. Unregistered associations. In the second place, attention has been given to the position of an association which does not register. A scheme has been devised under which an unregistered association might be given specified attributes more or less analogous to some attributes of corporations. Under another scheme, an association fitting a specified description would be made a corporation automatically, without registration, but subject to some disabilities, including disabilities relating to property and litigation. Under the latter scheme an association thus incorporated might shed those disabilities by registration.
5. Immediate objective. It became clear that the Commission could not recommend reforms with both these objectives except after very wide consultation and that that consultation would take a long time. The Commission has therefore decided to proceed towards a report recommending a scheme for incorporation by registrations generally among the lines of legislation in other places. The Commission has not abandoned proposals for dealing with associations which do not register, but that is a matter for the longer term.
6. Aims of this paper. The present paper outlines a scheme for incorporation of non-profit associations by voluntary registration and identifies and discusses some of the major problems raised by such a scheme.
7. Non-profit association. The scheme is concerned with what may briefly be referred to as non-profit associations. The general test is whether the association carries on its activities for the acquisition of gain by the association or any of its members (*1).
*1. See paragraphs 13 to 18 below.
8. Outward purpose. In this paper, but not in legislation giving effect to the present scheme, it is useful to distinguish in a broad way between two kinds of purpose for which an association may be formed. First, there are purposes affecting the community at large, whether by way of philanthropy (e.g., running a child-care centre) or otherwise (e.g., promoting good relations between Australians and the citizens of another country, promoting a religious doctrine, promoting a political doctrine, promoting the opinion that the earth is flat). These may be called outward purposes.
9. Inward purpose. The second kind of purpose comprises purposes directed to the benefit of members. A golf club providing facilities for recreation of members and their guests is an example of an association for a purpose of this kind. Another might be found in a religious community devoted to the salvation of its members. Purposes of this kind may be called inward purposes.
10. Mixed purposes. Commonly an association will have both inward and outward purposes. Thus a golf club may also have purposes of charity, at least in the sense that it is open under the rules of the club to promote works of charity. And a religious community, though working for the salvation of its members, may also be seen as promoting the spiritual well-being of people who are not members.
11. The scheme in outline. For the sake of simplicity of expression, much of the description and discussion which follows is expressed as though the proposed scheme were in operation. The scheme has the following features
(a) There is a Registrar of Associations. He has the general administration of the Act setting up the scheme. In general, his decisions are subject to appeal to the Supreme Court. He is authorised to publish model rules and otherwise to assist those concerned with the affairs of associations registered or proposing to become registered under the scheme (1*). And he is authorised to adjudicate in internal disputes (*2).
(b) With three qualifications, any association not already incorporated is eligible for registration.
(c) The first qualification concerns an association carrying on its activities for gain. That is a ground for winding up by the Court. Where the Registrar sees that an applicant association would, if registered, be liable to be wound up on that ground, he may refuse to register (*3).
*3. See paragraphs 16 and 17 below.
(d) The second qualification concerns an association carrying on. activities (whether for gain or not) on such a scale that it should be registered under the Companies Act or some other Act. In such a case the Minister is authorised to direct that an application for registration under the present scheme be refused (*4).
*4. See paragraphs 21 to 23 below.
(e) The third qualification concerns associations, for example trade unions, already so far regulated by statute that registration under the present scheme may be mischievous, and associations founded on the joint stock principle (*5).
*5. See paragraphs 26 and 27 below.
(f) In order to be registered, an association must have written rules dealing with specified basic matters (*6), must appoint a public officer on whom documents can be served so as to have effect as service on the association, and must apply for registration to the Registrar.
*6. See paragraph 28 below.
(g) On registration the association is made a corporation. An incorporated association is in the ordinary position of a statutory corporation, save that the doctrine of ultra vires is excluded.
(h) On registration, in matters of property and civil rights and liabilities generally, the incorporated association is put in the place of the unincorporated association and of persons acting for the unincorporated association.
(i) Management of the affairs of an incorporated association is in the hands of a committee numbering two or more. The rules must provide for appointment of the committee by, for example, an election by members.
(j) The rules are alterable in the manner specified in the rules. But there is a means by which any provision of the rules may be entrenched, that is to say, made unalterable save with some specified consent (*7).
*7. See paragraphs 33 to 35 below.
(k) The Court may, on application by the association or a member, declare and enforce the rules, whether or not a right of a proprietary nature is involved, and whether or not the applicant has an interest in the property of the association.
(l) There are requirements for lodgment with the Registrar of -
(i) notice of alteration of the rules;
(ii) notice of changes relating to the public officer;
(iii) a simple annual return (*8); and
(iv) notice of change of name.
*8. See paragraph 49 below.
(m) There are also provisions by which an association may, by its rules, undertake a duty to draw up accounts, have them audited, and lodge them with the Registrar (*9).
*9. See paragraphs 40 to 48 below.
(n) Except as mentioned in subparagraphs (l) and (m), there is not, in the ordinary conduct of the affairs of an incorporated association, any requirement for lodgment of documents with the Registrar.
(o) The Registrar is authorised, on application by a member, to direct an incorporated association to furnish to the applicant, or to any class or all of the members, such accounts and other information relating to the association as the Registrar thinks reasonable (*10).
*10. See paragraph 48 below.
(p) The Registrar is given power to adjudicate in internal disputes. But this power may be excluded by the rules (*11).
*11. See paragraphs 36 to 39 below.
(q) There is provision for merger of two or more incorporated associations, and for migration between the registration scheme now under discussion and the Companies Act, 1961, and other Acts, for example the Co-operation Act, 1923.
(r) The Minister is given power to direct an incorporated association to migrate to the Companies Act (or to some other Act, e.g., the Co-operation Act, 1923) where he is of opinion that the scale of the association's activities has reached such a size that the association should have the closer regulation provided for by the Companies Act (or other Act) (*12).
*12. See paragraphs 21 and 22 below.
(s) There are provisions relating to receivers and managers based on the Companies Act, 1961, ss.187-197.
(t) An incorporated association is required to insure against a wide range of claims in tort. In a winding up a committee man in default has an unlimited personal liability in respect of these claims (*13).
*13. See paragraphs 50 and 51 below.
(u) While an incorporated association is a going concern (that is, not in winding up), a member has such liabilities to the association as may arise under the rules. He does not, merely because he is a member, have any direct liability to a creditor of the association, either while the association is a going concern or while it is being wound up. In a winding up, however, he has such liability (if any) to the association as may be prescribed by the rules to contribute towards payment of the debts and costs, and for adjustment amongst members (*14).
*14. See paragraphs 55 to 60 below.
(v) Further, in a winding up an additional liability to contribute may be imposed on an officer of the association. For this purpose a member may be an officer of the association: this will be so, for example, if he is a committeeman or an employee of the association. Liability may be imposed where the officer joins in causing the association to contract a debt and he does not have reasonable grounds for expecting that the association will be able to pay the debt. Liability may also be imposed where the officer joins in conducting the affairs of the association for a fraudulent purpose (*15).
*15. See paragraph 56 below.
(w) There are two kinds of winding up, an official winding up and an internal winding up (*16).
*16. See paragraphs 61 below.
(x) An official winding up may be instituted by order of the Supreme Court on specified grounds or by direction of the Registrar on specified grounds. Once instituted by one of these means, an official winding up follows a single set of legislative provisions (*17).
*17. See paragraphs 61 and 63 below.
(y) An internal winding up may be instituted by resolution or other decision of the association in accordance with its rules, but only where evidence of solvency can be given. Once instituted, an internal winding up follows the legislative provisions for an official winding up, save that the effect of some of those provisions may be altered by resolution or other decision of the association in accordance with its rules.
(z) In a winding up, surplus assets would be disposed of in the manner prescribed by the rules or otherwise in accordance with legal right, but the Court has an overriding power to prevent an unjust disposal of surplus assets (*18).
*18. See paragraphs 68 and 69 below.
(aa) Arrangements are made by which a person (called an "outside controller") may have a standing, in particular in matters relating to a winding up, similar to the standing of a member. A person is an outside controller if the rules so provide or if, by the rules, he has a voice in a decision to change the purposes of the association. These arrangements help to deal with questions arising in relation to parent associations and branch associations (*19).
*19. See paragraphs 52 and 53 below.
(ab) A person entitled to surplus assets in a winding up, otherwise than as member, is given a standing in some matters relating to the winding up similar to that of a member. He is called a beneficiary of surplus assets (*20).
*20. See paragraphs 66 and 67 below.
(ac) A trust for a non-charitable purpose, where the trust is related to an incorporated association, is given a validity often lacking under the present law (*21).
*21. See paragraph 54 below.
(ad) There are a number of criminal provisions designed to promote fairness and honesty amongst committee men and other officers of associations.
(ae) Other provisions may be mentioned merely to show that they are not overlooked. These relate to:
(i) the Act binding the Crown;
(ii) permissible names, reservation of name, change of name;
(iii) form of contracts, authentication of documents, cure of. irregularities, disclosure of interest by committee man, relief to officer etc. in default, relief to member against oppression, security for costs;
(iv) certificates of the Registrar as evidence of registration and other matters;
(v) dissolution after winding up, and of defunct corporations;
(vi) revival and other matters after dissolution;
(vii) general provisions relating to the office of the Registrar;
(viii) official investigations.
12. Amplification; questions for decision. This paper goes on to amplify the foregoing outline and to identify and discuss some matters for decision.
13. Association not for gain. The scheme is concerned with associations not for the acquisition of gain by itself or its members. How is the scheme to be restricted to associations of that character?
14. Eligibility for registration: objects and activities. The legislation in other places calls for an examination of the objects and activities of an association applying for registration. If the Registrar (or the Court on appeal), looking at its objects and activities, forms the view that the association is for gain, registration is refused. We suggest that this arrangement should not be adopted. A need to examine the objects and, more especially, the activities of every applicant association will, in respect of a significant proportion of associations, be troublesome to the Registrar, and troublesome and expensive to the associations. The steps for obtaining registration should be kept as simple as possible. Further, such an examination before registration will not be effective unless coupled with provisions directed against an association which, after registration, pursues activities for gain. We suggest below that provisions of this latter kind are not only necessary but are, with one reservation, sufficient.
15. Eligibility for registration; objects alone. The Companies Act provides that "an association or partnership consisting ... of more than 20 persons, which has for its object the acquisition of gain by the association or partnership or individual members thereof shall not be formed unless it is incorporated under this Act or is formed in pursuance of some other Act or letters patent (*1)". That Act thus looks to the "object" of the association and not, in terms at least, to its activities. If the forbidden object can be specified with sufficient clarity in legislation, there is something to be said for an arrangement by which an association is not eligible for registration where it has an object of gain. The Registrar would need only form an opinion on what, by the rules, is the "object" of the association. Neither he nor those concerned with the association would need to consider evidence of the activities of the association, unless that is necessary for the purpose of construing the rules. Simplicity would be promoted, but the Registrar would still have to reach a conclusion on the effect of the rules. Sometimes that would not be easy. But would it be an effective arrangement? Compliance may be no more than compliance on paper. Again, the essential safeguard would be in provisions directed against the pursuit of activities for gain by an association after registration.
*1. Companies Act, 1961, s.14(3)(b).
16. Activities for gain after registration. We think that the problem would be tackled more directly, more simply and more effectively by an arrangement based on a prohibition in the legislation of activities for gain. The prohibition would be given added prominence by a requirement that a like prohibition be embodied in the rules of the association. We deal below with the terms of the prohibition. The prohibition would have three sanctions. First, an intended 6 reach could be restrained by the Court by injunction, or by the Registrar by an order under his jurisdiction in internal disputes. Second, a breach would be a ground for winding up by the Court, and the Minister would be one of those given standing to apply for an order on that ground. Third, in any winding up, there would be power to order payment to the association of the value of a gain acquired by a member in consequence of a breach. We deal below with a direction to migrate to the Companies Act (or some other Act) by reason 'of the scale of activities of a registered association (*1).
*1. Paragraphs 21 and 23 below.
17. Refusal to register. Under the arrangement just suggested, the registrar, in dealing with an application for registration, would not be concerned to examine in detail the objects or activities of the association. But he should not be required to act in vain. He should not be required, that is to say, to register an association where the outlook is that, on registration, there will at once be ground for winding up by the Court. We therefore suggest that the Registrar, though not required to investigate these matters, should have a discretion to withhold registration in a case of that kind.
18. Terms of the prohibition. In general, the prohibition would be against the association carrying on its activities for the acquisition of gain by the association or its members. But experience in other places shows that difficulties arise in applying such a general test. The general prohibition should therefore be supplemented by particular provisions for cases which experience has shown to be troublesome. As an illustration, it might be provided that the following should not be infringements of the prohibition
(a) receipt by the association of money, by way of subscription or otherwise, payable by members or candidates for membership;
(b) receipt by the association of gifts or the solicitation of gifts;
(c) receipt by the association of fees for admission to displays, contests or other functions held in pursuit of the objects of the association;
(d) the association trading or otherwise carrying on business with a view of profit, but only where the business is ancillary to a main purpose of the association, and the volume of transactions for profit with persons not members is not substantial in relation to the other activities of the association;
(e) receipt by a member of remuneration as an officer or employee of the association;
(f) acquisition of gain by a member otherwise than by reason that he is a member.
(g) enjoyment by a member of facilities or services provided by the association;
(h) a member winning a prize in a competition amongst members or amongst members and others; or
(i) the matters prescribed.
19. Trade protection associations. In New Zealand it is enacted that persons shall not be deemed to be associated for pecuniary gain merely by reason that the society is established for the protection or regulation of some trade, business, industry or calling in which the members are engaged or interested, if the society itself does not engage or take part in any such trade, business, industry or calling, or any part or branch thereof 1). Perhaps this is a concession to the circumstance that the registration under the Companies Act 1955 (N.Z.) of many trade protection societies would be void (*2). In this respect the law in New South Wales is similar to that in New Zealand (*3). But a trade protection association is commonly formed to promote the profit-making activities of its members (*4). It is a question whether activities for protection or regulation along the lines mentioned in the New Zealand Act should be permitted to an incorporated association. Perhaps it would be better to amend the Trade Union Act so as to allow the formation of a trade protection association under the Companies Act (*5).
*1. Incorporated Societies Act, 1908 (N.Z.), 25(c).
*2. Trade Union Act, 1908 (N.Z.), s.6(a).
*3. Trade Union Act 1881, s.5(2).
*4. Cf. In re Proprietary Articles Trade Association of S.A. Inc. 1949 S.A.S.R. 88.
*5. And see paragraph 26 below.
20. Voluntary defensive migration to the Companies Act. Where proceedings are brought to restrain the pursuit of some activity for gain, or for a winding up order on the ground that the association is pursuing activities for gain, the association should have an opportunity to migrate to the Companies Act. If it does so, and the impugned activity is one that the association may lawfully pursue as a company, there is no point in granting an injunction or making a winding up order on that ground.
21. Direction to migrate: scale of activities. The arrangements discussed above should be enough to ensure that the scheme now put forward will in general not be used by associations for gain. But is that enough? Some associations not for gain own or deal with property of great value and have a large volume of transactions with outsiders. We tend to think that there should be a means by which a big organisation of that kind, registered under the present scheme, can be directed to migrate to the Companies Act, even though it is not an association for gain. The facts and circumstances justifying such a direction are hardly fit for judicial determination: what is called for is rather an administrative assessment of whether the scale of activities has reached such a size that the closer regulation under the Companies Act should be invoked. We suggest that the Minister be empowered to direct migration to the Companies Act where he is of opinion that the scale of activities of a registered association are such as to require that closer regulation. We doubt that it is appropriate to give a full appeal to a court against a direction to migrate: there is too much of degree and policy involved. However, we suggest that there should be judicial review to the extent of enabling the Supreme Court to set aside a direction if satisfied that there were not grounds on which the Minister could reasonably have given the direction. If the association does not migrate as directed, then that should be a ground for winding up on application by the Minister.
22. Migration to other Acts. What we have said above about migration to the Companies Act should be read as applying as well to migration to some other appropriate Act, for example the Co-operation Act, 1923.
23. Direction not to register. Just as the Registrar should not be required to act in vain by registering an association where he can see that its profit-making activities would at once give a ground for a winding up order (1% so he should not be required to register an association where the association would at once be directed to migrate to the Companies Act or some other Act. Where the Registrar thinks that the scale of activities of an association applying for registration is such that the Minister might, if the association were registered, direct a migration, he would be given power to refer the application to the Minister. Then the Minister would be authorised to direct that the application for registration be refused. Again, the Supreme Court should be authorised to set aside the direction if satisfied that there were not grounds on which the Minister could reasonably have given the direction.
*1. See paragraph 17 above.
24. Number of members. It is in the nature of an association that there must be at least two members. The scheme does not envisage a statutory requirement for any greater number. Such a requirement would sometimes be inconvenient, for example where two or some other small number of associations, registered under the scheme, themselves form an association and the latter association wishes to be registered under the scheme. Further, requirements for minimum numbers are ineffectual: it is easy to make up numbers by dummies.
25. Contract of association. Eligibility for registration is not confined to those associations whose members are linked by contract. An agreement not intended to create legal obligations should be enough (*1). But once an association is registered the scheme imputes contractual links amongst members and between each member and the incorporated association (*2).
*1. Cf. Cameron v. Hogan (1934) 51 C.L.R. 358.
*2. Cf. Companies Act, 1961, s.33(1), (2).
26. Excluded associations. Some unincorporated associations are to such an extent regulated by Act that they should not be eligible for registration. These include trade unions as defined in the Trade Union Act 1881 (*1) and some friendly societies (*2). In some of these cases there may be reasons of substance for denying eligibility for registration, for example trade unions of employees. More usually it is merely convenient to exclude them for the present by reason of the time which would otherwise be taken in consultation, consideration and drafting, for example trade protection associations which are trade unions as defined in the Trade Union Act (*3).
*1. Trade Union Act 1881, s.31. And see paragraph 19 above.
*2. Those which are required to register under the Friendly Societies Act, 1912, by section 10 of that Act (distinguish section 11), or which are registered under that Act.
*3. Cf. Ex parte Bread Manufacturers Ltd. (1937) 37 S.R. 242.
27. Joint stock associations. One other class of association is excluded on more general grounds: this class comprises unincorporated associations organised on the joint stock principle. It is uncommon for such an association to be formed outside the Companies Act, but it is possible (*1). It is not worth while to provide an elaborate structure appropriate to associations with shareholders. Measures should be taken to see that such an association, if formed, is formed under an appropriate Act, for example the Companies Act or the Co-operation Act.
*1. Morrison v. O'Brien (1953) 90 C.L.R. 501.
28. Rules of the association. "Rules" here means the constitution of the association, corresponding to the memorandum and articles of association of a company, but not day-to-day by-laws regulating such things as the introduction of guests to the association's premises and the hours of opening of the association's dining room. The association is at liberty to put such things in its rules, but is not required to do so. In order to be registered, an association must have written rules and the rules must make provision on some fundamental matters, including the objects of the association, the means of altering the rules (amongst other things the need to lodge notice of the alteration with the Registrar and obtain his approval), and the destination of surplus assets in a winding up.
29. Application for registration. The application is made by a person authorised to do so under the rules of the association. The application must be supported by a copy of the rules and a statement of the name and address of the first public officer (*1). There are questions whether the application should also be supported by particulars of the first committee and a statement of assets and liabilities at some date shortly before the date of the application (*2).
30. Registration. On being satisfied that the association is not within one of the excluded classes, that the rules deal with the specified fundamental matters, and that the application is otherwise in order, the Registrar has a duty, not a discretion, to register the association. The duty is, however, qualified in two respects which have been mentioned (*1).
*1. Paragraphs 17 and 23 above.
31. Certificate of incorporation. On registration of the association, the Registrar issues a certificate of incorporation. The certificate is conclusive that the association is duly registered under the scheme and is a corporation. Thus for example the corporate status of the association and its registration would not be defeated by proof that at the time of registration the association was within one of the excluded classes (*1).
*1. Cf. Ex parte Bread Manufacturers Ltd. (1937) 37 S.R. 242.
32. Formation by registration. The discussion so far deals with the registration of an existing association. Provision is also made for the formation of an incorporated association where there is not an existing association. This is the scheme of the Companies Act, 1961. Such a provision enables simpler arrangements for merger. And it may be convenient to those concerned with the formation of associations.
33. Alteration of rules. It is a condition of eligibility for registration that the rules provide a means for their own alteration. When notice of an alteration so made is lodged with the Registrar, he checks that the alteration has been made in accordance with the Rules and would not render the association, if it were unregistered, ineligible for registration (*1) and, if satisfied on these points, he must approve the alteration. The alteration has effect on the date of approval or a later date determined by the resolution or other means by which the alteration is made. The effect is that the state of the rules at any time can be seen from the documents lodged with the Registrar. If the Registrar thinks that an alteration is badly expressed or is for some reason inadvisable, it is open to him to point that out to the association, but the association can still insist on the Registrar approving the alteration, so long as it would not render the association, if it were unregistered, ineligible for registration.
*1. As for instance by deleting a provision on a subject with which the rules must deal.
34. Irregular alteration. There is a recurring problem in the affairs of associations, that the procedures for alteration of rules are not strictly observed. The affairs of an association may be conducted for years on the footing that some alteration has been made to the rules and then it may transpire that the attempted alteration was ineffectual because of some departure from the required procedures. The scheme has three features designed to relieve this problem. First, the rules must themselves provide for lodgment with the Registrar of notice of an alteration: this will be a reminder to committee men and others. Second, the annual return must specify the date and subject matter of any alteration of the rules during the year in question: this will draw attention to a failure to lodge notice of the alteration or to the absence of the Registrar's approval, and will probably do so before too much time has gone by. Third, in case there has been an insubstantial failure to follow the necessary procedure, or a failure to lodge notice of an alteration with the Registrar and get his approval, the Court is authorised to validate the alteration as from the time when it would have had effect if the required procedures had been followed, and to impose terms and conditions.
35. Entrenchment of rules. It may be to the advantage of an association so to arrange matters that its rules or some provisions of them are not alterable except with the consent of some outside authority, a Minister of the Crown for example. Such an entrenchment may be a price worth paying for a grant of money. The scheme would enable that to be done, subject to relief by order of the Court, only to be made in closely restricted circumstances. The cases for relief would be -
(a) it is impossible or impracticable to obtain an exercise of the power to give or withhold consent;
(b) the power is not exercised within a reasonable time after request; or
(c) consent is withheld unjustly or unreasonably, or is given on a condition that is unjust or unreasonable.
36. Internal disputes: adjudication by the Registrar. There is a place for arrangements for the settlement of internal disputes by adjudication of the Registrar. “Internal dispute" here means a dispute between members, between a member and the association, or between a member and the committee or a committeeman. "Member" in the last sentence includes the personal representatives of a deceased member. The range of possible parties to a dispute should perhaps be extended to an outside controller (*1) and to a liquidator. The Registrar can usefully fill the part of an adjudicator because he will be expert in the affairs of registered associations. It is possible that there would be savings of time and money if an adjudication is made by the Registrar rather than by a court.
*1. See paragraphs 52 and 53 below.
37. Jurisdiction of the Registrar: how far compulsory? The Registrar is primarily an administrative officer. He will be to some degree under ministerial control. He will not have the security of office of judges and other safe guards of judicial independence. No limit is proposed to the amount or value of property in question in proceedings before him. Although he would bring to his task of adjudication his experience in the affairs of associations, he would not as a rule have a skill and experience in hearing and determining disputes equal to that of a judge. He would not, unless elaborate provision were made, have the array of powers available in a superior court. The association and its members may prefer other means for dealing with internal disputes. These considerations lead us to suggest that while, as regards many associations, the jurisdiction of the Registrar will be accepted as beneficial, some room should be left for an association to determine that the Registrar shall not have a compulsory jurisdiction in internal disputes. The scheme now put forward therefore has these features -
(a) a statutory jurisdiction in internal disputes is given to the Registrar;
(b) an association may, however, by its rules exclude or limit the jurisdiction;
(c) notwithstanding an exclusion or limitation in the rules, the Registrar has his statutory jurisdiction if and so far as the parties to the dispute so agree after the dispute has arisen;
(d) in all cases, the Registrar has power to direct the removal of the proceedings from himself to the Supreme Court, the Court has power to order a like removal, and there is an appeal from the Registrar to the Court.
38. Jurisdiction of the Registrar: other features. In addition to those mentioned above, the scheme has these features relating to the jurisdiction of the Registrar -
(a) where there are proceedings in the Court on an internal dispute, the Court may remit the proceedings to the Registrar;
(b) in proceedings before the Registrar, the procedure is as prescribed by regulation or, subject to the regulations, as determined by the Registrar;
(c) the Registrar is not bound by the rules of evidence, though he is bound by the rules of natural justice;
(d) the Registrar is not to make an order for costs unless there is special reason: if he does, he must assess the costs;
(e) an order of the Registrar may be enforced by the Court.
39. An alternative: arbitration by the Registrar. Another arrangement, not adopted in the present scheme, would be to enable the Registrar to act as an arbitrator under provisions in the rules or under an ad hoc agreement amongst the parties. The main purpose of legislation on the subject would be to show that arbitrating on the disputes in question was part of the function of the Registrar. If those concerned with the association wanted the Registrar to have that function then the rules could be framed accordingly. It would be for the Registrar to say in a particular case whether he would or would not act as arbitrator. This latter arrangement would be simple in expression, and would adopt well known powers and procedures. It would be less easy, however, to provide for removal and remission between the Registrar and the Court, and for appeal.
40. Accounts. The present proposal is that an incorporated association should not, in general, be required to draw up accounts, to have them audited or to lodge them with the Registrar. The legislation would, however, permit an association so to frame its rules that it accepted a duty to prepare and lodge accounts, with or without audit. The purpose of this permissive arrangement is to accommodate those associations which see an advantage in being able to say that their accounts (or audited accounts) are on a public register and are available for public inspection. The possible advantages include an ability to make a more persuasive case for appeals to the public for support or for support by Government and other funding authorities.
41. Accounts: in general no compulsion. Apart from an association which frames its rules so as to undertake the duties just mentioned, the present proposal is that an association should not automatically be required to prepare accounts, to submit accounts to audit, or to lodge accounts with the Registrar. The proposal calls for justification. Requirements for the publication of accounts are often seen as a proper price to be exacted for the privilege of limited liability of members. But the preparation, audit (if required) and lodgment of accounts would be an expense and a trouble to registered associations. It is necessary to look with more particularity at the advantages of a requirement to prepare and lodge accounts and to weigh the advantages against the disadvantages.
42. Accounts: information to those dealing with the association. One advantage of published accounts is that people proposing to give credit to the association can get some guidance on the risk they are taking by looking at published accounts. The value of the guidance will depend on the nature of the required accounts and on how far out of date they are when they are looked at. The published accounts will at best be a crude and unsatisfactory guide to the extent of the risk. People proposing to give credit can make their own inquiries of the association and withhold credit if not satisfied with the information given. Or they can make the usual inquiries of bankers and others on the creditworthiness of the association. There is another class of potential creditors to whom published accounts will be little or no protection. That class comprises those suffering damage by negligence or some other tort for which the association is liable.
43. Accounts: public interest. Where the association carries on some activity for the public benefit, particularly where it has taxation privileges, or receives grants of public money, there may be a case for saying that there should be public access to its accounts. The case for publicity of accounts lies in the activities and priviledges, and that case is neither strengthened nor weakened by the fact the association is registered under the scheme: it applies with like force in relation to an unregistered association, a corporation however formed, and an individual. If there is to be publicity of accounts by reason of particular activities or privileges, the scheme now under consideration is not the place for it.
44. Accounts as an aid to investigators. Accounts lodged with the Registrar may be a help if occasion arises to investigate the affairs of an association, perhaps with a view to criminal charges against committee men.
45. Accounts as an aid to members. A member who wants to examine the conduct of committee men, perhaps with a view to attempting to make some change in the membership of the committee, may be in a weak position for want of information if there is not a statutory requirement to draw up and lodge accounts. A requirement to draw up accounts, without a requirement that they be lodged with the Registrar, may be disregarded because observance of the requirement may not be policed.
46. Accounts as an aid to good management. A statutory requirement to draw up and lodge accounts would be an incentive to keep proper records and thus would promote good management.
47. Accounts: disadvantages of statutory requirements. The drawing up, audit (if required) and lodgment of accounts takes work and money. If the accounts when lodged are open to public inspection, in respect of many associations, outsiders will have access to things which are not their business. There will be unnecessary invasions of privacy.
48. Accounts: what should be done? Taking the considerations of substance, there are in favour of a requirement for lodging accounts the possible advantages to investigators and to members and the incentive to good management. Against such a requirement are trouble, expense and invasion of privacy. As regards investigations, it is better that investigators should put up with such difficulty as the lack of lodged accounts may produce: the number of associations which will be investigated will be tiny in comparison with the number which would have to lodge accounts. As regards making information available to members, the better arrangement is to give power to the Registrar, on application by a member, to direct the association to furnish to the applicant or to any class or all of the members such accounts and other information relating to the association as the Registrar thinks reasonable. This is part of the scheme. The exercise of the power is, like the acts of the Registrar generally, open to appeal to the Court. The existence of the a power would make an association more ready to keep members informed on the affairs of the association, by periodical accounts and reports, or by answer to particular inquiries. If such a power is given, the giving of information to members does not require that provision be made for the periodic preparation, audit and lodging of accounts. As regards the incentive to good management, the case has the common difficulty that a duty and expense would be laid on all associations, although much fewer than all associations would need, and be responsive to, that incentive. In the result, the scheme would not compel the preparation, audit or lodgment of accounts unless those duties are imposed by the rules.
49. Annual return. The scheme does, however, require an annual return. The return must show the name, address and description of each committee man and the date of his appointment, like particulars relating to the public officer, and the date and subject matter of any alteration of the rules during the year. The purpose of these particulars of alterations to the rules has already been given (*1). The particulars of the committee and the public officer are matters properly made available to the public. The annual return must also show particulars of the insurance taken out pursuant to the requirements mentioned below (*2): there are two reasons for this. First, where a claim against the association is covered by insurance, the claimant is given the first recourse to the net proceeds of the insurance (*3). Second, the need to give particulars in the annual return will be a useful reminder to the committee of its duties. The general requirement to lodge the return will enable the registrar to identify associations appear to be moribund with a view to striking them off the register. These advantages must be weighed against the trouble and expense of preparing and lodging the return. The present scheme proceeds on the view that there is a balance in favour of requiring the return. But the return should be kept short and simple, and should not call for information beyond that for which there is a clear need.
*1. Paragraph 34 above.
*2. Paragraphs 50 and 51.
*3. Cf. Companies Act, 1961, s.292(5). And see Law Reform (Miscellaneous Provisions) Act, 1946, s.6.
50. Compulsory insurance. In a winding up members have such liability if any as is specified in the rules to contribute towards payment of the debts and other outgoings of the association. Where some one suffers by a tort for which the association is liable, his remedy against the association may be of little value if members are not liable to contribute for payment of damages to which he is entitled. In order to relieve the harshness of this result, the association is required to insure against liability for a wide range of claims in tort. Workers' compensation insurance is also required, and further classes of required insurance can be added by regulation. The requirement does not apply where the rules impose on members an unlimited liability to contribute for payment of the claims in question in a winding up (*1).
*1. A duty to insure may of course arise under other legislation, for example the Workers' Compensation Act, 1926. The scheme would not cut down a duty so arising.
51. Failure to insure. Where the requirement to insure does apply, and the association fails to effect and maintain the required insurance, there are two consequences. First, the failure is a ground for winding up, and the Registrar is authorised to direct a winding up whether or not an application is made to him for that purpose. Second, a committee man has an unlimited liability to contribute in a winding up for a claim which ought to have been covered by insurance, unless he shows
52. Outside controller: meaning. This expression is used to denote a person who has a say, otherwise than as a member, on the question whether the purposes of the association will be altered. Thus a number of associations ("branch associations") may be organised by, or have some other link with, another association ("the parent association"). The parent association may arrange matters so that the purposes of a branch association are not alterable except with the consent of the parent association: the parent association is an outside controller of each branch association (*1). As another example, an association may be formed to promote some activity of a church in a diocese of the church, and matters may be so arranged that the purposes of the association are not alterable except with the consent of the bishop of the diocese: the bishop is an outside controller of the association. It may suit some associations to have a person in the position of an outside controller even though he does not have a say in a decision to alter the purposes of the association. The scheme therefore provides that a person designated by the rules to be an outside controller is an outside controller for the purposes of the scheme.
*1. "Branch" in relation to associations, is not a word of fixed meaning. The device of the outside controller can be used to deal with the special problems of branches only where the branches are themselves associations. Other kinds of "branch" are not affected, for example a local centre of activity with a body of people comprising some of the members of the "parent" association and regarded as being a "branch" but not constituting a separate association.
53. Outside controller: his place in the scheme. It is likely that an outside controller (in the sense of one having a say in a decision to alter the purposes) will have at least as much concern with the affairs of an association as will a member of the association. An outside controller is therefore put for some purposes in a position similar to that of a member. He is, unless the rules otherwise provide, a necessary party to a special decision, that is, a decision comparable to a special resolution under the Companies Act. He will (or at least should) be given notice of a conflict of interest in a committee man. He is one of those entitled to apply to the Court for the calling of a meeting, or for orders to overcome miscellaneous difficulties, such as breakdown of the machinery for holding an election. He is one of those entitled to apply to the Court for an order for winding up, and he is given a say in a winding up similar to say given to a member.
54. Trusts for purposes. Arrangements for holding property in connection with associations, gifts for associations, and provisions for disposal of surplus assets on the winding up of associations, often involve trusts for purposes. Trusts for charitable purposes are well recognised by the law. Trusts for other purposes get scant recognition by the law. Trusts for purposes not charitable are held invalid for several reasons: a valid trust must have a beneficiary; a valid trust must have some one who can enforce it; a valid trust must not break the rules against perpetuities; testamentary power cannot be delegated. In relation to trusts for purposes connected with associations, and trusts of surplus assets of associations, these reasons, however faultless in law, do little good and a lot of harm. For these trusts, the scheme relaxes the rules against perpetuities, abolishes the need for a beneficiary, abolishes the rule against delegation of testamentary power, and enables enforcement by specified persons. In addition, under the scheme the Court has power to alter trusts comparable with the powers the Court has in relation to charitable trusts.
55. Liability of members: general. A member does not, merely as a member, have any liability to a creditor of the association. This does not affect such liability as he may incur otherwise than as a member, for example, as a guarantor of a liability of the association, or a joint tortfeasor with the association. The rules may impose on a member a liability to the association for subscriptions, levies and so on.
56. Liability of members: winding up. In a winding up money may be needed for three kinds of outgoing. These are the costs and expenses of the winding up, the claims of creditors, and whatever may be needed to adjust the rights of members amongst themselves. A member has such liability (if any) for these outgoings as may be specified in the rules, but to this there are exceptions. Two exceptions are of particular importance. First, a committeeman may have unlimited liability to contribute for payment of a claim which ought to be, but is not, covered by insurance (*1). Second, an officer of the association may be subjected to a liability where he has joined in incurring a debt while the association is insolvent, or has joined in fraudulent operations by the association (*2). A member may be an officer of the association for this purpose, for example where he is a committee man or an employee of the association. There are other cases in which a member has a liability to contribute notwithstanding that the rules do not impose a liability on him: where the rules are changed so as to reduce or exclude liability, the change does not affect an existing creditor; where a company migrates to the scheme, the rules will not diminish the liability of a member in respect of a claim of a creditor existing at the time of the migration; where, in the course of a merger with another association, the claim of a creditor of one of the merging associations is overlooked, a member of that merging association retains what liability he may have had in respect of that claim, notwithstanding anything in the rules of the continuing association; and the members of a merging association may undertake unlimited liability in respect of existing debts of that association, and thus obviate the need for measures to protect creditors against the consequences of the merger.
*1. See paragraphs 50 and 51 above.
*2. The liability is generally along the lines of that which may be imposed under the Companies Act, 1961, s.374D, save that a prior criminal conviction is not required.
57. Liability of members: policy. The important point in the last paragraph is that, in general, in a winding up, members have no liability to contribute unless the rules impose a liability. Is this right in policy?
58. Liability of members: a case for limitation. The following may be said in favour of the proposed arrangement
(a) It is an arrangement to which the community is well accustomed, however unjustly it may work against creditors. Thus, it is in substance the arrangement under the Companies Act, 1961, the Co-operation Act, 1923, the Credit union Act, 1969, and the Permanent Building Societies Act, 1967. And it is the common arrangement in the legislation for incorporation of associations in other Australian States and Territories and in New Zealand.
(b) It puts members of most associations in no better position than that which they have as members of an unincorporated association under the present law. (c) The scheme puts creditors in a better position than that which they now have in relation to an unincorporated association, in that assets of an incorporated association are directly available by way of execution of a judgment against the association, and that there are clear statutory procedures for recourse to the assets in a winding up.
(d) People proposing to give credit to an association can decline to do so unless satisfied that the association will be able pay, or unless the association's debt is supported by an adequate guarantee or charge.
(e) People giving credit to an association often depend more on the reputation of the association for prompt payment of debts than on the prospect of the association being found solvent in a winding up.
(f) It is part of the scheme that, where the liability of members is limited or excluded, the association is under a duty to insure against important possible liabilities in tort and that a committee man in default will have unlimited liability. This substantially improves the position of many involuntary creditors.
Further, remedies are given against an officer of the association in cases of known insolvency of the association and fraudulent conduct of its affairs.
(g) If the proposed arrangement were not adopted, few associations would register under the scheme. Some would remain unincorporated and creditors would be left in their present difficulties of substance and procedure. Others would register under the Companies Act or some other Act which allows limitation of liability of members. Thus on a broad view a scheme which imposed a substantial liability on members would not in fact improve the position of creditors.
(h) An association for outward purposes (*1) would suffer a special disadvantage under a scheme which did not permit limitation or exclusion of liability. However good the purposes of the association may be, many. people would not support it by joining as members if by doing so they undertook a liability in respect of the claims of creditors.
*1. See paragraphs 8 and 9 above for the sense of "outward purposes" and "inward purposes" in this paper.
59. Liability of members: a case against limitation. The following may be said against the proposed arrangement -
(a) The justification, and the only justification, for the limitations of liability permitted under the Companies Act is that they permit the aggregation of risk capital for commercial and industrial ventures. It may be said that associations involved in these ventures should (if they are too big to be partnerships) be required to incorporate as companies rather than as associations, so that they will be subject to stricter controls. Accordingly, the above justification for limited liability would not apply to associations. In reply it may be argued that many associations have purposes which need and merit the encouragement afforded by limitations of liability at least as much as do the purposes of companies engaged in commerce and industry. Moreover, many companies do not engage in commerce and industry.
(b) It is unjust that members, having enjoyed the advantages of membership, should remain in enjoyment of their own wealth, notwithstanding that creditors are left unsatisfied. This applies as well to an association for outward purposes as to an association for inward purposes: the moral satisfaction of supporting a good cause may be no less valuable than the more tangible advantages of being a member of a golf club.
(c) The proposal gets no support from the present substantial and procedural difficulties of a creditor of an association. The continued existence of those difficulties is a disgrace. Amongst the questions before this Commission is the question what arrangements will do justice between members and creditors of an association.
(d) It is unreal as a general proposition to say that people can decline to give credit to an association unless satisfied that it will be able to pay, or unless there is a guarantee or a charge on property. Some people are not in a position to do so. People applying to an association for jobs could hardly do so, yet realisation of, for example, their expectations of long service leave may be defeated by the proposed arrangement.
(e) Suppose that a dozen people pursuing some common purpose incur a debt. They are liable for the debt almost to the limit of their assets. Why should things be different, why in particular should a creditor suffer, if they choose to register as an association?
60. Liability of members: present scheme. We are impressed by the case against limited liability, but we are inclined to be more impressed by the case in favour. To make members, or even committeemen, liable up to some specified amount would not solve the problem. The scheme now put forward does not, save in exceptional cases, put a liability on members unless liability is imposed by the rules.
61. Winding up: general. There are two modes of winding up, an official winding up and an internal winding up. An official winding up may be instituted by order of the Court or by direction of the Registrar, in either case on grounds set out in the legislation. An internal winding up may be instituted by special decision of the association, but only where evidence of solvency is given. An official winding up takes the places of a winding up by the Court and a creditors' voluntary winding up under the Companies Act, and of a winding up on a certificate of the Registrar under a number of Acts (*11). An winding up takes the place of a members voluntary winding up under the Companies Act. The provisions for the conduct of an official winding up would in large measure apply also to the conduct of an internal winding up, save that it would be open to the association to substitute its own arrangements for some of those provisions.
*1. E.g., Credit Union Act, 1969, s.72.
62. Winding up: brevity and convenience of expression. The arrangements for winding up outlined above should be capable of shorter expression than the provisions for winding up in the Companies Act. Where provisions are based on the Companies Act, a shorter and clearer expression will in some cases be possible. Some of the provisions in the Companies Act are unnecessary (*1). Powers to make regulations and rules of Court may take the place of some of the less important or more detailed provisions of the Companies Act (*2). Some or all of the winding up provisions can be put in a schedule to a Bill. By these means it should be possible to make the winding up provisions shorter and less daunting to those concerned with the formation and conduct of associations.
*1. For example, section 229 and probably section 230(4).
*2. For example, sections 234, 238.
63. Official winding up: grounds. The grounds are modelled on those in the Companies Act, with some changes. They are in two groups. One group comprises grounds likely to give rise to substantial dispute; the second group corn prises other grounds. The Court has power to make an order for winding up if a ground in either group is made out. The Registrar has power to give a direction for winding up only if a ground in the second group is made out. Where the ground is one on which the Registrar has power to give a direction, an applicant should go to the Registrar and not to the Court, unless he has good reason to go to the Court. Good reason may be found, for example, in the likelihood of a substantial dispute or in facts showing that the date of the commencement of the winding up ought to be the date of the commencement of the proceedings for a winding up order. A tendency to apply to the Court unnecessarily can be met by adverse orders for costs.
64. Conduct of the winding up. Subject to attempts at shortening and other improvement as mentioned above, the provisions for the conduct of the winding up are broadly modelled on those in the Companies Act.
65. Surplus assets: meaning. A necessary step in a winding up is to identify the assets of the association. The association may hold the legal or other bare title to property upon trust for a person or a purpose. The trust may be one operating before the winding up and continuing to operate after winding up or dissolution. Or the trust may arise on the commencement of a winding up or some later event. Save for the legal or other bare title (which has no value), trust property is not part of the assets of the association. Where trust property has been excluded, and the assets have otherwise been identified, the assets so identified are available for the payment of debts and costs and for the adjustment of rights amongst the members (*1). "Surplus assets" in this paper means the assets (if any) of the association remaining after those payments and adjustments. The expression is used of assets of this character notwithstanding that the rules of the association may, for the purpose of governing their disposal in a winding up, set up a trust. The concept has an analogy in the property capable of passing under the beneficial dispositions of the will of a deceased person, that is, what is left of his property after debts and administrative expenses have been paid.
*1. This paper does not explore the extent to which property can be made available for the payment of debts. The question would be a real one where an association for the purpose of conducting a child-minding centre holds all its property upon trust for that purpose and, in pursuit of that purpose, incurs a liability in tort. See In re Raybould (1900 1 Ch. 199), Scott on Trusts, 3rd edn., 1967, paragraphs 266-272, 402-403.
66. Beneficiary of surplus assets: meaning. This expression means, in this paper, a person to whom surplus assets are to be disposed of under the rules or under some other requirement of law, but excluding a member of the association who, as a member, is entitled to share in a distribution of surplus assets. The concept has an analogy in that of the persons taking under the beneficial dispositions of the will of a deceased person.
67. Beneficiary of surplus assets: his place in the scheme. Consider an association for an outward purpose which is solvent and whose rules provide that surplus assets in a winding up are to be disposed of to a person who is not a member. If the committee of the association misapplies the assets of the association, members generally may feel that their expectations are disappointed, but they do not suffer any financial or other tangible loss. And if the association is moribund the feeling of disappointed expectations may not be strong. Creditors (if any) may be little troubled about losing their rights: the association is solvent. But the beneficiary of surplus assets is plainly at risk. The Companies Act does not give the beneficiary of surplus assets any rights, though he may be able to find some remedy in the law of trusts if the company is put into liquidation by some one else. In the present scheme the beneficiary of surplus assets is put in a position like that of a member, as regards standing to apply to the Court for a winding up order, and as regards the conduct of the winding up. And he is enabled to apply to the Court for orders giving effect to his right to surplus assets. Sometimes this last mentioned new remedy will overlap his remedies as beneficiary under a trust.
68. Disposal of surplus assets: restriction of members' control. Today the members of an unincorporated association may control by its rules the disposal of surplus assets, and the members of a company may do likewise by its memorandum or articles of association. In the absence of provision in that behalf in these instruments, surplus assets will be distributed amongst the members. Some of the registration Acts and Ordinances in other places restrict this power of members: if the Court sees that provisions for the disposal of surplus assets are unjust, it may override those provisions and direct a disposal which the Court thinks just (*1). In Western Australia the Court is not given this power, but in 1972 the Law Reform Committee recommended that it should be given. The present scheme includes a proposal that the Court should have powers of this description. A majority of the Commission favours the proposal. It is opposed by a minority.
*1. See for example the Associations Incorporation Act 1964 (Tas.), s.33.
69. Disposal of surplus assets: outline of proposal. Broadly, the aim is to arrange that interested persons have an opportunity to see what disposal of surplus assets is intended and to object and apply to the Court for an order for some different disposal in case the intended disposal seems unjust. “Interested person" here means, not only a member and an outside controller, but also any person interested or concerned in a non-legal sense. The Minister would be competent to object and apply to the Court as an interested person on behalf of the public generally. There would be a time limit for objections and provision for the costs of the association in dealing with an objection which fails. In order to prevent evasion, there would be a similar restriction, by reference to justice. on changes of the rules of the association affecting its objects and on migration to the Companies Act.
