Legal Compliance & Directors’ Duties for Not for Profit Boards

We aim to deliver Just, Redemptive Outcomes®

A paper presented by Andrew Lind at a Christian Management Australia Board Training Day 2010

For consistency with the CMA Governance Principles document numbering starts at 4

4    CMA GOVERNANCE PRINCIPLE 4 – LEGAL COMPLIANCE

4.1    All board members understand what kind of legal and taxation entity the organisation is.

4.2    All board members have read, within the past two years, all written rules by which the organisation is bound.

4.3    All board members are aware of the legal obligations imposed on the organisation by the written rules.

4.4    All board members comprehend the obligations imposed on the organisation by laws external to the organisation’s rules (for example, privacy legislation, industrial relations legislation,  taxation legislation).

4.5    The board is diligent in complying with its legal obligations.

4.6    At least once per year, the board affirms that, to the best of its knowledge, it is operating in compliance with its legal obligations.

4.7    The board seeks expert advice when the expertise in the boardroom is insufficient to determine an appropriate course of action in relation to any of its compliance obligations.

5    CMA GOVERNANCE PRINCIPLE 5 – DIRECTOR RESPONSIBILITY

5.1    Each board member understands the obligations imposed on them individually by the constitution and other organisational documents.

5.2    Each board member understands the obligations imposed on them by laws external to the organisation’s rules (for example, a Director’s duty to prevent insolvent trading, to avoid conflicts of interest, and to act in the interests of the organisation).

5.3    All board members are diligent in complying with their individual responsibilities as board members.

5.4    At least once per year, all board members affirm that they are operating in compliance with their individual responsibilities.

5.5    Board members seek expert advice when the expertise in the boardroom is insufficient to determine an appropriate course of action in relation to individual director responsibilities.

6    UNPACKING PRINCIPLE 4.1 – LEGAL & TAXATION ENTITY

6.1    All board members understand what kind of legal and taxation entity the organisation is.

6.2    Not for profit “legal entity”/ structures could be:

6.2.1    An unincorporated association (which is not a legal entity with legal existence apart from its members and management);

6.2.2    An incorporated association under State based Association Incorporation legislation;

6.2.3    A company limited by guarantee;

6.2.4    A trust with individual or corporate trustees;

6.2.5    A letters patent body;

6.2.6    A creature of specific statute; or

6.2.7    A combination of the above.

6.3    Unincorporated associations:

6.3.1    have no separate legal capacity

6.3.2    cannot be sued or sue in their own name, nor can they contract or hold property in their own name (rather it conducts its activities through a representative Management Committee or Board who are appointed to represent the members collectively)

6.3.3    do, however, allow many structuring advantages not available to corporate entities.

6.4    Many local churches are “unincorporated associations”.

6.5    The leaders of the “unincorporated association” are personally (jointly and severally) liable for all the debts and liabilities of that entity. This disadvantage is accommodated by the interposition of some form of corporate structure which introduces corporate protection and, of course with insurance.

6.6    The flexibility of the unincorporated structure can be utilized in conjunction with the “protection” of corporate structures.

6.7    Of course, the leaders may have other forms of protection in place, such as a claim against the assets of the association, or relevant insurance policies to provide some degree of protection.

6.8    However, in the absence of an intervening limited liability structure, where those assets or insurance policies are inadequate, the shortfall will generally be borne by the leaders of the “unincorporated association”.

The desirability of the “unincorporated association” structure for local churches

6.9    An unincorporated association is a highly desirable structure for a local church and it is our general recommendation that this form of association for a local church should only reluctantly be moved away from after a significant time of sober reflection. Considerations of issues such as scriptural understanding, philosophical, legal, liability, accounting and management need to be made.

6.10    Practical anomalies arise such as banks opening bank accounts in the name of unincorporated associations and the name of unincorporated associations being on office supply credit contracts but they should be considered to be “administrative anomalies” rather than giving a correct understanding of legal status.

6.11    The act of incorporating a church has the immediate legal effect of subjugating church or ecclesiastical law to the law of the State. Many people conscientiously consider this an undesirable threshold outcome.  For example, incorporation under a statute immediately circumscribes the way in which the relationship between leadership and the flock is determined (and the creation of legal rights and obligations between them that don’t accord with the scriptures), the way the church is governed and structured, the way the constitution is drawn and it requires internal accountability to the State.

Advantages of “unincorporated associations” for local churches

• Possibility freedom of association as a spiritual body.
• Freedom of governance, membership and decision making processes (not subject to a super-imposed legislative framework).
• Retains flexibility in the provisions of its Constitution. The contents of its Constitution are not dictated by either the Association’s Incorporation Acts or the Corporations Act 2001 (Cth)
• Essentially “flies under the radar” in terms of the contents of its Constitution as that document is not a public record document.
• In our experience these advantages allows greater freedom in seeking to submit to the Lordship of Christ with minimal competing legal duties.

Disadvantages “unincorporated associations” for local churches

• The inability to hold property in its own name.  This may be managed by the involvement of a corporate legal entities (and charitable trusts).
• The inability to enter contracts which can result in frustration on minor matters such as leasing the photocopier and particularly on more major matters when a significant commercial  enterprise such as the child care centre is being conducted. This may be managed by the involvement of a corporate legal entities (and charitable trusts).
• Personal liability of the Board Members (and potentially members) for the liabilities of the association (subject to some limited protection in Queensland for volunteers for example under the Civil Liability Act 2003 (Qld)). Without wanting to be alarmist, such personal liability could be substantial and potentially beyond the scope of insurance cover (due to quantum or, the insurer seeking to escape liability or the insolvency of the insurer).

However it is an inadequate perception for church leaders to consider them safe merely because their church is incorporated. This perception is antiquated as the courts and legislature have, since the 1990s, been lifting the corporate veil to have recourse to the assets of the real controllers notwithstanding the artificial legal structure, be it corporate or trust in nature.  This process has accelerated in recent years through the Rich star and spry line of cases.

6.12    A company limited by guarantee:

6.12.1    is a separate legal entity, can sue or be sued in it’s own name, and can contract or hold property in it’s own name

6.12.2    the members of these companies have limited liability as provided in the Constitution of the Company, generally limited to $50

6.12.3    however, the directors of the company will still carry some personal liability.  We address some of these liabilities below.

6.13    Unremitted PAYG Group Tax

All company directors have a duty to ensure that the company meets its obligations to remit to the ATO amounts deducted from employee payments for PAYG Group Tax.  If the company fails to remit the payments, the directors are personally liable to pay to the Commissioner of Taxation, by way of a penalty, an amount equal to the unpaid amount.

6.14    Trading whilst insolvent

Directors are personally liable for debts incurred as a result of the company trading whilst insolvent, or a debt that is incurred which would make the company insolvent.

6.15    Insolvency = unable to pay debts as and when they fall due. It is a question of timing!

6.16    In this regard, it is not uncommon for a non-profit entity to find itself trading “insolvent”, given that the entity is often reliant on donations.  Each director is personally liable for the entire loss or damage incurred by the creditor(s) while trading insolvently.

6.17    Liability generally extends jointly and severally to each director regardless of the level of involvement that the director has in the management of the company. A creditor may choose to “go after” who it perceives has the “deepest pockets”.

6.18    Criminal offences

It is becoming increasingly common for the legislature to extend criminal responsibility for certain offences to directors of companies.

6.19    For example, Directors will generally be responsible for breaches of environmental laws (pollution, destruction of protected environments etc).  Town planning statutes usually contain provisions making directors personally liable for failure to abide by development approvals or for developments without proper approval.

6.20    In some states, industrial manslaughter offences have also been passed, which could make directors liable to prosecution for manslaughter arising in an unsafe workplace.

6.21    Personal guarantees and indemnities

Often financial institutions or landlords will require directors of companies to provide personal guarantees and indemnities with respect to the company’s performance under a lease or contract.

6.22    These guarantees and indemnities are always broadly drafted in favour of the guaranteed/indemnified party.  For example, regardless of the number of directors that sign the guarantee and indemnity, liability will usually be joint and several, meaning that the guaranteed party can effectively choose which director they want to claim against.

6.23    The potential liability under these guarantees and indemnities can be significant.  For example, under a typical lease guarantee, not only does the director promise to make the lease payments on default, but also to indemnify the landlord from any loss it might suffer as a result of the company’s breach of the lease (i.e. damage caused to the leased premises by the tenant or its invitee is usually a breach of the lease).

6.24    What also needs to be remembered is that the guarantee might be called upon a number of years after it was given.  For example, a guarantee given for a lease is given at the commencement of the term.  If the term is subsequently renewed, the guarantee will usually continue for the renewed term.  By the time the guarantee is called upon, the director may no longer be involved in the management of the company.  Nevertheless, the director is still liable under the guarantee.

6.25    We always strongly recommend to our non-profit clients that they resist any such guarantees and indemnities. They are not, in our view, appropriate in the context of a non-profit entity and voluntary directors. However, directors often provide the guarantee without full knowledge of the consequences.

6.26    Despite the added obvious costs we strongly recommend that bank guarantees be obtained by the company instead of directors providing personal guarantees.

6.27    If directors wish to move on from the church it is entirely a matter for the lender or landlord as to whether they are released from the obligations.

6.28    Breach of Duty

6.29    Liquidators can also pursue directors of a company where the directors have breached their duties, and that breach results in loss for the company (section 598 of the Corporations Act). More on this below.

6.30    Related Party Transactions

The Corporations Act provides a number of Related Party rules.  These rules only apply to public companies.  Any company that is limited by guarantee is a public company.

6.31    The provisions are designed to protect the interests of a public company’s members as a whole, by requiring member approval before a company gives a financial benefit to a Related Party.

6.32    A Related Party is defined in section 228 of the Act, and includes (but is not limited to) the following persons:

6.32.1    The directors of a public company;
6.32.2    The directors of an entity that controls a public company;
6.32.3    Any spouses or de-facto’s of the directors; and
6.32.4    Parents or children of a director.

6.33    ‘Financial benefit’ is not specifically defined in the Act.  However, the term must be given a broad definition.  The Act provides a number of examples of giving a financial benefit, including:

6.33.1    Giving a Related Party finance or property;
6.33.2    Buying an asset from a Related Party, or selling an asset to a Related Party;
6.33.3    Leasing an asset from a Related Party;
6.33.4    Supplying services to a Related Party, or receiving services from a Related Party;
6.33.5    Issuing security, or granting an option, to a Related Party; and
6.33.6    Taking up an obligation from a Related Party, or releasing a Related Party from an obligation.

6.34    As can be seen, the application of ‘giving a financial benefit’ is wide, and will involve a large range of circumstances.

6.35    If a Public Company is giving a financial benefit to a Related Party, it needs to obtain member approval before giving the financial benefit, and must give the financial benefit to the Related Party within 15 months of obtaining the approval.

6.36    Before obtaining member approval there is a provision requiring the lodging of proposed resolutions with ASIC and ASIC is empowered to make recommendations to the meeting. All of these matters, therefore, become public knowledge on the ASIC register.

6.37    In obtaining the member’s approval, there is a complex process of arranging for a member’s meeting, and providing the members with an explanatory statement and any other material documents to assist a member in deciding how to vote.

6.38    There are a number of “common sense” exceptions to the rule, including:

6.38.1    Where the terms of the financial benefit are reasonable in the circumstances and the parties are dealing at arms length;
6.38.2    Providing reasonable remuneration to an officer or employee;
6.38.3    Providing reasonable reimbursement of expenses;
6.38.4    Indemnifying an officer of the company in respect of a liability they incur because of their position (provided the liability does not fall within section 199A of the Act, which relates to breaches of the Act);
6.38.5    Small payments to Directors or their spouses (being less then $2000 in total);
6.38.6    Benefits to or by closely-held subsidiaries; or
6.38.7    The benefit is given to a related party in their capacity as a member of the company, and giving the benefit does not discriminate unfairly against other members of the company.

6.39    However, using some of these exceptions may prejudice tax endorsements.

6.40    If an exception does not apply, and member approval is not obtained, the person or persons involved in the contravention commit a civil penalty infringement, which can result in a significant debt being payable to ASIC.

6.41    Incorporated Associations:

6.41.1    are “unincorporated associations” that have decided to incorporate under the relevant State or Territory legislation.

6.41.2    Through the relevant Act, the association becomes a legal entity, can sue or be sued in it’s own name, and can contract or hold property in it’s own name.

6.42    Generally, the Act will convey limited liability on the members and directors of the association. However, the limitation of this liability for Committee Members will generally not extend to “insolvent trading”.

6.43    It is also possible for Committee Members to be liable for loss or damage sustained by the Association as a result of the Committee Member breaches of their fiduciary duties to the Association.  This liability could be expressly provided for in the State or Territory Act, or through a common law action against the Committee Member.

6.44    Additional risks to office holders of these structures include:

6.44.1    Does limited liability extend to operations outside the state of incorporation?
6.44.2    Control is more easily lost by a “membership coup”.

6.45    Committee Members should not assume, therefore, that they have limited liability in all circumstances.

6.46    Incorporated associations these days are locked into prescriptive operating and constitutional requirements and is the easiest form of structure to allow the intervention of courts without significant expense on the part of the member who may wish to impugn the decisions of the leadership.

6.47    These structures are also almost impossible to link into group structures.

6.48    Combination examples:

Denomination trustee service

A denomination may offer a trustee service to its local Congregations by which:

  •     It enters into contracts to acquire real property as trustee to hold the property for public charitable purposes;
  •     It is recorded on the title as the registered owner as trustee;
  •     The terms of the trust are recorded on the title;
  •     The terms of the trust usually oblige the Denomination to act on the directions of the local congregation;
  •     The Denomination is normally passive in this trust arrangement with the costs and management of the real property being met by the local church.

Diagrammatically:

Property Trust (Public Charitable Trust) = the bundle of obligations that the trustee takes on in holding the property on trust.  Not a “legal entity” but an “entity for Tax purposes”.
Local Property Trustee Company

• Alternatively Local congregations or independent congregations sometimes form a company limited by guarantee for the sole purpose of acting as the trustee of a public charitable purpose trust to provide the trustee services that would otherwise be delivered by a Denomination trustee.

• These trusts can nominate an Appointor to determine the application of property upon a church failure.

Diagrammatically:

Property Trust (Public Charitable Trust) = the bundle of obligations that the trustee takes on in holding the property on trust.  Not a “legal entity” but an “entity for Tax purposes”.

6.49    Which structure is best?

6.50    It depends. All have their strengths and weaknesses and there is no one “best” structure.

6.51    Use pictures

6.52    Diagram – have an up to date structure diagram.

6.53    Compliance will vary greatly depending upon the nature of your legal structure.

6.54    ATO tax endorsements?

6.54.1    Check the Australian Business Register – http://www.abr.business.gov.au;

6.54.2    Check letters of endorsement from the ATO;

6.54.3    Are annual self audits of entitlements to tax endorsements being conducted?

a Worksheets Income tax guide for non-profit organisations (NAT7967)

b Worksheet 1 – working out your organisation’s income tax status – do you have the correct endorsement? (http://ato.gov.au/nonprofit/content.asp?doc=/Content/34333.htm&page=3&H3)

c Worksheet 2 – reviewing your organisation’s endorsement as an income tax exempt charity – if the correct endorsement – are you still entitled to it? (http://ato.gov.au/nonprofit/content.asp?doc=/Content/34333.htm&page=6&H6

6.54.4    If yes, is the annual self audit (tax endorsement) review tabled annually at a Board Meeting?

6.54.5    If yes, has the board resolved annually that it is satisfied that in its opinion it remains entitled to its current tax endorsements?

6.54.6    If yes, does the executive understand any of what your various tax concessions mean?

6.54.7    If in doubt, seek professional advice.
6.55    Office of State Revenue – exemptions

6.55.1    Exemptions from stamp duty and land tax are separate from ATO tax endorsements.

6.55.2    The exemptions and conditions of exemptions vary from State to State.

6.56    Local Authority Rating – exemptions

6.56.1    Exemptions will vary from State to State and local authority to local authority.

7    UNPACKING PRINCIPLE 4.2 – READ WRITTEN RULES

7.1    All board members have read, within the past two years, all written rules by which the organisation is based.

7.2    Constitutions – need to be read, followed and refreshed as they become outdated.

7.3    If constitutional refreshment is a regular exercise this:

7.3.1    Demonstrates active Governance;
7.3.2    Your membership sees Constitution changes as non-controversial.

7.4    Delegation policies

7.5    Many Not for Profits have a bank of written policy documents. The Board needs to ensure that:

7.5.1    It has a list of them;
7.5.2    They are being reviewed in a timely manner; and
7.5.3    They are being consistently applied by the staff of your organisation.

8    UNPACKING PRINCIPLE 4.3 – WRITTEN RULE LEGAL OBLIGATIONS

8.1    All board members are aware of the legal obligations imposed on the organisation by the written rules.

8.2    Develop a Checklist – for annual/bi-annual compliance arising from constitution on matters such as:

8.2.1    Retirement of directors by rotation;

8.2.2    Process for appointing new directors;

8.2.3    Content of annual reporting;

8.2.4    What decisions have to go back to the members (or to the denomination).

8.3    Delegated authority – have a clear understanding about what authority has been delegated to:

8.3.1    Committees

8.3.2    The Executive (rather than an inclusion list consider a carve out list i.e. the Executive has full day to day decision making power but for …)

8.4    Policy framework – quite apart from your constitution many not-for-profit organisations have quite a number of policies, that may focus on many areas such as:

8.4.1    Managing specific risks – e.g. bullying;

8.4.2    General operational activities;

8.4.3    Governance matters such as:

a Executive succession processes;
b Membership appraisal processes.

9    UNPACKING PRINCIPLE 4.4 – UNDERSTAND THE LAW

9.1    All board members comprehend the obligations imposed on the organisation by laws external to the organisation’s rules (for example, privacy legislation, industrial relations legislation, taxation legislation).

9.2    This is a highly ambitious principle and probably “sets the bar too high”.

9.3    As a board member you don’t have to be a lawyer. What dysfunctional boards we would have then! :) Most lawyers, this one included, don’t fully comprehend the obligations imposed on the organisation by laws (but have younger lawyers on their staff who do).

9.4    Key = identification of issues. (“The key to being a good lawyer is being able to identify the issues that really need your attention.” [A mentor])

9.5    Perhaps this principle could be recast to read:

All board members understand that they are operating in a complex legal framework and that diligence is required in identifying and then understanding the myriad of legal issues that will arise affecting the organisation (in areas such as privacy, occupational heath and safety, industrial relations, intellectual property and tax).

9.6    Key question: Do we have a diverse board with members drawing from a broad range of expertise and experience that would aid us in the identification of issues?

10    UNPACKING PRINCIPLE 4.5 – COMPLIANCE WITH LEGAL OBLIGATIONS

10.1    The board is diligent in complying with its legal obligations.

10.2    Reputation is linked to be being a good corporate citizen.

10.3    The days are gone when regulators will say, look how much good they do, we will not take action.

10.4    If your board is knowingly not complying with legal obligations, the key question is – why are you still on the board?

11    UNPACKING PRINCIPLE 4.6 – ANNUAL AFFIRMATION OF LEGAL COMPLIANCE

11.1    At least once per year, the board affirms that, to the best of its knowledge, it is operating in compliance with its legal obligations.

11.2    This will hopefully focus the Board’s attention on Legal Compliance issues.

11.3    I would be concerned however, that this affirmation may be too general to be meaningful. Rather I would respectfully suggest that the affirmation focus on one, two or three compliance areas that have received some focus during the year that’s been.

11.4    Perhaps this principle could be recast to read:

At least once per year, the board affirms the areas of legal compliance it has focused on in the year that has been (it being assumed that the executive will be mindful of operational compliance at all times).

12    UNPACKING PRINCIPLE 4.7 – GET ‘GOOD’ ADVICE

12.1    The board seeks expert advice when the expertise in the boardroom is insufficient to determine an appropriate course of action in relation to any of its compliance obligations.

12.2    Clearly I will support this principle.

12.3    We are increasingly seeing the advent of the merger of many not for profit organisations even churches) as the compliance burden is simply being too great.

12.4    Organisations must have a budget for professional advice (and if possible a reserve to draw upon if a dispute emerges).

12.5    The Executive must be encouraged to take advice when needed.

12.6    Go to an expert. Pro Bono often means that you do not get an expert.

13    UNPACKING PRINCIPLE 5.1 – BOARD MEMBERS UNDERSTAND ‘CONSTITUTION’ OBLIGATIONS

13.1    Each board member understands the obligations imposed on them individually by the constitution and other organisational documents.

13.2    It’s more than the “Vibe”. :)

13.3    Perhaps an additional item for annual affirmation of the director: Insert the approximate date when you last read the whole of the Constitution of the Company …………….. (Now’s that’s confronting!)

14    UNPACKING PRINCIPLE 5.2 – BOARD MEMBERS UNDERSTAND ‘EXTERNAL’ OBLIGATIONS

14.1    Each board member understands the obligations imposed on them by laws external to the organisation’s rules (for example, a Director’s duty to prevent insolvent trading, to avoid conflicts of interest, and to act in the interests of the organisation).

14.2    These duties arise through the Corporations Act and the general law, and apply because of the fiduciary relationship between the Director and the Company (which demands a high standard of loyalty from the Director to the Company / Organisation).

14.3    While the comments below are focused on duties of company directors, very simular duties would be owed by Board members of every organisation, whatever their legal structure.

14.4    Useful ASIC Publication: Your Company and the Law (http://www.asic.gov.au/asic/ASIC.NSF/byHeadline/Your%20company%20and%20the%20law)

14.5    The duties owed by a Director include:

14.5.1    to act in good faith in the best interests of the company and for a proper purpose
14.5.2    not using information derived from your position as a director for themselves, someone else or to the detriment of the company;
14.5.3    not to fetter discretions;
14.5.4    to act with reasonable care and diligence (which includes taking steps to ensure that you are properly informed about the financial position of the company);
14.5.5    not to trade while insolvent;
14.5.6    to keep books and records;
14.5.7    to avoid conflicts of personal interest and duty to act in the best interests of the company.

14.6    Where the duties are replicated in the Corporations Act, they are offence provisions, and can be the subject of prosecution where there has been a breach.

14.7    However, of greater significance is the possibility of civil liability for breaches of Director Duties (as the criminal offences are more difficult to prove than the civil liability).

Duty to act in good faith in the best interests of the Company

14.8    This duty requires a Director to put the interests of the company ahead of their own personal interests, and to actively consider what the interests of the company are when making decisions.

The duty to not fetter discretions

14.9    This duty will require the directors to give adequate consideration to all of the issues prior to making a decision.  They must independently assess the circumstances, and reach a decision of their own making (without relying on other persons).

14.10    That is, the decision must be each Director’s own decision, made without interference.  They will each be responsible for the decision they make.

The duty to act with reasonable care and diligence

14.11    The Directors, in making their decision, must exercise their powers and discharge their duties with the degree of care and diligence that a reasonable person would exercise in their position.

14.12    The test is an objective test in the sense that the question is what an ordinary person, with the knowledge and experience of the Director, might be expected to have done in the circumstances (Australian Securities Commission v Gallagher (1993) 11 WAR 105.

Consequences of breaching a Duty

14.13    Firstly, a breach of a statutory duty can result in criminal prosecution.  However, generally these prosecutions are difficult to prove.

14.14    If a Director breaches his/her duty, and that breach causes loss to the company, the Directors in breach will be jointly and severally liable to compensate the company for that loss.

14.15    The test to prove this causation will be whether the loss would have occurred if there had been no breach of duty.

The duty not to trade while insolvent

14.16    Inform yourself

14.17    Investigate financial difficulties

14.18    Seek advice

14.19    Act quickly

14.20    Useful ASIC resources:

14.20.1    Information Sheet: Insolvency A Guide for Directors (http://www.asic.gov.au/asic/pdflib.nsf/LookupByFileName/Insolvency_guide_for_directors.pdf/$file/Insolvency_guide_for_directors.pdf)

14.20.2    Consultation Paper – Duty to Prevent Insolvent Trading: Guide for Directors (http://www.asic.gov.au/asic/pdflib.nsf/LookupByFileName/CP124.pdf/$file/CP124.pdf)

14.21    The days of being on a board just because you want to support their mission are gone.

15    UNPACKING PRINCIPLE – 5.3 – DILIGENT COMPLIANCE IS EVIDENT

15.1    All board members are diligent in complying with their individual responsibilities as board members.

15.2    Query: What are the consequences if diligent compliance is not evident? Or at least humble acknowledgement of failure and diligence going forward?

15.3    Query: Is anyone looking? And asking if diligent compliance by individual board members is evident?

16    UNPACKING PRINCIPLE 5.4 – ANNUAL AFFIRMATION OF DILIGENCE

16.1    At least once per year, all board members affirm that they are operating in compliance with their individual responsibilities.

16.2    Do you have an annual Director’s Affirmation which is completed during a meeting with the Chair of the Board and signed which states:

16.2.1    The director remains committed to the organisation and has practically demonstrated that commitment (including preparing for board meetings by reading board papers);
16.2.2    Does the director actively participate in board discussions and ask probing questions;
16.2.3    The director continues to fulfil the qualifications of director in the Constitution;
16.2.4    The director has declared conflicts of interest and absented himself/herself during those discussions;
16.2.5    The director continues to affirm the Statement of Faith and their personal commitment to the Lord Jesus as their personal Saviour and Lord.

16.3    Query: Are those annual affirmations tabled at a Board meeting?

16.4    Query: Do we have the courage to ask for the resignation (or remove) a director who may not still be suitable?

17    UNPACKING PRINCIPLE 5.5 – GET INDIVIDUAL ‘GOOD’ ADVICE

17.1    Board members seek expert advice when the expertise in the boardroom is insufficient to determine an appropriate course of action in relation to individual director responsibilities.

17.2    If you need to take personal professional advice, will the organisation cover cost up to a certain level?

17.3    If not, will you still take the advice you need?

If you have any queries regarding legal compliance & Directors’ Duties for Not for Profit Boards, contact us

Contact our Business Development Officers and make an appointment with our Brisbane Not for Profit lawyers today.  Call (07) 3252 0011.

This article was written by Andrew Lind for Christian Management Australia Board Training Day (10 November 2010)