On 27 March 2024, the Treasury Laws Amendment (Financial Market Infrastructure and Other Measures) Bill 2024 was introduced before Federal Parliament. If enacted as drafted, it will introduce a framework for mandatory climate related disclosure regime by certain companies.

We have been asked by some charities which are companies whether they are impacted by this proposed disclosure regime. The purpose of this short article is to provide a brief overview of the proposed regime, and its applicability to charities.

What does the Bill do?

The Bill amends parts of the Corporations Act 2001 (Cth), as well as eight other Acts, in order to ‘implement recommendations by the Council of Financial Regulators in relation to Australia’s financial market infrastructure’.[1]

Schedule 4 of the Bill contains the proposed legislation that will introduce the mandatory climate related disclosure regime, and is titled ‘Sustainability Reporting’. Among other matters, it proposes changes to Chapter 2M of the Corporations Act 2001 (Cth).

Chapter 2M of the Corporations Act 2001 (Cth) addresses financial reporting by companies and audit requirements. In particular, Part 2M.3 of that chapter places obligations on various entity types to report to the Australian Securities and Investments Commission (‘ASIC’) each financial year. The proposed changes would add to the recording keeping and reporting obligations by introducing the requirement to:

• keep ‘sustainability records’; and
• prepare and lodge a ‘sustainability report’ each financial year.

The purpose of this is stated to be to establish an internationally aligned mandatory climate disclosure reporting regime in Australia, the intention being to give investors and companies ‘the transparency, clarity and certainty they need to invest in new opportunities as part of the net zero transformation’.[2] ASIC will be responsible for enforcing this proposed regime.

Does the proposed regime apply to Charities?

As drafted, the mandatory climate related disclosure regime will fall within Parts 2M.1 to 2M.3 of Chapter 2M of the Corporations Act 2001 (Cth). In what may offer some relief to charities, the proposed reporting regime will therefore not apply to charities that are registered with the Australian Charities and Not-for-profits Commission (‘ACNC’), as section 111L of the Corporations Act 2001 (Cth) provides that Parts 2M.1, 2M.2 and 2M.3 do not apply to ACNC registered charities.

However, despite the carve out for ACNC registered charities in these proposed changes, the changes reflect a growing concern by governments and the community in general about climate change. It may therefore be prudent for charities to consider the size of their operations, be aware of the reporting requirements that are ultimately introduced within Chapter 2M, and take steps to position themselves to be ready for if such reporting requirements are ever extended to ACNC registered charities in the future.

Vocare Law is well equipped to assist our charity and not-for-profit clients with a wealth of collective knowledge and over two decades experience providing insight and advice in this area. Please don’t hesitate to contact our office if you have any questions on ensuring your charity is able to adequately comply with the ACNC governance standards. Contact us on 1300-VOC-LAW / 1300-862-529 or email: enquiry@vocarelaw.com.au

This article was written by Reece Morrison. 

Footnote

[1] ‘Treasury Laws Amendment (Financial Market Infrastructure and Other Measures) Bill 2024’, Parliament of Australia, Summary, <https://www.aph.gov.au/Parliamentary_Business/Bills_Legislation/Bills_Search_Results/Result?bId=r7176>

[2] See the media release from The Hon. Dr Jim Chalmers MP here: https://ministers.treasury.gov.au/ministers/jim-chalmers-2022/media-releases/new-climate-reporting-reforms-stronger-financial-system

Operating in the charity and not-for-profit space comes with many and varied responsibilities. From the time the decision is made to register a charity, and throughout the charity’s life, directors, board members and committee members must meet their obligations to ensure the ongoing prosperity of the organisation and shield themselves against personal liability. In this article we consider some of the main responsibilities required of directors, board members and committee members by the Australian Charities and Not-for-profit Commission (the ACNC).

Overview

Prior to the introduction of the ACNC and the associated regime, directors of charities were primarily governed by the directors’ duties provisions in the Corporations Act 2001 (Cth) (the ‘Corporations Act’). However the Corporations Act did not take into account the nuances of operating in the charity sector, and seemed to impose an ever increasing level of liability on those directors (as seen in the Centro case ASIC v Healey [2011] FCA 717). The introduction of the Australia Charities and Not-for-profit Commission Act 2012 (Cth) (the ‘ACNC Act’) marked a significant shift, and meant that the Centro decision and the related civil penalty provisions of the Corporations Act would no longer apply to registered charities.

Whilst a collective exhale could be heard across charity boardrooms Australia wide, the question remains, what is the standard of diligence required from charity directors and in what circumstances would liability for a charity director arise?

Australian Charities and Not-for-profit Commission

Many reading this article will be familiar with the ACNC, who is the independent regulator of registered charities in Australia. It is prudent here to note that not all charities in Australia are registered charities, and the contents of this article specially relate to people involved with charities that are in fact registered. The ACNC uses the term ‘Responsible People’ to refer to the different roles that attract duties within a registered charity (as each registered charity will have one of several different legal structures). These roles generally include each director of a company limited by guarantee, each of the members of an association’s committee of management of an incorporated association, each trustee of a trust and each director of a corporate trustee[1]. Each of these Responsible People has duties that they must comply with, the most pertinent of which are set out below.

ACNC Governance Standards

There are six governance standards set out in the Australian Charities and Not-for-profits Commission Regulations 2022 (Cth) (the ACNC Regulations) which entities are required to meet (in order to become registered, and on an ongoing basis). According to Governance Standard 5, charities must take reasonable steps to ensure that their Responsible People comply with their duties as follows[2]:

•  To act with reasonable care and diligence. It is the responsibility of the registered charity’s Responsible People to manage the charity. This includes staying informed of the charity’s activities and finances. Whilst is it at times necessary for a responsible person to rely on the expertise of others, this does not alleviate the requirement to make an independent assessment of the information provided.
• To act honestly and fairly in the best interests of the charity and for its charitable purposes. Responsible People are obligated to act in the best interests of the charity in order to further its charitable purposes. It would be a breach of this duty if their dealings were not honestly in the charities best interests, but rather in the best interests of the Responsible People or their associates.

• Not to misuse their position or information they gain as a Responsible Person. Often responsible people will need to make decisions about the finances or other resources of the charity. It would be a misuse of that position to use information for their own benefit or benefit of others such as family and friends.

• To disclose conflicts of interest. A conflict of interest between a responsible persons duty to the charity and their own personal interest, whether actual or perceived, must be disclosed to the other Responsible People of the registered charity. That person should also then refrain from voting on any issue relating to the conflict of interest. A key here is early and full disclosure, even in a circumstance where it may only look as though there is a conflict of interest.

• To ensure that the financial affairs of the charity are managed responsibly. This includes reading financial statements and making enquiries in relation to anything the responsible person doesn’t understand (those familiar with the Centro case may notice a similar representation here). Improper financial management is the most common way in which directors and other responsible persons get themselves into trouble. There is no substitute for taking care to discharge due diligence when it come to the charity’s financial management.
• Not to allow the charity to operate while it is insolvent. If the Responsible Person reasonably suspects that the charity cannot pay all its debts when they become due, then they must take all reasonable steps to prevent the charity from incurring any more debt.

Whilst the ACNC Regulations outline some protections for Responsible People, failure to comply with any of the above requirements of Governance Standard 5 can attract regulatory action by the ACNC and in some more extreme circumstances (discussed below) the criminal sanctions set out in the Corporations Act may apply.

ACNC Compliance Powers

As the national regulator the ACNC has statutory powers to ensure that the regulatory framework is complied with. These powers include the ability to take action against the charities ‘Responsible Persons’ and the registered charity itself. It may suspend or remove a Responsible Person (for example a member of the charity’s board or committee) and also disqualify them from being eligible to be on the governing body of another registered charity. If a person is disqualified they will be listed on the ACNC disqualified persons register.

In relation to the charity itself, the ACNC may issue a warning, a direction (directing the charity to do or not do something) or an enforceable undertaking (these arrangements can be enforced by a court). It may also seek an injunction from a court to make the charity do or not do something. In exceptional circumstances the ACNC may revoke the charity’s registration, which may in turn affect their ability to access government funding, exemptions, and tax concessions. The ACNC can apply administrative penalties if a charity makes false or misleading statements or fails to lodge documents on time. Ultimately it is the responsibility of the registered charity as an entity to ensure that the Responsible People comply with the governance standards, which in turn makes this a collective duty of all of the organisations Responsible People.

Criminal Offences of the Corporations Act

Unlike the civil sanctions that apply to directors for breaching their duties – which are generally not applicable to charity directors – there are criminal offences under the Corporations Act that still apply. Charity directors may face criminal penalties for breaching duties such as acting in good faith, acting for a proper purpose and not misusing their position or information. These sanctions will generally only apply in circumstances where directors are intentionally dishonest or reckless towards fulling their duties.

Furthermore, the duty to prevent insolvent trading under s588G of the Corporations Act continues to apply to directors of registered charities.

Breaching these duties can attract significant penalties. As such it is important that directors and Responsible Persons of registered charities act with a high level of care and diligence.

Practical guidance

There are some steps that you can take to ensure that you limit your exposure to personal liability, and in turn your charities exposure to risk as well, including;

1. 1. Always act with a high level of care and your discharge your due diligence;
   2. Read documents thoroughly, make sure you understand what you’re signing off on;
   3. Ask questions: if there’s something you don’t understand, seek clarification;
   4. If you consult an expert, ensure that you understand and accept their advice, consider their methods, and enquire to ensure they’ve acted according to industry standard;
   5. Keep records: ensure appropriate and accurate records are kept by the charity;
   6. Seek advice: if you are uncertain, seek advice from a qualified advisor before signing off.

The governance standards outlined within the ACNC Act create a minimum standard of operation for registered charities in Australia. Ensuring compliance to the governance standards is a requirement for a charity to maintain its registered status.

Vocare Law is well equipped to assist our charity and not-for-profit clients with a wealth of collective knowledge and over two decades experience providing insight and advice in this area. Please don’t hesitate to contact our office if you have any questions on ensuring your charity is able to adequately comply with the ACNC governance standards.

This article was written by Alice Osborne & Simon Mason.

**The information contained herein does not, and is not intended to, constitute legal advice and is for general informational purposes only.  

Footnotes

[1] This is a non-exhaustive list. There are other structures of registered charities that will attract duties and other roles within the organisations listed that will also attract duties.

[2] Whilst governance standard 5 relates directly to the duties of Responsible People, there are other related governance standards that Responsible People should also be aware of.

As a recap of the ACNC Charities Series so far:

• In Part 1 we discussed registration as a “charity” with the Australian Charities and Not-for-profits Commission (“ACNC”), and identified some of the taxation and other benefits of obtaining “charity” status.

• In Part 2 we explained the nature of Deductible Gift Recipients (“DGR”), why obtaining DGR status is attractive in encouraging larger and more frequent donations, and how a charity might become eligible to be endorsed as a DGR to issue tax-deductible receipts to potential donors.

• Part 3 we explored the nature and objectives of Public Benevolent Institutions, their place in the community in providing benevolent relief to people in need, and discussed how an institution might become endorsed as a PBI.

In Part 4, we will now discuss a further category of charities recognised by the ACNC: the Health Promotion Charity.

What are Health Promotion Charities?

A Health Promotion Charity (or “HPC”) is an organisation that is registered with the ACNC under the Health Promotion Charity charitable subtype (one of the fourteen different types of charities recognised by the ACNC). To be an HPC, the institution must be an “institution whose principal activity is to promote the prevention or the control of diseases in human beings.”[i]

The definition above shows that an entity seeking registration as a Health Promotion Charity:

1. Must be ‘charitable’ in nature (i.e. be registered as a charity with the ACNC);

2. Must be an ‘institution’;

3. Must have a ‘principal purpose’;

4. That principal purpose must be:

a. to promote the prevention of diseases; or

b. to promote the control of diseases;

5. The institution must be targeted towards addressing a “disease”; and

6. The disease(s) focussed on by the HPC must be diseases in humans.

Why Choose the HPC Structure?

Entities successfully registered as HPCs may be entitled to the following tax concessions:

• Relevant tax concessions available to all registered charities (income tax exemption; GST concessions; potential exemption on franking credits); and

• Fringe benefit tax exemptions.

Similar to Public Benevolent Institutions, Health Promotion Charities also have their own Deductible Gift Recipient (“DGR”) category. This means a registered HPC may be entitled to whole-of-entity DGR status and to provide to tax deductible receipts to its donors – which is a significant advantage in potentially encouraging larger and more frequent donations to the HPC.

Meeting the Eligibility Criteria

Institutions seeking to be registered as HPCs must meet the eligibility requirements of HPCs. These requirements are most clearly set out in the Commissioner’s Interpretation Statement: Health Promotion Charities[ii] and are discussed below.

The “charity” and “institution” aspects of this category are dealt with in our previous articles in this series.

1.   Promotion of prevention or control of diseases in humans

The uniqueness of HPCs derives from its purpose of promoting the prevention or control of diseases in humans. Some notable points arising out of the Commissioner’s Interpretation Statement are outlined below:

• Definition of Disease: The ACNC interprets the definition of “disease” broadly, with reference to the Income Tax Assessment Act 1997 (Cth) and the case of Waubra Foundation and Commissioner of Australian Charities and Not-for-profits Commission.[iv] The starting point is that the definition “includes any mental or physical ailment, disorder, defect or morbid condition, whether of sudden onset or gradual development and whether of genetic or other origin”.[v] This can include mental health conditions.[vi] Furthermore, “disease” may also include conditions not yet recognised as being diseases if certain prerequisites are met.[vii]

• What is not a Disease: “Diseases” are more than just general health conditions or symptoms of disease,[viii] or injuries.[ix]

• “Promote” means “to further the growth, development or progress of; to encourage.”[x]

• “Prevention” means “to keep from occurring; to hinder.”[xi]

• “Control” means “to hold in check; to curb or restrain”.[xii] 

• Diseases in humans: The disease must be diseases arising in humans (as opposed to those exclusive to animals, plant life or other living organisms).[xiii]

Importantly, it is promoting the prevention OR control of diseases in humans which must be the principal activity. This makes the permissible activities for HPC’s quite broad. Examples include:[xiv]

1. raising public awareness about the symptoms of a disease
2. raising public awareness about how to seek treatment for a disease
3. raising public awareness about steps that can be taken to prevent a disease being contracted, such as via vaccination or good hygiene practices
4. raising public awareness of the prevalence or risk of a disease
5. research into prevention of disease
6. research into identification and diagnosis of disease
7. research into management and treatment of disease
8. action to reduce the spread of disease, such as providing personal protective equipment
9. diagnosing, managing and treating disease
10. training carers and health professionals in methods of controlling disease
11. fundraising for HPCs or other entities that promote the prevention or control of disease, or directly prevent or control disease, as their purpose
12. providing support to sufferers of a disease to alleviate their distress and suffering.

2.   Principal Activity

The prevention or control of diseases in humans must be the “principal activity” of the entity seeking registration as an HPC. This means ‘main’ or ‘predominate’.[xv] Paragraph 51 of the Commissioner’s Interpretation Statement is instructive:

An organisation’s principal activity does not need to take up the majority (meaning more than 50%) of its time and resources. The principal activity is the activity that takes up a greater share of the organisation’s time and money than each of its other activities. For example, an organisation could spend 40% of its time and money on one activity, 30% of its time and money on a second activity, and 30% of its time and money on a third activity. The activity that takes up 40% of the organisation’s time and money is its principal activity, even though it takes up less than 50% of its overall time and money.

This principal activity test is notably more flexible than the test applied for Public Benevolent Institutions, meaning that this category may be appropriate for charities looking to have a number of related activities which are not all strictly the prevention or control of diseases in humans but still obtain the benefits this category allows.

The ACNC will undertake a thorough assessment of the organisation’s activities to ensure that the entity has a principal activity of promoting the prevention or control of diseases in humans.

This article is general information only and is current only as at the time of publication. If you are considering or are in the process of establishing a charity and are wondering whether a Health Promotion Charity might be the right structure for you, Corney & Lind Lawyers can help. Contact our friendly team today on (07) 3252 0011 or email us at: enquiry@corneyandlind.com.au

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[i] See Australian Charities and Not-for-profits Act 2012 (Cth) s 25-5.

[ii] See a link to the Commissioner’s Interpretation Statement: Health Promotion Charities available here: https://www.acnc.gov.au/tools/guidance/commissioners-interpretation-statements/commissioners-interpretation-statement-health-promotion-charities

[iii] See ACNC Charities Part I for the requirements of “charity” status, and ACNC Charities Part III for the requirements of “institution” status.

[iv] [2017] AATA 2424. See Australian Charities and Not-for-profits Commission, ‘Commissioner’s Interpretation Statement: Health Promotion Charities’, Version 4, published 30 June 2023, at [24].

[v] Income Tax Assessment Act 1997 (Cth) s 34-20(3).

[vi] Australian Charities and Not-for-profits Commission, ‘Commissioner’s Interpretation Statement: Health Promotion Charities’, Version 4, published 30 June 2023, at [27].

[vii] Ibid, [30]-[34].

[viii] Ibid, at [28].

[ix] Ibid, at [37].

[x] Ibid, at [40].

[xi] Ibid, at [41].

[xii] Ibid, at [42].

[xiii] Ibid, at [38].

[xiv] Ibid, at [43].

[xv] Ibid, at [50].