House of Representatives

Explanatory Memorandum

(Circulated by the authority of the Deputy Prime Minister and Treasurer, the Hon Wayne Swan MP)

Chapter 9 Education, compliance and enforcement

Outline of chapter

9.1 The object of this Bill is to maintain, protect and enhance the public trust and confidence in the NFP sector.

9.2 The ACNC will primarily achieve the object of the Bill by providing the NFP sector with guidance and educative materials to assist the sector to understand and comply with regulatory obligations.

9.3 The Bill contains a wide spectrum of enforcement powers reflecting that the ACNC would not have powers of enforcement unless specifically provided for in legislation.

9.4 In cases where the ACNC's educative function fails to induce the required action, the ACNC Commissioner will have the ability to use a range of enforcement powers.

9.5 The range of enforcement powers this Bill provides enable the ACNC to take strong, proportional and targeted actions to address actions or lack of actions that could threaten public trust and confidence in the NFP sector.

9.6 This Bill provides the ACNC with the authority to:

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issue warning notices;

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issue directions;

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enter into enforceable undertakings;

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apply to the courts for injunctions;

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suspend or remove responsible entities; and

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appoint acting responsible entities.

9.7 This Chapter specifies the application and necessity clauses that must be met prior to the ACNC Commissioner using enforcement powers; the range and scope of the ACNC's enforcement powers; and the penalties associated with failing to comply with the ACNC Commissioner's enforcement powers.

Summary of new law

Enforcement powers

9.8 The new law provides the ACNC Commissioner with a range of enforcement powers to assist in maintaining, protecting and enhancing public trust and confidence in the sector's new regulatory framework.

9.9 Enforcement powers are modelled on those given to other Commonwealth regulators such as the ASIC, the Australian Prudential Regulation Authority (APRA) and the Australian Competition and Consumer Commission (ACCC).

9.10 The ACNC will focus on education in order to minimise and address non-compliance. However, the ACNC Commissioner will require powers to deal with serious and significant wrong-doing and must be able to take appropriate and targeted action against contraventions of the Bill.

9.11 Enforcement powers are an important tool for regulators to deter entities from acting in an inappropriate manner and provide mechanisms to protect assets from inappropriate use.

9.12 This Bill provides the ACNC with the authority to:

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issue warning notices; [Division 80]

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issue directions; [Division 85]

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enter into enforceable undertakings; [Division 90]

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apply to the courts for injunctions; [Division 95]

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suspend or remove responsible entities; and [Division 100]

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appoint acting responsible entities. [Division 100]

9.13 The Bill specifies the conditions that must be satisfied before the ACNC Commissioner can use enforcement powers, the scope and range of the ACNC's enforcement powers, and the associated penalties for contravening enforcement powers issued by the ACNC Commissioner.

9.14 The ACNC Commissioner would be able to exercise enforcement powers only over registered entities.

9.15 The ACNC Commissioner may generally only use enforcement powers against 'federally regulated entities' (defined below), however, the ACNC Commissioner may revoke the registration of any registered entity. The ACNC Commissioner's enforcement powers in relation to external conduct standards apply to all registered entities.

9.16 The ACNC's enforcement powers are consistent with those available to other regulators under Commonwealth laws, and are similar to the enforcement powers available to NFP regulators in comparable jurisdictions, for example, the Charities Commission of England and Wales, and the Office of the Scottish Charity Regulator.

9.17 The reviews and appeals provisions in Chapter 12 will generally apply to the ACNC Commissioner's enforcement powers including decisions taken by the ACNC Commissioner to issue or vary directions and decisions to suspend or remove responsible entities.

Detailed explanation of new law

Enforcement powers

9.18 The ACNC will primarily achieve the objects of this Bill by providing the NFP sector with guidance and educative materials to assist the sector to understand and comply with regulatory obligations.

9.19 In cases where the ACNC's educative function fails to induce required action, the ACNC Commissioner will have the ability to use a range of enforcement powers.

9.20 The final report on the Scoping Study for a National Not-for-profit Regulator recommended that a regulator for the NFP sector should be given appropriate enforcement powers to take proportional and targeted compliance actions.

9.21 The report recommended that the enforcement powers should include asset protection powers, the power to remove or suspend responsible entities, and information gathering powers.

9.22 More broadly, enforcement powers are an important tool for regulators which deter entities from acting in an inappropriate manner and provide mechanisms to protect assets from inappropriate use.

9.23 This Bill provides the ACNC with the authority to:

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issue warning notices; [Division 80]

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issue directions; [Division 85]

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enter into enforceable undertakings; [Division 90]

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apply to the courts for injunctions; [Division 95]

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suspend or remove responsible entities; and [Division 100]

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appoint acting responsible entities. [Division 100]

9.24 This range of enforcement powers will enable the ACNC to take proportional and targeted compliance action.

9.25 This is a fundamental change from the sector's current regulatory framework where the default Commonwealth regulator, the ATO, only has the power to remove an entity's access to tax concessions and is unable to take action commensurate to the circumstances being addressed.

9.26 Australian regulators, including APRA, the ACCC and ASIC are generally given a range of enforcement powers which can include the authority to issue directions, the authority to enter into enforceable undertakings, and the right to apply to the courts to have injunctions imposed.

9.27 The ACNC will take over the roles of other Commonwealth level regulators in cases where these other regulators are responsible for overseeing the governance structures and financial performance of NFP entities. The enforcement powers provided by this Bill are therefore modelled on the powers given to these other regulators.

9.28 Prior to using enforcement powers the ACNC Commissioner would have to satisfy standard application and necessity clauses which are generally consistent across the range of enforcement powers.

9.29 The ACNC Commissioner would also be required to take into account a range of policy matters, including an entity's compliance track record, prior to using enforcement powers.

9.30 The type of enforcement power used by the ACNC Commissioner will be determined by the kinds of actions which are required to address the contravention or non-compliance. In some cases, all that will be required is the issuance of a warning notice to compel self-correction; in other cases where an entity has persistently failed to meet regulatory obligations, the ACNC Commissioner may have to remove a responsible entity.

9.31 Where possible, and in line with the regulatory approach to be adopted by the ACNC, the ACNC Commissioner will attempt to obtain self-correction through its educative role.

Application clause and necessity clause

9.32 The application and necessity clauses represent high thresholds designed to ensure that these powers are only used when necessary.

9.33 The 'application clause' constrains the provisions the ACNC Commissioner is able to enforce, and the types of entities the ACNC Commissioner is able to apply enforcement powers toward.

9.34 The application clause and necessity clause that are required to be satisfied would generally be consistent across the range of the ACNC Commissioner's enforcement powers.

9.35 The ACNC Commissioner is able to use enforcement powers if:

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an entity is a federally regulated entity, and the ACNC Commissioner reasonably believes that the entity has contravened, or is more likely than not to contravene, a provision in the Bill;

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an entity is a federally regulated entity, and the ACNC Commissioner reasonably believes that the entity has not complied, or is more likely than not to not comply, with a governance standard; or

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the ACNC Commissioner reasonably believes that the registered entity has not complied, or more likely than not to not comply, with an external conduct standard.

9.36 The 'reasonably believes' threshold ensures the ACNC Commissioner can only use enforcement powers if any reasonable individual, provided with the set of information available to the ACNC Commissioner, would deem that a particular registered entity has contravened a provision of the Bill, or has failed to comply with a governance standard or external conduct standard.

9.37 It would be inconsistent with this requirement for the ACNC Commissioner to use enforcement powers in situations where information on an entity's compliance with regulatory obligations is inconclusive or does not clearly point to a likely contravention or case of likely non-compliance.

9.38 The ACNC Commissioner would be able to use enforcement powers in cases where it is 'more likely than not' that a registered entity will contravene a provision in the Bill, or will fail to comply with governance standard or external conduct standard.

9.39 The ACNC Commissioner would need to have reliable information which clearly indicates that, barring any discretionary change, the registered entity will contravene a provision in the Bill, or will fail to comply with a governance standard or external conduct standard.

9.40 Two implicit conditions are required to be satisfied prior to the ACNC Commissioner using enforcement powers for cases where contraventions or non-compliance are more likely than not.

9.41 Information needs to be reliable. Generally, reliable information includes information contained in financial statements, information statements, annual reports, governing documents, contractual agreements and any other information, forms or statements that the ACNC Commissioner obtains from a reliable source.

9.42 Information that would not be considered reliable includes rumours, opinions and subjective and unsubstantiated complaints and information provided to the ACNC Commissioner.

Example 9.1

The Paul Bird Foundation is a charity established for the advancement of religion. The ACNC is made aware that the Foundation will use its funds to sponsor a professional sporting team. Using its monitoring powers the ACNC obtains a copy of the contract between the charity and the sporting organisation. In this case the entity will not be using its charity funds to promote its charitable purpose resulting in a contravention of the ACNC Bill. The ACNC could use enforcement powers to ensure the entity does not contravene the Bill.

9.43 Additionally, the situations where an entity is 'more likely than not' to contravene a provision in the Bill or more likely than not to not comply with a governance or external conduct standard, but the circumstances that led to this conclusion are more likely than not to be temporary and rectified without discretionary action are also excluded.

Example 9.2

The CFO of Moments Foundation, a registered charity, has taken sick leave in the lead up to the end of the financial year. Given the length of leave it is more likely than not that the entity will not submit its annual financial statement by the due date, rather it will be marginally late and be submitted when the CFO returns from leave. In this case, the ACNC Commissioner could use its enforcement powers for the 'more likely than not' contravention but would choose not to because no actual discretionary change would be required for the entity to become compliant.

9.44 The 'necessity clause' ensures that the ACNC Commissioner can only use enforcement powers when use of the power is necessary to directly address the contravention or more likely than not contravention of the ACNC Bill, or the non-compliance or more likely than not non-compliance with a governance standard or external conduct standard.

9.45 The necessity clause constrains the outcomes the ACNC Commissioner can achieve, through the use of enforcement powers, to outcomes which directly address the contravention or non-compliance.

9.46 The ACNC Commissioner would not be able to direct a registered entity to undertake a specified act which is unrelated to the contravention or case of non-compliance.

9.47 This requirement addresses concerns that any open-ended enforcement power could provide for the ACNC to inappropriately interfere in a registered entity's operations.

Example 9.3

OPD Inc has persistently failed to provide the ACNC Commissioner with annual information statements. The ACNC Commissioner may direct OPD Inc to complete and provide an information statement to the ACNC Commissioner for the years for which OPD Inc has failed to lodge. The direction contains a specified act which addresses the contravention. The ACNC Commissioner would not be able to direct the OPD Inc to change other aspects of its operations as this would be inconsistent with the necessity clause.

Example 9.4

The Better Humans Fund submits a duty to notify notice which proposes a change to its charitable purpose that would render it ineligible for registration. The ACNC Commissioner may direct the Fund to not change its governing rules in a specified manner. However, the ACNC Commissioner could not direct the registered entity to undertake other acts, such as require the entity to cease to transfer funds to meet contractual obligations.

Matters ACNC Commissioner must take into account

9.48 The ACNC Commissioner would be required to consider a range of policy matters (outlined below) prior to using any enforcement power or revoking an entity's registration. [Subsection 35-10(2)]

9.49 These matters are wider than the factors considered in developing a view on whether the application clause and necessity clause have been satisfied.

9.50 The matters ensure that the ACNC Commissioner considers the registered entity's track compliance record, the nature and persistence of the contravention or non-compliance, and the implications that result from the contravention or non-compliance.

9.51 Requiring the ACNC Commissioner to consider this broader range of matters provides the ACNC Commissioner with the scope to act appropriately when faced with identical cases of non-compliance.

9.52 In deciding whether to use enforcement powers, the ACNC Commissioner must consider:

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the nature, significance and persistence of the contravention or non-compliance [Paragraph 35-10(2)(a)] ;

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the actions the ACNC Commissioner, the registered entity, or any of the responsible entities could have taken:

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to address the contravention or non-compliance (or prevent the more likely than not contravention or non-compliance); or

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to prevent any similar contravention or non-compliance in the future [Paragraph 35-10(2)(b)] ;

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the desirability of ensuring that contributions made to the registered entity are applied consistently with the NFP nature, and the purpose, of the registered entity [Paragraph 35-10(2)(c)] ;

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the objects of any Commonwealth laws that refer to registration under this Bill [Paragraph 35-10(2)(d)] ;

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the extent (if any) to which the registered entity is conducting its affairs in a way that may cause harm to, or jeopardise, the public trust and confidence in the sector [Paragraph 35-10(2)(e)] ;

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the welfare of members of the community (if any) that receive direct benefits from the registered entity [Paragraph 35-10(2)(f)] ; and

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any other matter of policy that the ACNC Commissioner considers relevant [Paragraph 35-10(2)(g)] .

9.53 This list of matters should be considered in its entirety and a decision should be made by balancing each of the factors.

9.54 The individual matters are outlined and discussed in the paragraphs below.

Nature, significance and persistence of contravention or non-compliance

9.55 The ACNC Commissioner must consider the nature, significance and persistence of any contravention or non-compliance. [Paragraph 35-10(2)(a)]

9.56 Under this matter, the ACNC Commissioner must consider:

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whether any contraventions have occurred;

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whether the responsible entity has persistently contravened or not complied with the Bill;

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the implications associated with the breaches; and

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the nature or underlying cause of the breach.

Example 9.5

Two registered entities commit the same breach. Both entities fail to notify the ACNC Commissioner of major changes to their governing rules which could impact on their registration entitlement.

One of the registered entities has a track record of failing to comply with regulatory obligations including, for example, failing to lodge information statements by the required time.

In both cases a contravention occurs and the ACNC Commissioner may use enforcement powers to direct both entities to comply with the duty to notify requirement in the Bill.

However, the ACNC Commissioner must consider other aspects, including the registered entities' track records of compliance with regulatory responsibilities. The ACNC Commissioner could choose to use one of its enforcement powers against the registered entity with a track record of breaching regulatory requirements.

Actions taken

9.57 In deciding whether to use any of the enforcement powers available under this Bill, the ACNC Commissioner must consider what action the ACNC Commissioner, the registered entity, or any of the responsible entities could or have taken to address any contravention or non-compliance (or prevent any more likely than not contravention or non-compliance), or to prevent any similar contravention or non-compliance. [Paragraph 35-10(2)(b)]

9.58 This matter ensures that the ACNC Commissioner takes into account any discretionary actions taken by the registered entity or the responsible entities to address the breach.

9.59 Discretionary actions may include any actions taken in response to other enforcement powers used by the ACNC Commissioner. It also includes changes to the legal and operational framework of the registered entity which addresses the current contravention or case of non-compliance as well as reducing the likelihood of future breaches.

9.60 By mandating that the ACNC Commissioner considers the actions which the responsible entity could have undertaken ensures that responsible entities are held accountable for matters which they have control over and gives them opportunities for self-correction.

Ensuring contributions are applied consistently with nature and purpose of NFPs

9.61 The ACNC Commissioner must also consider how to ensure that 'contributions' made to the registered entity are applied consistently with the NFP nature, and the purpose, of the registered entity. [Paragraph 35-10(2)(c)]

9.62 What constitutes contributions under the Bill is defined broadly. Contribution includes provision of money, property, or an individual's time or reputation or other gift. Contributions also include Government tax concessions, grants and other forms of support. [Section 205-40]

9.63 Registered entities are registered under a type and subtype, and are eligible to receive public monies which are used to promote the registered entity's charitable purpose.

9.64 The regulatory framework developed by this Bill helps to ensure that monies are used consistently with the purposes for which the funds were given to the NFP entity.

9.65 Therefore, when coming to a view on whether to use any of the enforcement powers available, the ACNC Commissioner needs to consider whether the use of the enforcement power increases the likelihood that charitable funds are protected and used appropriately.

Other Commonwealth laws

9.66 The ACNC Commissioner must take into consideration the objects of any Commonwealth laws, the operation of which are affected by registration under this Bill. [Paragraph 35-10(2)(d)]

9.67 Registration has implications for the entity in relation to the operation of other Acts, mostly notable the tax laws. For example, to access tax concession earmarked for the sector an entity must be registered by the ACNC.

9.68 Registration helps ensure that entities are appropriately regulated as well as operating under appropriate governance arrangements. The ACNC Commissioner must therefore consider the implications of using or not using enforcement powers on the objects of these other Acts.

9.69 For example, the ACNC Commissioner must consider whether not using enforcement powers to ensure compliance with the Bill would have severe implications for the integrity of the tax law.

Maintaining, protecting and enhancing public trust and confidence

9.70 The ACNC Commissioner must consider the extent to which the registered entity is conducting its affairs in a way that may cause harm to, or jeopardise, the public trust and confidence mentioned in the objects clause. [Paragraph 35-10(2)(e)]

9.71 This matter ensures the ACNC Commissioner considers broader issues related to the public's trust and confidence in the sector when coming to a view on whether to use enforcement powers.

9.72 For example, the ACNC Commissioner may consider the implications on the public's trust and confidence in the sector resulting from not taking action and suspending a responsible entity that is defending significant criminal charges in court.

9.73 Further explanation of public trust and confidence can be found in Chapter 1 - Background.

Welfare of members of the community

9.74 The ACNC Commissioner must consider the welfare of members of the community (if any) that receive direct benefits from the registered entity. [Paragraph 35-10(2)(f)]

9.75 In considering whether to use an enforcement power, or which power to use, the ACNC Commissioner must consider whether a course of action would improve or worsen the welfare of any members of the community that benefit directly from the registered entity.

Other matters

9.76 The ACNC Commissioner can also take into consideration any other matter that he or she considers relevant. [Paragraph 35-10(2)(g)]

Example 9.6

The Ciaro Organisation is a federally regulated entity that is registered with the ACNC. All registered entities are required to comply with the governance standards in this Bill as a condition of registration.

The Ciaro Organisation is providing short-term direct care to animals that have been mistreated and their governing rules state that their purpose is to relieve poverty. The ACNC Commissioner considers this is a contravention of the governance standard.

The entity puts processes in place to ensure it is operating to relieve poverty, and the ACNC Commissioner is satisfied with those processes. However, the entity decides it wants to expand its purposes over the long term. The entity applies to the ACNC Commissioner to change its governing rules and expand its purposes.

In this case there is no need for the ACNC Commissioner to suspend or remove the responsible entity, or use other enforcement powers.

If, on the other hand, the entity did not to address the non-compliance, the ACNC Commissioner could use an enforcement power, such as the power to suspend or remove responsible entities, in order to ensure compliance.

Example 9.7

The Moments Foundation is a registered entity established for the advancement of religion. It has several individuals appointed as responsible entities.

One of these responsible entities has recently been declared bankrupt. The entity may contravene a governance standard. The Moments Foundation takes steps to effectively address the contravention. The ACNC Commissioner does not have to remove the responsible entity to ensure compliance in this situation.

Example 9.8 :

Company Go-To was established to promote education in rural communities. The director falls ill and is unable to send the ACNC its information and financial statements. As such the entity does not meet its obligations.

A minor contravention, like failing to lodge statements when due for the first time, are unlikely to result in the ACNC Commissioner using enforcement power.

However, if this continues, the ACNC Commissioner may consider using one of the enforcement powers to ensure compliance.

Federally regulated entity

9.77 The ACNC Commissioner may generally only use her or his enforcement powers against federally regulated entities. The ACNC Commissioner's enforcement powers in relation to the external conduct standards apply to all registered entities.

9.78 Federally regulated entities are entities that the Commonwealth has power to regulate under section 51(xx) of The Constitution (the corporations power) or section 122 of The Constitution (the Territories power).

9.79 The corporations power allows the Commonwealth to make laws with respect to constitutional corporations. The Territories power allows the Commonwealth to make laws for the government of any Territory.

9.80 Constitutional corporations include a financial corporation, a trading corporation or a foreign corporation, and a body corporate that is incorporated in a Territory. [Section 205-20]

9.81 Federally regulated entities are also entities based in a Territory and relate to the Territories power, such as:

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a body corporate incorporated in a Territory [paragraph 205-15(c)] ; or

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a trust, all of the trustees of which are bodies corporate incorporated in a Territory [paragraph 205-15(d)] ; or

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an entity, the core or routine activities of which are carried out in or in connection with a Territory [paragraph 205-15(e)] .

9.82 The ACNC will bring matters concerning non-federally regulated entities to the attention of the relevant State or Territory regulators. These regulators operate under their own laws. The ACNC is expected to work with State and Territory regulators to ensure that they are aware of matters concerning non-federally regulated entities for the purposes of administering their own laws.

9.83 The Commonwealth Government is negotiating a statement of principles with States and Territories to facilitate cross-jurisdiction regulatory cooperation.

Warning notices

9.84 The ACNC Commissioner has the power to issue written warning notices to registered entities. [Division 80]

9.85 Warning notices are an effective tool to strengthen the sector's transparency and accountability and to induce change where appropriate.

9.86 The ACNC Commissioner must make warning notices publicly available through the ACN Register. [Note in subsection 80-5(2)]

9.87 Warning notices provide the public with a source of information on contraventions or non-compliance with regulatory obligations, and limit the gravity of any contraventions or non-compliance by triggering appropriate behavioural responses.

9.88 For example, if the public becomes aware of a charity misusing funds it is likely that donations to the entity would fall as a response. In severe cases, the ACNC Commissioner may also wish to use other enforcement powers to protect charitable funds.

9.89 Warning notices therefore provide registered entities with greater incentive to comply with regulatory obligations as notices generally have significant implications for an entity's goodwill, revenue, and public engagement.

9.90 The Bill contains safeguards to protect the interests of registered entities and their beneficiaries. The ACNC Commissioner can only issue warning notices if the application clause is satisfied, that is if:

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the ACNC Commissioner has considered the factors listed in subsection 35-10(2) [subsection 80-5(3)] ; and

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an entity is a federally regulated entity, and the ACNC Commissioner reasonably believes that the entity has contravened, or is more likely than not to contravene, a provision in the Bill [paragraph 80-5(1)(a)] ; or

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an entity is a federally regulated entity, and the ACNC Commissioner reasonably believes that the entity has not complied, or is more likely than not to not comply, with a governance standard [paragraph 80-5(1)(b)] ; or

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the ACNC Commissioner reasonably believes that the registered entity has not complied, or is more likely than not to not comply, with an external conduct standard [paragraph 80-5(1)(c)] .

9.91 As explained in the general enforcement power section under the heading 'detailed explanation of the new law', the 'reasonably believes' threshold ensures the ACNC Commissioner only issues warning notices if any reasonable individual provided with the set of information available to the ACNC Commissioner would deem that a particular registered entity has contravened a provision of the Bill, or has failed to comply with a governance standard or external conduct standard.

9.92 Additionally, the ACNC Commissioner is able to issue warning notices in cases where it is 'more likely than not' that a registered entity will contravene a provision in the Bill, or where it is more likely than not that the registered entity will not comply with the governance standards or external conduct standards.

9.93 Rumour or mere suspicion on the part of the ACNC Commissioner would not be sufficient to trigger the requirement. The ACNC Commissioner needs to have reliable information which clearly indicates that the registered entity will contravene a provision in the Bill, or will fail to comply with a governance standard or external conduct standard.

9.94 This enables the Commissioner to intervene to prevent contraventions or non-compliance from occurring, and to take action where necessary, such as to proactively protect the charity's assets before they may be depleted

9.95 Warning notices inform the registered entity of circumstances in relation to the contravention or non-compliance, or the more likely than not contravention or non-compliance. [Paragraph 80-5(2)(a)]

9.96 Warning notices also outline actions that could be taken by the ACNC Commissioner in response to the contravention or case of non-compliance. [Paragraph 80-5(2)(b)]

9.97 Warning notices may generally include a:

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description of the relevant provision which the ACNC Commissioner believes the registered entity has or is more likely than not to contravene;

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description of the governance standard or external conduct standard which the ACNC Commissioner believes the registered entity has or is more likely than not to contravene;

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actions and activities which in the ACNC Commissioner's view has led to the contravention or non-compliance, or is more likely than not to lead to a contravention or case of non-compliance;

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actions which the entity should take to address the contravention or case of non-compliance; and

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the actions, if any, the ACNC Commissioner intends to take if the entity does not address the contravention or case of non-compliance.

Directions

9.98 The ACNC Commissioner has the authority to give a registered entity a written direction to take specified actions. [Division 85]

9.99 Directions provide the ACNC Commissioner with a mechanism to direct registered entities to address any actual or highly likely contraventions of provisions to the ACNC Bill, or cases of non-compliance with governance standards or external conduct standards.

9.100 Directions must be given to a registered entity through a written notice. The notice must clearly specify the ground or grounds on which the direction was issued and the period of time the registered entity has in order to comply with the direction. [Subsection 85-5(3)]

9.101 The Bill outlines a set of circumstances under which the ACNC Commissioner may issue directions. The circumstances provide a safeguard for the sector and ensure that directions are only issued when there are significant concerns.

9.102 The ACNC Commissioner may issue a direction if the application clause is satisfied; that is, if:

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the entity is a federally regulated entity, and the ACNC Commissioner reasonably believes that the entity has contravened, or is more likely than not to contravene, a provision in the Bill; or [Paragraph 85-5(1)(a)]

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the entity is a federally regulated entity, and the ACNC Commissioner reasonably believes that the entity has not complied, or is more likely than not to not comply, with a governance standard; or [Paragraph 85-5(1)(b)]

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the ACNC Commissioner reasonably believes that the registered entity has not complied, or is more likely than not to not comply, with an external conduct standard. [Paragraph 85-5(1)(c)]

9.103 As explained in relation to the general enforcement powers, the 'reasonably believes' threshold ensures the ACNC Commissioner can only issues warning notices if any reasonable individual provided with the set of information available to the ACNC Commissioner would deem that a particular registered entity has contravened a provision of the Bill, or has failed to comply with a governance standard or external conduct standard.

9.104 Additionally, the ACNC Commissioner is able to issue warning notices in cases where it is 'more likely than not' that a registered entity will contravene a provision in the Bill, or will fail to comply with a governance standard or external conduct standard.

9.105 This only covers a situation where there is a substantial or significant likelihood of a contravention and would not extend to a situation where there was only a small chance of a contravention occurring

9.106 Rumour or mere suspicion on the part of the ACNC Commissioner would not be sufficient to trigger the requirement. The ACNC Commissioner needs to have reliable information which clearly indicates that the registered entity will contravene a provision in the Bill, or will fail to comply with a governance standard or external conduct standard.

9.107 This enables the Commissioner to intervene to prevent contraventions or non-compliance from occurring, and to take action where necessary, such as to proactively protect the charity's assets before they may be depleted.

Example 9.9

Make it Better, a registered entity, remunerates its Director with an annual salary of $3 million. This salary is excessive compared to other similar registered entities. This suggests that the entity is not being run as a NFP entity. The ACNC Commissioner may issue an direction to Make it Better to act to remedy the situation.

Example 9.10

The B Good Organisation, a registered entity, has not held an annual meeting for its members in two years. This means that the B Good Foundation could potentially not comply with a governance standard or its governing rules. The ACNC Commissioner may issue a direction to the B Good Organisation to direct it to hold an annual meeting.

Example 9.11

The Lightbulb Organisation, a registered entity whose purpose is to provide welfare for disadvantaged youths in Western Australia, collects money from donations and sends it to Japan to help victims of a tsunami. The purpose of the Lightbulb Organisation is to provide welfare for disadvantaged youths, not to provide disaster relief overseas. The ACNC Commissioner may issue a direction to the Lightbulb Organisation directing the Organisation to stop sending funds overseas and to redirect funds to its purpose.

9.108 In deciding whether to give a registered entity a direction, and the content of the direction, the ACNC Commissioner must take into account the standard set of matters outlined in the general enforcement powers. [Subsection 85-5(2)]

9.109 The ACNC Commissioner must take these factors into account to ensure that any direction, and its content, issued to a registered entity is proportional, adequate and targeted.

Kinds of direction

9.110 To issue a direction the ACNC Commissioner has to reasonably believe that the 'application threshold' has been satisfied (see above), and that it is necessary to direct an entity to undertake a specified act in order to address the actual or likely contravention, or the actual or likely case of non-compliance. [Subsection 85-10(1)]

9.111 The necessity threshold is used to narrow the scope of acts the ACNC Commissioner can direct a registered entity to undertake.

Example 9.12

The PB Fund has persistently failed to provide the ACNC Commissioner with annual financial statements. The ACNC Commissioner may direct the Fund to complete and provide annual financial statements to the ACNC Commissioner for the relevant years. The ACNC Commissioner is not able to direct the PB Fund to change other aspects of its operations.

9.112 The ACNC Commissioner is not able to direct a registered entity to undertake a specified act which is unrelated to the contravention or non-compliance.

9.113 This requirement addresses concerns that any open ended enforcement power may allow the ACNC to inappropriately interfere in a registered entity's operations.

Example 9.13

The JRC Fund submits a duty to notify notice which proposes a change to its governing rules that would render it ineligible for registration. The ACNC Commissioner may direct the JRC Fund to not change its governing rules in a specified manner. However, the ACNC Commissioner cannot direct the registered entity to undertake other acts such as appointing an acting responsible entity.

9.114 A specified act may include directing an entity to ensure that a 'shadow' responsible entity does not have any influence over decisions that affect the whole or a substantial part of the business of the registered entity. [Paragraph 85-10(2)(a)]

9.115 A 'shadow' responsible entity is an entity that is not formally appointed but has a significant influence over the registered entity's business activities and practices, or over the decisions and actions taken by formally appointed responsible entities. [Subsection 85-10(3)]

9.116 In this case, the registered entity is required to take the specified act. If the responsible entities continue to be influenced by the 'shadow' responsible entity when making decisions and taking actions related to the activities of the registered entity, the registered entity would be liable for an offence.

Example 9.14

Helping Australians Ltd is a registered entity which has decided to alter the charitable purpose included in the entity's governing documents. The entity's staff prepare a duty to notify statement in accordance with Division 60 of the ACNC Bill. An individual directs staff to not submit the notice. The ACNC Commissioner is made aware of the situation and directs the entity to put procedures in place to ensure that the activities of the registered entity are no longer influenced by this individual.

9.117 In practice, the responsible entity that continues to be influenced is liable for the offence through Division 180 of the Bill.

9.118 The definition of 'shadow' responsible entity adopts the precedence established in the Corporations Act 2001 . The definition includes an individual:

•

who makes, or participates in making, decisions that affect the whole, or a substantial part, of the business of the registered entity; or

•

who has the capacity to affect significantly the registered entity's financial standing; or

•

in accordance with whose instructions or wishes the responsible entities of the registered entity are accustomed to acting (excluding advice given by the individual in the proper performance of functions attaching to the individual's professional capacity or his or her business relationship with the responsible entities of the registered entity).

9.119 The ACNC Commissioner may also direct a registered entity to not enter into a specified commercial transaction, financial transaction or other transaction, including:

•

borrowing any amount;

•

repaying any money on deposit or advance;

•

paying or transferring any amount or asset to any entity, or creating an obligation (contingent or otherwise) to do so.

[Paragraph 85-10(2)(b)]

9.120 This direction is required to protect the assets of registered entities. It provides the ACNC Commissioner with an instrument to move rapidly in cases of fraud and misappropriation.

Example 9.15

The Community Assistance ADFT Fund is a registered charity established for the relief of poverty. The ACNC Commissioner receives intelligence that the entity is being used as a conduit for an elaborate tax avoidance scheme. To ensure charitable funds remain within the sector, the ACNC Commissioner directs the Fund to not pay any amount of funds or assets to any of its affiliated entities over a particular time frame. This direction is required to address the contravention (expending public monies in a manner which is not consistent with the entity's charitable purpose) and also promotes the objects of the Bill.

9.121 The ACNC Commissioner may specify a particular class of acts or particular classes of acts in a single direction. [Paragraph 85-10(4)(a)]

9.122 This ensures that the ACNC Commissioner has flexibility in issuing directions that require multiple acts to be performed by a registered entity.

Example 9.16

The responsible entity of the PDMB Trust has entered into ten contracts to transfer assets to other affiliated entities. The ACNC Commissioner has reason to believe that the transfer of assets is likely to be a contravention of this Bill. The ACNC Commissioner may issue a single direction to the registered entity directing the entity to not execute the ten contracts to transfer the assets to the other entities.

9.123 The ACNC Commissioner may make different provisions with respect to different acts or different classes of acts. [Paragraph 85-10(4)(b)]

9.124 This ensures that the ACNC Commissioner has flexibility in issuing directions that require multiple and varied acts to be performed by a registered entity.

Example 9.17

The responsible entity of the Bell-Swain Memorial Foundation enters into five contracts that the ACNC Commissioner believes contravene this Bill. The ACNC Commissioner may issue a single direction that directs the responsible entity to not execute four contracts, and to change the details of one contract so that it does not contravene the Bill.

9.125 Directions issued by the ACNC Commissioner in relation to the payment or transfer of money do not override an order of a court or a process of execution. [Subsection 85-10(5)]

9.126 Registered entities issued with a direction are required to comply with the direction despite any clauses or provisions in governing rules or contracts the entity has entered into. [Section 85-15]

9.127 This ensures that a registered entity can comply with a direction issued by the ACNC Commissioner even if its governing rules or if any contract or arrangement to which the entity is a party would prevent the entity from complying with the direction.

9.128 The Commissioner may issue such a direction in the case where the registered entity is already contravening its governing rules.

Variation and revocation of directions

9.129 Directions can generally be used by the ACNC Commissioner as short term instruments to direct an entity to undertake a specified act in order to address the actual or likely contravention, or the actual or likely case of non-compliance.

9.130 Directions remain in force until the expiration of the time period specified in the direction notice, or until the ACNC Commissioner revokes the direction.

9.131 The ACNC Commissioner may, by notice in writing to the registered entity, vary or revoke the direction, if he or she considers the variation necessary and appropriate. [Subsections 85-20(1) and 85-20(3)]

9.132 In deciding whether to vary or revoke a direction, the ACNC Commissioner must take into account the matters set out in subsection 35-10(2). [Subsections 85-20(2) and (4)]

9.133 The ACNC Commissioner may use this authority in situations where a registered entity has addressed the contravention or non-compliance by taking the specified act in the direction notice.

Example 9.18

The ACNC directs a registered entity to ensure that a shadow responsible entity does not influence the business activities of the registered entity. The shadow responsible entity's contract expires and he parts ways with the registered entity. In this case the ACNC Commissioner revokes the direction as there is no longer a threat that the shadow responsible entity will influence the activities of the entity.

9.134 If the ACNC Commissioner does not amend or revoke the enforceable direction for a period of 12 months after it was issued the ACNC Commissioner must consider within a reasonable time after the end of the 12 months whether it would be reasonable to vary or revoke the direction. [Subsections 85-20(5) and 85-20(6)]

9.135 As noted above, directions are generally used as short term instruments. The required statutory review ensures the ACNC Commissioner reconsiders the appropriateness of directions at the later time.

9.136 In certain situations, it is possible that the other enforcement powers, such as the removal of responsible entities may be better suited to achieve the intended outcomes.

Objections

9.137 If a registered entity is dissatisfied with the decision taken by the ACNC Commissioner to:

•

give a direction,

•

vary a direction, or

•

not vary or revoke a direction after a 12 month period has passed,

the registered entity may seek to review or appeal the ACNC Commissioner's decision. [Section 85-25]

9.138 Further information on the reviews and appeals procedure can be found in Chapter 12 - Review and appeal.

Non-compliance with a direction

9.139 A registered entity must comply with a direction issued by the ACNC Commissioner within the timeframes specified in the direction notice.

9.140 If a registered entity does an act, or fails to do an act, and doing or failing to do the act results in a contravention of a direction, the registered entity commits an offence. [Subsection 85-30(1)]

9.141 A separate offence is committed on each day that the registered entity fails to comply with the direction issued by the ACNC Commissioner. The maximum penalty for each offence is 40 penalty units. [Subsection 85-30(2)]

9.142 Where a body corporate is convicted of an offence for failing to comply with a direction issued by the ACNC Commissioner, subsection 4B(3) of the Crimes Act 1914 allows a court to impose a fine of up to five times the maximum penalty of 40 penalty units. [Subsection 85-30(2)]

9.143 These penalties are lower than those of other Commonwealth regulators that have the power to issue directions, including section 11CG of the Banking Act 1959 administered by APRA.

Enforceable undertakings

9.144 Enforceable undertakings are court-enforceable agreements voluntarily entered into by the ACNC Commissioner and a registered entity.

9.145 A written undertaking specifies an action or a series of actions that a registered entity has agreed to take, or refrain from taking, in order to comply with a provision that is enforceable. [Division 90]

9.146 Enforceable provisions are:

•

a provision of this Bill;

•

governance standards or external conduct standards; and

•

a provision of a legislative instrument made under this Bill.

[Subsection 90-5]

9.147 Enforceable undertakings have successfully been employed as an alternative to other enforcement actions by Australian regulators to influence behaviour.

9.148 The standard application and necessity clauses outlined above do not apply to enforceable undertakings. Instead, a modified application clause applies, as there does not need to be a contravention or case of non-compliance for the ACNC Commissioner to enter into an enforceable undertaking.

9.149 The ACNC Commissioner must make information relating to enforceable undertakings available to the public through the ACN Register. [Note in subsection 90-10(3)]

Acceptance of undertakings

9.150 The ACNC Commissioner has authority to accept enforceable undertakings relating to the powers or functions under the Bill. [Section 90-10]

9.151 The ACNC Commissioner is able to accept a written undertaking from a registered entity that is a federally regulated entity, specifying that the entity will:

•

take specified action or refrain from taking specified action to comply with an enforceable provision; and

•

take specified action to ensure that the entity does not contravene or is more likely than not to not contravene an enforceable provision in the future.

[Subsection 90-10(1)]

9.152 The ACNC Commissioner is also able to accept a written undertaking from any registered entity specifying that the entity will:

•

take specified action or refrain from taking specified action to comply with an external conduct standard; and

•

take specified action to ensure that the entity does not contravene or is unlikely to contravene an external conduct standard in the future.

[Subsection 90-10(2)]

9.153 The modified application clause allows the ACNC Commissioner to accept a written undertaking when there has, or there is likely to be, a contravention, or situations where there has been no contravention but an entity wants to make changes to ensure it does not contravene an enforceable provision or external conduct standard in the future.

9.154 Any undertaking agreed to by the ACNC Commissioner must be expressed to be an enforceable undertaking under Division 90 of the Bill for the undertaking to have effect. [Subsection 90-10(3)]

9.155 The registered entity which entered into the enforceable undertaking may withdraw or vary the undertaking at any time, but only with the consent of the ACNC Commissioner. [Subsection 90-10(4)]

9.156 The ACNC Commissioner may cancel the undertaking by giving written notice to the registered entity. [Subsection 90-10(6)]

Example 9.19

The PMB Memorial Foundation enters into an enforceable undertaking with the ACNC Commissioner. The Foundation agrees to comply with a voluntary governance standard. After a change in circumstances, the Foundation decides that it will withdraw from the enforceable undertaking so that it does not need to comply with the voluntary governance standard. The ACNC Commissioner gives consent for the Foundation to withdraw from the enforceable undertaking. The Foundation is no longer required to comply with the voluntary governance standard.

9.157 The written consent of the ACNC Commissioner is not a legislative instrument within the meaning of Section 5 of the Legislative Instruments Act 2003 . [Subsection 90-10(5)]

Enforcement of undertakings

9.158 If the ACNC Commissioner considers that a registered entity has breached any of the terms of an enforceable undertaking, the ACNC Commissioner may apply to a 'designated court' to have the undertaking enforced. [Subsection 90-15(1)]

9.159 Designated court includes the Federal Court of Australia, or a Supreme Court of any State or Territory.

9.160 A 'designated court' may issue an order directing a registered entity to comply with the terms of an enforceable undertaking only if the Court is satisfied that:

•

the registered entity has breached the enforceable undertaking;

•

the entity continues to be registered by the ACNC; and

•

if the undertaking relates to an enforceable provision, excluding the external conduct standards, the entity continues to be a federally regulated entity.

[Subsection 90-15(2)]

9.161 If the latter two requirements are not satisfied the ACNC Commissioner is not authorised to accept the undertaking, therefore, a 'designated court' does not have the authority to enforce the undertaking.

9.162 If all the requirements are satisfied, a court may use relevant judicial powers to order a registered entity to comply with the terms agreed to in the undertakings. Providing a court with the power to enforce undertakings is necessary to provide entities with the required incentive to comply with the undertaking.

9.163 The orders that a court may make are outlined below. Failure to comply with an order of a court is a criminal offence.

9.164 A court may order a registered entity to comply with the undertaking. This order ensures that the registered entity takes or refrains from taking the actions agreed to in the undertaking. [Paragraph 90-15(3)(a)]

9.165 A court may order a registered entity to pay to the Commonwealth an amount up to the amount of any financial benefit that the entity has obtained directly or indirectly and that is reasonably attributable to the breach. [Paragraph 90-15(3)(b)]

9.166 The possibility of issuing this order limits the financial incentive associated with breaching undertakings.

Example 9.20

Camp for Youths Ltd is a registered charity that has agreed to an undertaking to avoid revocation of registration. The charity continues to access tax concessions. Through its monitoring power, the ACNC Commissioner finds that the entity has not complied with the undertaking and has inappropriately maintained its registration and access to concessions. A court orders the entity to repay the financial benefit, in this case the amount of tax the entity did not pay by virtue of its registration, gained as a result of the breach.

9.167 The ACNC Commissioner may apply to a court for an order directing the entity to compensate any third party that has suffered loss or damage as a result of the breach. [Paragraph 90-15(3)(c)]

9.168 This type of order is required to ensure that third parties that suffer a financial or physical loss or damage as a result of the breach are adequately compensated.

Example 9.21

The PBusta Foundation maintains deductible gift recipient status as a result of registration. Individual donors can claim an income tax deduction for donations made to the Foundation. The ACNC Commissioner finds that the Foundation has breached the terms of an undertaking and revokes the entity's registration retrospectively.

Based on ACNC registration, the ATO also revokes the entity's endorsement as a deductible gift recipient retrospectively. Individuals that claimed an income tax deduction for donations made to the Foundation could in theory be required to repay the tax deductions they claimed.

In this situation the Foundation may have to compensate an individual who has a tax liability as a result of the breach.

9.169 The ACNC Commissioner may apply to a 'designated court' for an order that the 'designated court' considers appropriate. [Paragraph 90-15(3)(d)]

9.170 The court will be able to order the registered entity to do anything which is not covered by the other orders in this Chapter, in order to undo or rectify the consequences of the breach.

Injunctions

9.171 The ACNC Commissioner has the authority to apply for injunctions to restrain registered entities from contravening an enforceable provision, or to compel compliance with an enforceable provision. [Division 95]

9.172 An injunction generally specifies actions which a person is required to take, or is required to refrain from taking, in order to become compliant with enforceable provisions.

9.173 The definition of person in the Bill includes all legal persons (such as registered entities) that can legally own or have property vested in their person.

9.174 Injunctions can generally be sought by the ACNC Commissioner in circumstances where:

•

a registered entity has engaged in serious and persistent contraventions and court involvement is desirable; or

•

the ACNC needs to move rapidly to ensure that public monies are used appropriately.

9.175 Injunctions can also be used in circumstances where a registered entity has not complied with a direction notice which has been issued by the ACNC Commissioner under Division 85 of the Bill.

9.176 Enforceable provisions are:

•

a provision of this Bill;

•

governance standards or external conduct standards; and

•

a provision of a legislative instrument made under this Bill. [Section 95-5]

9.177 The standard application and necessity clauses apply to injunctions. Consistent with the application clause that applies to the other enforcement powers of the ACNC Commissioner, the ACNC Commissioner may only apply to a court, and the court may only grant an injunction or an interim injunction if:

•

the injunction or interim injunction relates to a registered entity that is a federally regulated entity; or

•

the injunction or interim injunction relates to an external conduct standard.

[Section 95-10]

9.178 The application requires that injunctions are only issued to federally regulated entities, unless the injunction is issued to ensure that an entity is compliant with an external conduct standard. In the latter case the injunction can be issued to any registered charity.

9.179 A court issuing injunctions under Division 95 of the Bill must take into account the object of this Bill. The objects of the Bill must be considered when coming to a view on whether to issue an injunction and on the content of the injunction. [Section 95-35]

9.180 Division 95 of the Bill provides courts with the authority to remove or vary any injunction that has been issued by courts under this Division. [Section 95-25]

Grant of injunctions

Restraining injunctions

9.181 The ACNC Commissioner has the authority to apply to a court for a restraining injunction. [Section 95-15]

9.182 Restraining injunctions can be used where a person has engaged or is proposing to engage in conduct that can be deemed a contravention of an enforceable provision. [Subsection 95-15(1)]

9.183 The standard necessity clause applies to injunctions as a court is only able to issue injunctions to:

•

restrain the person from engaging in the conduct deemed to have contravened an enforceable provision; and

•

require a person to do a thing if it is desirable to do the thing in order to address the contravention.

[Subsection 95-15(1)]

Example 9.22

The Fairsight Foundation is a registered entity. The ACNC Commissioner through its monitoring power has obtained a copy of the employment contract under which one of the responsible entities is been engaged. The contract enables the responsible entity to receive large bonuses which is inconsistent with the entity's charitable purpose. The ACNC Commissioner applies for an injunction to restrain the registered entity from acting in the manner which would result in a contravention of an enforceable direction. The injunction can only be used to restrain the action which would lead to a contravention and cannot be used to influence the operations of the foundation.

9.184 The power of a relevant court to grant restraining injunctions may be exercised:

•

whether or not it appears to the court that the person intends to engage again, or to continue to engage, in conduct of that kind [paragraph 95-30(1)(a)] ;

•

whether or not the person has previously engaged in conduct of that kind [paragraph 95-30(1)(b)] ; and

•

whether or not there is an imminent danger of substantial damage to any other person if the person engages in conduct of that kind [paragraph 95-30(1)(c)] .

9.185 This is intended to make it clear that a court is able to issue an injunction:

•

where a person has engaged in the conduct in the past and apparently does not intend to engage in this conduct again;

•

in cases where the person under question has not previously engaged in the conduct; or

•

if the implications of engaging in the conduct, for other entities, are relatively minor.

Performance injunctions

9.186 The ACNC Commissioner has the authority to apply to a court for a performance injunction. [Section 95-15]

9.187 Performance injunctions can be used where a person has refused or failed, is refusing or failing, or is proposing to refuse or fail to do a thing that ensures the person would comply with enforceable provisions. [Subsection 95-15(2)]

9.188 The standard necessity clause applies to performance injunctions as a court is only able to issue injunctions requiring the person to do the thing which would ensure compliance with enforceable provisions. [Subsection 95-15(2)]

Example 9.23

Helpers Inc is a registered entity. The entity has refused, and is continuing to refuse, to develop and put in place processes which ensure that the registered entity is promoting the charitable purpose for which it was registered. The ACNC Commissioner has issued warning notices to the entity which have been ignored. The ACNC Commissioner applies to a court for a performance injunction which requires that the entity put in place appropriate processes.

9.189 The power of a relevant court to grant performance injunctions may be exercised:

•

whether or not it appears to the court that the person intends to refuse or fail again, or to continue to refuse or fail, to do that thing [paragraph 95-30(2)(a)] ;

•

whether or not the person has previously refused or failed to do that thing [paragraph 95-30(2)(b)] ; and

•

whether or not there is an imminent danger of substantial damage to any other person if the person refuses or fails to do that thing [paragraph 95-30(2)(c)] .

9.190 This ensures that a court is able to issue an injunction where:

•

a person has failed to do a thing in the past and apparently does not intend to fail to do the thing again;

•

in cases where the person under question has not previously refused or failed to do that thing; or

•

if the implications of refusing or failing to do the thing, for other entities, are relatively minor.

Consent injunctions

9.191 A court has the authority to grant consent injunctions. [Subsection 95-15(3)]

9.192 Consent injunctions can be used where the ACNC Commissioner has begun the process of applying for a restraining injunction or a performance injunction, and all the parties involved have agreed to the course of action.

9.193 The court does not have to be satisfied that the person has contravened, or will contravene, an enforceable provision. [Subsection 95-15(3)]

Example 9.24

The TYX Trust is registered by the ACNC. New trustees have been appointed and discover that previous trustees engaged in practices that have contravened enforceable provisions. The ACNC Commissioner and the new trustees agree on a course of action and apply to a court for a consent injunction. The injunction puts a halt to the activities which led to the contravention while the new trustees and the ACNC Commissioner develop longer term solutions to address any shortcomings in the trust's operational framework.

Interim injunction

9.194 The ACNC Commissioner may apply for an interim injunction pending determination of an application for either a restraining or performance injunction. [Subsection 95-20(1)]

9.195 A relevant court may grant an interim injunction:

•

restraining a person from engaging in conduct; or

•

requiring a person to do a thing.

9.196 Interim injunctions are required to ensure the ACNC can rapidly move to protect charitable assets on a temporary basis prior to the agreement of more permanent arrangements.

9.197 The court must not require the ACNC Commissioner to give an undertaking for damages as a condition of granting an interim injunction. [Subsection 95-20(2)]

9.198 The powers conferred on a court under Division 95 are in addition to, and not instead of, any other powers of the court. [Section 95-40]

Suspension and removal of responsible entities

9.199 The ACNC Commissioner has the power to remove or suspend responsible entities, and to appoint acting responsible entities. [Division 100]

9.200 The standard application and necessity clauses apply to the ACNC Commissioner's power to remove or suspend responsible entities. [Section 100-5]

9.201 The ACNC Commissioner generally has the authority to remove or suspend responsible entities of federally regulated registered entities. Where the non-compliance or likely non-compliance relates to an external conduct standard, the ACNC Commissioner has the authority to remove or suspend a responsible entity of any registered entity. [Subsection 100-5(1)]

9.202 In the same manner as the other enforcement powers discussed above, a rumour or mere suspicion on the part of the ACNC Commissioner would not be sufficient to be considered to be more likely than not. Rather, the Commissioner needs reliable and accurate evidence which clearly indicates that there will be a contravention in order to meet this test.

9.203 The ACNC Commissioner does not have the authority to remove or suspend responsible entities of an incapacitated entity, which includes a receiver, a liquidator, an administrator of a deed of company arrangement, a trustee in bankruptcy or other entity administering a compromise arrangement between the registered entity and someone else (see section 205-30(c) for a definition). [Subsection 100-5(2)]

9.204 Incapacitated entities fall under the regulatory oversight of the ASIC or the Insolvency and Trustee Service Australia (ITSA).

9.205 ASIC and ITSA have established appropriate expertise to deal with these entities as they relate to for-profit and NFP entities. Therefore, this function appropriately remains under the purview of ASIC and the ITSA.

9.206 The ACNC Commissioner does not have the authority to remove or suspend responsible entities of a basic religious charity. [Subsection 100-5(3)]

9.207 The ACNC Commissioner must make information relating to the removal or suspension of responsible entities available to the public through the ACN Register. [Note in subsection 100-5(3)]

9.208 For further information about the publishing of information on the ACN Register see Chapter 4 - Australian Charities and Not-for-profits Register.

9.209 The Scoping Study for a National Not-for-profit Regulator process found that there was sector support for responsibility for the supervision of charitable trusts to be undertaken by a national regulator.

9.210 Unlike State Attorneys-General, who currently have the responsibility for supervising charitable trusts, the ACNC has both supervisory and investigatory powers in relation to registered entities. These powers allow the ACNC Commissioner the means to investigate claims of misconduct and contraventions of the Bill, and to gather evidence if necessary.

9.211 Affording the ACNC Commissioner the power to suspend or remove trustees, in appropriate circumstances, moves this power from being a judicial function to a regulatory function.

9.212 There are a number of benefits to this movement. Firstly, a regulator can ensure that the approach taken is proportional in the circumstances. Secondly, a regulator can act in a timely manner, without the need for lengthy court proceedings. Thirdly, the decisions of regulators are subject to an appropriate review and appeal process throughout the levels of the judicial system. Finally, a regulator can provide more cost-effective and accessible redress, negating the need for costly court proceedings. This ensures that the beneficiaries of charitable trusts have improved access to justice.

9.213 The movement of this function from the judiciary to the executive is reflected in reforms that have occurred internationally, and is a movement that is progressively being adopted in Australia. For example, APRA has the power to suspend or remove trustees of most superannuation funds and the Commissioner of Taxation has these powers in relation to self-managed super funds and charitable ancillary funds. Allowing the ACNC Commissioner, as the regulator of the NFP sector, to suspend or remove trustees brings Australia into line with international best practice.

Suspension of responsible entities

9.214 The ACNC Commissioner is only able to suspend a responsible entity if the necessity clause has been satisfied.

9.215 Thus, the ACNC Commissioner needs to consider whether suspending a responsible entity is necessary to address the contravention or non-compliance (or prevent more likely than not contravention or non-compliance). [Subsection 100-10(1)]

Example 9.25

Shadys Ltd is a registered charity established to provide subsidised housing for the direct relief of poverty. The entity has several responsible entities. One of these entities is a director of a for-profit affordable housing provider that competes with the charity in the affordable housing segment of the market. This responsible entity has a clear conflict of interest in this situation and may therefore not be promoting the purposes for which the charity was registered.

The entity continues to function in its capacity as a responsible entity, as such; the registered entity may not be complying with regulatory obligations. To address this case of non-compliance the ACNC Commissioner could suspend the responsible entity.

9.216 The ACNC Commissioner must give the responsible entity written notice setting out the decision to suspend it. The written notice must set out the ACNC Commissioner's decision, provide reasons for the decision and set out the time the suspension ends. [Subsection 100-10(3)]

9.217 Before suspending or removing a responsible entity the ACNC Commissioner must give a show cause notice to the registered entity that states the grounds on which the ACNC Commissioner has made his or her decision and which invites the registered entity to respond within 28 days. [Subsections 100-10(4) and (5) and subsections 100-15(3) and (4)]

9.218 The ACNC Commissioner is not required to give a show cause notice, or to wait for a response to a show cause if, taking into account the matters in 35-10(2), more immediate action is necessary. [Subsections 100-10(6) and 100-15(5)]

9.219 The suspension of a responsible entity starts when the ACNC Commissioner gives the responsible entity notice of his or her decision to suspend the entity. [Subsection 100-10(2)]

9.220 The ACNC Commissioner may change the end time of the suspension. [Subsection 100-10(7)]

9.221 The ACNC Commissioner is required to give the responsible entity a written notice setting out a decision to extend the suspension, providing reasons for the decision and setting out the new time the suspension ends. [Subsection 100-10(8)]

Removal of responsible entities

9.222 The ACNC Commissioner can only remove a responsible entity if the necessity clause has been satisfied.

9.223 Thus, the ACNC Commissioner needs to consider whether removing a responsible entity is necessary to address the contravention or non-compliance (or prevent the more likely than not contravention or non-compliance). [Subsection 100-15(1)]

Example 9.26

Continuing from example 9.25 above, if the suspended individual returns to his position as a responsible entity once the suspension period ends, and the registered entity, through the remaining responsible entities, has not put in place appropriate processes to manage this conflict of interest and ensure the entity is promoting the purposes for which the charity was registered, the ACNC Commissioner can remove the responsible entity to address the case of non-compliance.

9.224 The ACNC Commissioner must give the responsible entity written notice setting out his or her decision to remove the responsible entity. The written notice must set out the ACNC Commissioner's decision and provide reasons for the decision. [Subsection 100-15(2)]

Matters ACNC Commissioner must take into account

9.225 The ACNC Commissioner is required to consider the standard range of matters outlined in subsection 35-10(2) prior to suspending or removing responsible entities. [Subsections 100-10(9) and 100-15(6)]

9.226 The matters that are required to be considered ensure that the ACNC Commissioner balances a range of different considerations when a forming a view on appropriate enforcement actions.

9.227 The matters include factors which would help ensure that, where possible, other options to help promote compliance are considered before a responsible entity is removed or suspended.

9.228 In some situations, such as in relation to minor non-compliance and where other mechanisms such as warning notices or enforceable undertakings are available, it may not be appropriate to suspend or remove a responsible entity.

9.229 In other situations the removal or suspension of responsible entities may be necessary, even where other enforcement actions are available to the ACNC Commissioner and have not been taken.

9.230 For example, the suspension or removal of a responsible entity may be necessary where a registered entity has significantly and persistently contravened the law and there is a significant risk that assets may be applied in an inappropriate manner.

Review of decisions

9.231 A responsible entity that is dissatisfied with the ACNC Commissioner's decision to remove or suspend (or change the time a suspension of the responsible entity ends) may object against the decision in the manner set out in Part 7-2. [Subsections 100-10(10) and 100-15(7)]

9.232 For further information on the review and appeal procedures see Chapter 12 - Review and appeal.

Effect of suspension or removal

9.233 A responsible entity that has been suspended cannot become a responsible entity of the registered entity until the suspension ends. [Subsection 100-20(1)]

9.234 A responsible entity that has been removed cannot become a responsible entity of the registered entity. [Subsection 100-20(2)]

9.235 When a responsible entity is removed or suspended, the responsible entity is removed or suspended only from the position or office which led the entity to be considered a responsible entity for the purposes of this Bill. [Subsection 100-20(1) and subsection 100-20(2)]

9.236 The relevant positions or offices are outlined in the definition of 'responsible entity' and include:

•

in the case where the registered entity is a company - a director of the registered entity; or

•

in the case where the registered entity is a trust - a trustee of the registered entity, and if a trustee is a body corporate, a director of the trustee.

9.237 Where the suspended or removed responsible entity is a director of a registered entity, or a director of a corporate trustee, the individual ceases to be to be a director of the company or trustee, indefinitely for the case of a removal, or in the case of suspension, until the suspension ends. [Subsection 100-20(3)]

9.238 This ensures that a removed or suspended responsible entity cannot be reappointed (prior to the end of the suspension) after the removal or suspension.

9.239 The provision also clarifies that the suspended or removed responsible entity can continue to function, or work, for the registered entity in another capacity if considered appropriate.

Example 9.27

Holdspoint primary is a NFP school which is registered by the ACNC. The registered charity has contravened a provision of the Bill and the ACNC Commissioner decides to suspend one of the schools responsible entities (the Principal of the school who is also a Director) in order to address the contravention. The Principal will continue to be able to teach and provide other educative services related to the role of school Principal, however, this individual would not be able to function as a Director of the school until the suspension period ends.

9.240 A removed or suspended responsible entity is generally not able to function as a responsible entity of another registered entity during the period of suspension or removal, if the appointment would result in the other registered entity contravening a governance standard.

9.241 A suspended or removed responsible entity commits an offence if the responsible entity makes, or participates in making, decisions that affect the whole, or a substantial part, of the business of the registered entity. [Subsection 100-25(1)]

9.242 The maximum penalty for this offence is 50 penalty units or imprisonment for one year, or both. [Subsection 100-25(1)]

Example 9.28

The XAY Inc is a registered charity that has had one of its responsible entities suspended. The responsible entity no longer formally holds the office of Director but continues to attend Board meetings and participate in making Board decisions that affect substantial parts of the registered entity's business. Under this section the responsible entity would has committed an offence and may be liable for a penalty.

9.243 A suspended or removed responsible entity commits an offence if the responsible entity exercises the capacity to significantly affect the registered entity's financial standing. [Subsection 100-25(2)]

9.244 The maximum penalty for this offence is 50 penalty units or imprisonment for one year, or both. [Subsection 100-25(2)]

Example 9.29

Camp Farah Ltd is a registered charity which has had one of its Directors removed by the ACNC. The Director that was removed continues to work for the entity in a different capacity. The ACNC is made aware that the individual continues to influence the decisions and strategies of the working group of the Board of Directors by influencing the views of the remaining responsible entities. Decisions taken by the working group relate to the entity's long-term funding and investment plan, which significantly affects the registered entity's financial standing and position. The individual is liable to an offence.

Example 9.30

The Campo Foundation is an ancillary fund registered by the ACNC. The Foundation is a federally regulated entity with all of its trustees being constitutional corporations. The ACNC Commissioner removes one of the Directors of one of the trustees. The suspended individual continues to work for the trustee in a different capacity and is responsible for managing the stationery inventory of the corporations including the payments for stationery. In this case the individual's decisions will have a minor effect on the entity's financial standing.

9.245 An offence is committed by a suspended or removed responsible entity, that is an individual who communicates instructions or wishes to the responsible entities of the registered entity:

•

knowing that responsible entities are accustomed to act in accordance with the suspended or removed individual's instructions or wishes; or

•

intending that those responsible entities will act in accordance with those instructions or wishes; and

•

the communication of those instructions or wishes is not advice given by the entity in the proper performance of functions attaching to the entity's professional capacity or his or her business relationship with the responsible entities of the registered entity. [Subsection 100-25(3)]

9.246 The maximum penalty for this offence is 50 penalty units or imprisonment for one year, or both. [Subsection 100-25(3)]

Example 9.31

PCA Help Ltd is a registered charity which has had one of its Directors suspended by the ACNC. The ACNC is made aware that the individual continues to influence the decisions of the Board of Directors by influencing the views of responsible entities. The responsible entities of the entity are accustomed to act in accordance with the suspended Director's instructions and the Director communicates the instructions with a view to compelling the responsible entities to act in accordance with instructions. The individual has committed an offence.

9.247 Offences included in this section of the Bill are strict liability offences as defined in section 6.1 of the Criminal Code . [Subsection 100-25(4)]

9.248 The offences ensure that responsible entities are strictly liable for their actions that are taken to influence (directly or indirectly through other responsible entities) the whole or a substantial part of the registered entity's business or financial standing (that is, liable regardless of fault).

9.249 This liability has been established to compel responsible entities which have already been removed on the grounds of misconduct to refrain from influencing the activities of the registered entity in order to ensure the registered entity addresses the contravention or case of non-compliance.

9.250 It is expected that the ACNC Commissioner only takes action to remove or suspend a responsible entity in situations that involve serious contraventions or non-compliance.

If a responsible entity is removed or suspended

9.251 The ability to appoint an acting responsible entity provides the ACNC Commissioner with the power to ensure that registered entities are able to operate effectively and continue to promote their charitable purpose when responsible entities have been suspended or removed.

9.252 If the ACNC Commissioner removes or suspends one or more responsible entities, the ACNC Commissioner has the authority to appoint one or more persons (acting responsible entities) to undertake the duties of the responsible entity during the period of suspension or until a permanent replacement responsible entity is appointed. [Subsections 100-30(1) and 100-30(3)]

9.253 If the ACNC Commissioner removes or suspends all of a registered entity's responsible entities, the ACNC Commissioner is required to appoint one or more persons (acting responsible entities) to act in the place of the suspended or removed entities during the period of the suspension or until at least one of the vacancies created by the removal or suspension is filled. [Subsections 100-30(2) and 100-30(4)]

9.254 To clarify, the ACNC Commissioner is required to appoint a director of a corporate trustee if the corporate trustee is a responsible entity of a trust which is a registered entity, and the ACNC Commissioner suspends all of the directors of the trustee.

9.255 The ACNC Commissioner is also required to appoint an acting responsible entity where all trustees of the trust have been suspended or removed.

Example 9.32

A registered entity has two responsible entities, both of which are corporate trustees. The ACNC Commissioner suspends all of the directors of one of the corporate trustees.

While the registered entity still has one of the responsible entities, suspending all the directors of one of the corporate trustees leaves it with no directors. The ACNC Commissioner is therefore required to appoint an acting director of the corporate trustee.

9.256 The ACNC Commissioner has discretion to determine the number of responsible entities that will be appointed to ensure the effective operations of the registered entity. This may include a minimum number of directors as specified in other laws, for example the Corporations Act 2001 .

9.257 Where the ACNC Commissioner suspends or removes a responsible entity of a trust which is a 'federally regulated entity', to the extent possible, the ACNC Commissioner generally looks to appoint a constitutional corporation to fill any vacancy that results from the suspension or removal of responsible entities. [Subsection 100-35(1)]

9.258 Additionally, the ACNC Commissioner will strive to appoint the same type of constitutional corporations. [Subsection 100-35(2)]

9.259 Constitutional corporations include financial corporation, a trading corporation or a foreign corporation, and a body corporate that is incorporated in a Territory. [Section 205-20]

9.260 The ACNC Commissioner may appoint a person that is not a constitutional corporation if it is not practical to appoint a person that is a constitutional corporation. [Subsection 100-35(3)]

9.261 In cases where the ACNC Commissioner is unable to appoint the same type of constitutional corporation, an acting responsible entity is only able to act as a responsible entity for a maximum period of 6 months. [Subsection 100-35(4)]

9.262 This may be required when the ACNC Commissioner wants the acting responsible entity to be a government authority or an incapacitated entity.

9.263 The ACNC Commissioner has the authority to determine the terms and conditions of the appointment of the acting responsible entities. The determination has effect despite anything in any Australian law the registered entity's governing rules or the governing rules of a corporate trustee. [Subsection 100-40(1)]

9.264 The ACNC Commissioner generally requires that the acting responsible entities' fees are to be paid out of the assets of the registered entity including the assets of a trust. This is required as the acting responsible entity provides the registered entity with a service from which the registered entity benefits. [Subsection 100-40(2)]

9.265 The ACNC Commissioner may terminate the appointment of an acting responsible entity at any time. [Section 100-45]

9.266 This authority enables the ACNC Commissioner to remove an acting responsible entity if required. For example, the ACNC Commissioner may want to remove an acting trustee to appoint an incapacitated entity if circumstances so require.

9.267 An acting responsible entity may resign by writing given to the ACNC Commissioner. The resignation does not take effect until the end of the seventh day after the day on which the notice was given to the ACNC Commissioner. [Section 100-50]

9.268 The acting responsible entities may exercise all the rights, title and powers, and must perform all the functions and duties, of the removed or suspended responsible entities. [Subsection 100-55(1)]

9.269 The registered entity's governing rules (and, if the suspended or removed responsible entities were directors of a trustee of the registered entity, the governing rules of the trustee), and every Australian law that applies in relation to the acting responsible entities as if the acting responsible entities were a director, or a trustee. [Subsection 100-55(2)]

9.270 This ensures that the responsible entities are able to function effectively as responsible entities and do all that is required or possible for the registered entity to fulfil its charitable purpose.

9.271 The ACNC Commissioner may give a written notice directing an acting responsible entity to do, or not to do, one or more specified acts or things in relation to the registered entity. [Subsection 100-60(1)]

9.272 These powers ensure that the ACNC Commissioner has the power to address the contravention or case of non-compliance which led to the removal or suspension of responsible entities.

9.273 Such directions are provided to the acting trustee so that they are aware of the contravention or case of non-compliance which led to the suspension and removal and can therefore act to address the problem.

9.274 An acting responsible entity commits an offence if the registered entity engages in conduct which contravenes a notice given by the ACNC Commissioner. [Subsection 100-60(2)]

9.275 The maximum penalty attached to this offence is 40 penalty units. [Subsection 100-60(2)]

9.276 This section does not affect the validity of a transaction entered into in contravention of a notice given under subsection. [Subsection 100-60(3)]

9.277 This is required to ensure any arrangements or agreements are still valid even though this may contravene the direction to do or not do an act given by the ACNC Commissioner to the acting responsible entity.

9.278 Furthermore, it protects parties relying in good faith on a valid appointment.

Special provisions about acting trustees

9.279 If the ACNC Commissioner appoints an acting responsible entity to act in the place of a suspended or removed trustee of the registered entity, the ACNC Commissioner must make a written order vesting the property of the registered entity in the acting responsible entity. [Subsection 100-65(1)]

9.280 If the appointment period ends, the ACNC Commissioner must make a written order vesting the property of the registered entity in the new acting responsible entity, the previously suspended trustee or trustees, or the new permanent trustee or trustees (whichever is applicable). [Subsection 100-65(2)]

9.281 If the ACNC Commissioner makes an order under this Bill vesting property of a registered entity in a person or persons, generally the property immediately vests in the acting responsible entities appointed by the ACNC Commissioner. [Subsection 100-65(3)]

9.282 If the assets or property held by the trust is of a kind whose transfer or transmission may be registered under an Australian law; and the law:

•

enables the registration of such an order; or

•

enables the person or persons to be registered as the owner or owners of that property;

the property does not vest in the person or persons until the requirements of the law referred to are complied with.

[Subsection 100-65(4)]

9.283 If the ACNC Commissioner makes a property vesting order to vest the property of a registered entity in an acting responsible entity, the former trustee or former trustees are required to give the acting responsible entity all books relating to the registered entity's affairs that are in the former trustee's or former trustees' possession, custody or control. [Subsections 100-70(1) and (2)]

9.284 If the former trustee or former trustees do not, within 14 days of the ACNC Commissioner making the property vesting order, comply with the requirement to give the acting responsible entity all books relating to the registered entity's affairs, the entity commits an offence. [Paragraph 100-70(1)(c)]

9.285 The maximum penalty for this offence is 50 penalty units. [Paragraph 100-70(1)(c)]

9.286 This is required to ensure that the acting responsible entity has all the information required to effectively manage the affairs of the trust. Without the books of the trust, the acting responsible entity is unaware of the financial position and performance and related information required to formulate an appropriate business strategy for the trust.

9.287 If the ACNC Commissioner makes a property vesting order to vest the property of a registered entity in an acting responsible entity, the acting responsible entity may, by notice in writing to the former trustee or former trustees, require the trustee or trustees:

•

to identify property of the registered entity; and

•

to explain how the former trustee or former trustees have kept account of that property.

[Subsection 100-70(3)]

9.288 The former trustee(s) commit an offence if they fail to comply with the requirement in the notice within 28 days of the notice being given. [Subsection 100-70(5)]

9.289 The maximum penalty for this offence is 50 penalty units. [Subsection 100-70(5)]

9.290 The acting responsible entity may also require the former trustee or former trustees to take specified action to transfer property vested in the former trustee or former trustees to the acting responsible entity. [Subsection 100-70(4)]

9.291 This provision only covers properties that are vested in the former trustee(s) which are vested in this trustee(s) by virtue of the trustee's position as a responsible entity.

9.292 The former trustee(s) commit an offence if they fail to comply with the requirement in the notice within 28 days of the notice being given. [Subsection 100-70(5)]

9.293 The maximum penalty for this offence is 50 penalty units. [Subsection 100-70(5)]

9.294 Offences included in this section of the Bill are strict liability offences as defined in section 6.1 of the Criminal Code . [Subsection 100-70(6)]

9.295 The offences ensure that former trustee(s) are strictly liable for their actions relating to books, identification of property and transfer of property (that is, liable regardless of fault).

9.296 This liability has been established to compel former trustee(s) which have already been removed on the grounds of misconduct to deal fairly with the trust's property during the handover period.

9.297 It is expected that the ACNC Commissioner will only take action to remove or suspend a trustee in situations that involve serious contraventions or non-compliance.