This chapter sets out the procedure for ending the incorporation of an Incorporated Association or transferring to a different corporate structure.
Key points
- An incorporated association may end its incorporation by applying for voluntary cancellation or by winding up either voluntarily or by order of the Chairman or Founder.
- If an incorporated association has surplus property when it is cancelled, it must prepare and submit a distribution plan to the Commissioner for approval.
- An association may also transfer to another form of incorporated structure. These include registering as a company, corporation, or a co-operative.
1. Ending an association’s incorporation
When a decision is made to cease its activities, the association needs to terminate any agreements, pay its debts, and distribute the remaining surplus property. The Act enables an association’s affairs to be finalized depending on the circumstances.
This includes:
- voluntary cancellation (with or without assets);
- voluntary winding up, applying the relevant parts of the corporation law; or
- winding up by order of the Chairman and Founder
2. Voluntary cancellation
An incorporated association can only apply for voluntary cancellation if it is solvent (having sufficient assets to pay all of its debts and liabilities) and it resolves by special resolution to be cancelled voluntarily.
3. Voluntary cancellation without assets
If an association does not have any property, assets or debts it can be cancelled voluntarily by completing the following steps:
- The management committee examines the affairs of the association and declares by resolution that it is of the opinion there are no outstanding debts or surplus property.
- Convene a general meeting of members and pass a special resolution to apply for voluntary cancellation (see Altering the Rules for information about special resolutions).
- Submit the application for voluntary cancellation.
If the Commissioner considers it appropriate the association’s incorporation is cancelled. The cancellation takes effect from the date determined by the Commissioner and will be confirmed in writing to the applicant.
4. Voluntary cancellation with assets
If the association has assets or surplus property there are additional steps that must be completed to be voluntarily cancelled. Surplus property refers to any assets of the association that remain after the payment of its debts or liabilities. An association’s surplus property may only be distributed to:
- another association registered under the Act.
- a company limited by guarantee registered under the Act.
- an organization that holds a current license under the Act
- an organization that is a member or former member of the association and whose rules prevent the distribution of property to its members; or
- a non-distributing co-operative registered under the Act.
An association with assets can voluntarily cancel its incorporation by completing the following steps:
- The management committee examines the affairs of the association and declares by resolution that it is of the opinion the association can meet its debts and liabilities.
- Prepares a draft plan detailing how the surplus property will be distributed include the intended beneficiaries and an estimate of the value of the property.
- Convene a general meeting of members and pass special resolutions confirming that members wish to apply for voluntary cancellation and approving the plan for the distribution of the surplus property.to apply for voluntary cancellation (see Altering the Rules for information about special resolutions).
- Within 28 days after the special resolution has been passed submit the application for voluntary cancellation.
- The distribution plan will be approved in writing by the Commissioner for cancellation,
- Once approved, implement the distribution plan and notify Consumer Protection when the process has been completed.
The cancellation of the association will take effect from the date determined by the Commissioner and is confirmed in writing.
5. Cancellation of an incorporated association by the Board.
The Act provides Consumer Protection with discretion to cancel an Incorporated Association where there is cause to believe that the Incorporated Association, among other things, has been inoperative for at least 12 months or has fewer than six members. Where the Incorporated Association has been cancelled, any property of the member vests in the Incorporated Association will distribute the property in accordance with the Act. Depending on the circumstances, former members of the defunct association may have little say in how such property is distributed, although efforts are generally made to contact the most recent committee.
6. Winding up
An Incorporated Association may choose to wind-up rather than applying for cancellation if it has difficulties identifying or locating assets, is a party to legal proceedings or has any outstanding contractual obligations or disputed debts.
Where the financial affairs of an Incorporated Association are complex, winding up allows the association to appoint a liquidator to manage the process of finalizing its financial affairs. It also provides a level of protection for the committee and members in the event of any subsequent claim against the Incorporated Association. There are also certain circumstances where an association is forced to wind-up by order of the District Court. An application to the District Court to wind up an incorporated association can be brought by the Incorporated Association, a member of the Incorporated Association, the Board, as creditor. This can be a complex and costly process and anyone considering making an application should seek their own legal advice.
7. Insolvent Incorporated Association
An insolvent Incorporated Association is one that is unable to pay its debts when due for payment. An insolvent association cannot apply for cancellation or be wound up voluntarily. It may only be wound up by the board or arbitration. If there is a concern that an association may be insolvent, it is recommended that no further debt be incurred until the financial position of the association has been established and appropriate action taken to address the issue. If it is not possible to restructure, refinance or obtain additional funding it may be necessary to appoint a voluntary administrator or contact a liquidator. Liquidation is the orderly winding up of an Incorporated Association’s affairs. It involves realizing the Incorporated Association’s assets, cessation or sale of operations and distributing to the creditors. Voluntary administration involves an external administrator investigating the Incorporated Association’s affairs and providing a recommendation to the creditors. If the Incorporated Association’s is unsure where to begin it is recommended to do the following:
- make a list of all possible creditors and how much is owed to each.
- arrange to have the association’s accounts audited.
- contact creditors and see if an agreement can be reached regarding the debt.
- discuss the situation with a finance professional or a lawyer.
When the Incorporated Association may be insolvent it is encouraged to seek professional advice to determine its rights, obligations, and options.
8. Voluntary administration
Where a management committee resolves that the Incorporated Association is insolvent, or likely to become insolvent, they may appoint an administrator. The administrator takes control of the Incorporated Association’s affairs and may perform any function, and exercise any power, that the association or any of its officers could perform or exercise if the Incorporated Association were not under administration. Voluntary administration seeks to maximize the chances of an Incorporated Association continuing to operate or, if the Incorporated Association cannot continue, achieve a better return for creditors and the Incorporated Association when winding up its affairs. As soon as practicable, the administrator must investigate the Incorporated Association’s circumstances and make a recommendation on its future. The management committee is required to assist the administrator by delivering all books in their possession and reporting on the association’s affairs and financial circumstances.
9. Merging existing Incorporated Associations
Merging the activities of two or more Incorporated Associations together to continue on as a single incorporated association must pass its own special resolutions confirming the:
- terms of the merger;
- name and objects of the new group; and
- proposed rules for the new group
More information on the requirements for a special resolution is provided in Altering the Rules.
If the merger is satisfied that the:
- required special resolutions have been passed in accordance with the Act;
- proposed new body is eligible for incorporation; and
- rules of the new body comply with the requirements of the Act,
A certificate of incorporation will be issued for the new body and each of the amalgamating incorporated associations will be automatically cancelled.
10. Transfer of merging Incorporated Associations’ property and liabilities
Once the new body has been incorporated:
- the property of all the former Incorporated Association vest with the new incorporated association.
- the rights and liabilities of the former Incorporated Association become the rights and liabilities of the new Incorporated Association.
- any proceedings by or against the former Incorporated Association that existed immediately prior to the incorporation of the new Incorporated Association may be continued by or against the new body; and
- any pre-existing agreements of the former Incorporated Association will apply to the new incorporated association (unless the agreements state otherwise).
11. Types of incorporated structures
There may be circumstances where it may be advantageous for the Incorporated Association to move to another jurisdiction. For example, an association wanting to expand its activities into other States may prefer to become a company, regulated by district authorities as co-operative, corporation, or incorporated company.
12. Incorporation under the Act
An applicant wants to be an Incorporated Association wishing to operate for profit or conduct its activities under the the Act. In general, companies have greater scope than incorporated associations in the activities that they can undertake however they are more highly regulated than other entities and can have higher ongoing costs. There are several types of company including:
- Unlimited company with share capital is often used for pooled investments and allows members to withdraw their investment capital. Members are personally liable for the debts of the company.
- Company limited by shares is often used for business purposes. Members’ personal liability is limited to any unpaid subscription price for their shares.
- Public company limited by guarantee cannot issue shares. The liability of members is limited to the amount agreed to in a guarantee (e.g. membership fee).
