All in a Day’s Work! – An Update On Reforms
Written by Victor Hamit

It appears that the dust is settling on the transition to the new gaming regime. Many clubs have been rewarded by careful preparatory planning with minimal interruptions to operations. Accordingly, for this edition, we leave gaming, and turn briefly to some other current issues affecting Victorian clubs. Club managers and boards can rightfully claim that “it’s all in a day’s work!”.

The breadth and complexity of the legislative and compliance framework in which clubs operate is formidable. In addition to the current framework, there is the ongoing reform promulgated by both State and Federal Governments. In fact, we frequently hear calls from business asserting that the population is suffering from “reform fatigue”.

Do you respond with a shudder or a resigned shrug of the shoulders when another politician asserts that the “proposed reform” will “simplify” the matter?

Has there been a reform which has “simplified” without creating more “red tape” and more compliance requirements? There can be little doubt that many areas covering the operations of clubs should be simplified and the compliance burden reduced. Some areas for clubs to monitor that may affect their operations are noted in this edition’s article.

Associations Reform

The Associations Incorporation Reform Act (2012) (“the Reform Act”), which has had a long gestation period, is now due to commence on 1 November 2012 (see Club Connect April 2012 edition). The Reform Act amends and replaces the Associations Incorporation Act 1981.

As many clubs in Victoria are incorporated associations, the most welcome aspect of the Reform Act is to clarify the convoluted “trading activities” definition of the current legislation. In other words, the prohibition on trading has been abolished. There are many changes in the Reform Act including the duties and obligations of committee members. These duties are now in a form consistent with those contained in the Corporations Act 2001 (C’wth). The Corporations Act provisions already apply to those clubs that are companies limited by guarantee. Updated information on the Reform Act can be monitored on the Victorian Government website www.npccompliance.vic.gov.au .

Clubs that are incorporated associations in Victoria will need to review their constitutions in light of these changes. The model rules are also being revised.

One matter that has attracted little attention, but may be important to some clubs, is that clubs now need to clarify whether or not members can have access to minutes of the committee meetings and on what terms.

The Reform Act will not affect those clubs that are companies limited by guarantee and governed by the Corporations Act.

Income Tax Reform

Clubs are aware that the Federal Government has introduced income tax reforms that will have a profound impact on those clubs that were previously income tax exempt and conduct unrelated business activities. The Government has announced that the Unrelated Business Income Tax (“UBIT”) will commence from 1 July 2012 (see Club Connect April 2012 edition). There is little detailed information available on the UBIT but clubs are recommended to assess their positions as a matter of urgency in an endeavour to understand the financial impact on those clubs that were previously income tax exempt.

The reform has been subject to considerable criticism as being reform without reason. Clubs will need to make assessments of their income tax position for both potential liability and possible funding and banking arrangements where significant borrowings have been incurred.

CEO’s Salary and Expenses – Governance Reform

At the time of writing, there is considerable discussion concerning salary arrangements of the Principal at a private girls school in Melbourne. While the precise details are not known, it does serve as a timely reminder that clubs need to consider these matters within an overall governance framework.

There are a number of key issues to consider for both Board and CEO to avoid significant difficulties and potential liability in these areas. We suggest clubs consider the following:-

Be clear on the remuneration package and its components.
Be clear on the overall cost of the package to the club.
Engage the club’s auditor or accountant to calculate the overall cost of the package for the Board.
Have a clear process for review and understand the overall cost remifications of any review to the club.
Have in written agreed form, contract, evaluation process, and valuation of package.
Where a board member or executive is delegated the task to negotiate with the CEO, those discussions should be subject to final approval by the board.
Conduct frank and professional discussions between the Board and CEO in negotiations for salary arrangements.
Ensure an appropriate approval and reimbursement protocol.
In our experience, disputes over the CEO’s salary arrangements occur all too frequently. In our experience these disputes seldom arise because one party is trying to take advantage of another, but simply because the position was misunderstood or one party had not sought to clarify the position.

Common, obvious issues are left unclarified because some feel that it is “nit picking”. In reality, however, it is unprofessional and potentially a breach of duty to act with reasonable care as a director to ignore or allow matters to remain unclarified which potentially can be the source of aggravation and dispute. Frequently these matters are readily discussed at the time with relief to all parties. For examples of recent cases dealing with directors’ reasonable care, see Club Connect August 2012 and August 2011 editions.

Article published in Club Connect October 2012

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Victor Hamit
Wentworth Lawyers
Level 40,
140 William Street
MELBOURNE VIC 3000

Email: vhamit@wentworthlawyers.com.au
Website: www.wentworthlawyers.com.au

Tel: +61 3 9607 8380
Mobile: +61 408 590 706

Disclaimer:

These materials are provided as a general guide on the subject only, not as specific advice on any particular matter or to any particular person. Please seek specific advice on your own particular circumstances as situations and facts vary.
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