Clifford Gouldson Lawyers

Reminder for Clubs, Societies and Small Non-Profits - Governance Matters!

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An incorporated association in New South Wales recently found itself in the Supreme Court* – a reminder that ‘dotting the i’s and crossing the t’s’ in a governance sense is important no matter the size of the organisation.

In our experience, many small non-profits (often incorporated associations) are more lax when it comes to complying with their governing rules or keeping those rules up to date, viewing such governance issues as for the ‘big end of town’. And while the financial stakes might not often be high, the time and effort invested in these organisations demonstrates their importance to many of their members – which can lead to passionate disputes arising.

The Cambodian Buddhist Society (Society) of NSW is an organisation based at a temple in Sydney that, due to two ‘factions’ arising within the organisation, held two elections (about 5 months apart) purporting to vote in new controlling management committees.

The ‘factions’ emerged due to a disagreement regarding the appointment of the Abbot to the temple and the Court was approached to determine which of the elections was validly held – and therefore, which of the ‘factions’ indeed had control of the Society.

The Court considered whether changes which were purported to have been made to the Constitution (governing rules) of the Society, the year after it was established (16 years before the first disputed ‘election’ was held) were made validly. Those changes had been submitted to the government regulator (the New South Wales Department of Fair Trading), including a hand-written notation regarding the number of votes by which those changes were apparently passed – and the number of votes noted were insufficient for the changes to be validly made.

Each faction submitted to the Court that the other had defects in their voting process – however, the Court determined that neither faction had conducted their election in accordance with the process required by the Constitution and the mere fact that the Society had been conducting its affairs in accordance with the amendments which were never validly passed, did not fix the problem.

In his decision, the judge importantly noted that the Constitution is the ‘lifeblood of the Society’ – so many small organisations forget that in the day-to-day of their activities. In particular, the judge was very critical of the way in which members were recruited (outside of the processes set out by the Constitution) simply to vote at the controversial elections and that an association is “all about its members”.  The Court appointed a receiver to deal with the Society.

The case is an interesting and important reminder that all non-profits should comply with their rules/constitution, ensure they are updated validly and have a particular awareness of the process as to how new members can join – tightening those mechanisms can protect the organisation from a minority ‘faction’ seeking control and perhaps avoid a costly Court process.

If you require advice on this or similar matters please contact our
 Commercial + Property team.

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