Personal liability of members of management committees of incorporated associations for debts incurred by the association if it traded while insolvent has been an uncertain area of law in Queensland. Directors of companies that trade while insolvent have potentially been personally liable for debts incurred by the company, but there has always been a question mark over whether members of management committees of incorporated associations face the same personal liability.
Now, a recent decision of the Supreme Court of Queensland has suppressed the controversy in Queensland, for the time being at least.
Partner Darrell Jardine and Senior Associate Jason Down discuss further.
The decision
In the decision of Robson & Ors v Commissioner of Taxation [2015] QSC 76, Justice Jackson held that the part of the Corporations Act 2001 that empowers liquidators to recover property or seek compensation for the benefit of creditors of an insolvent entity, which includes the provisions dealing with insolvent trading, does not apply to an incorporated association.
In his decision, Justice Jackson examined the interaction between the provisions of the Associations Incorporation Act 1981 (Qld), the principal legislation in Queensland governing incorporated associations, and the Corporations Act 2001, in relation to the winding up of an incorporated association and the recovery of unfair preference payments by the liquidator of the incorporated association.
In short, his Honour held that a liquidator of an incorporated association could not seek to recover unfair preference payments from a debtor of the incorporated association because Part 5.7B of the Corporations Act 2001 does not apply in the winding up of the incorporated association.
While his Honour's reasons for his decision were in relation to a claim for the recovery of an unfair preference payment, the principle expressed that Part 5.7B of the Corporations Act 2001 does not apply to the winding up of an incorporated association would have general application to those provisions dealing with insolvent trading, with the result that a liquidator could not pursue members of management committees personally for debts incurred while the association was insolvent.
Justice Jackson also specifically provides an indication in his reasons for decision as to how to reverse the effect of the current legislation by a simple amendment to the Associations Incorporation Act 1981 (Qld). However, that is a matter for the legislature to address. The law, as it currently stands, is as stated by Justice Jackson in his decision.
Despite the decision in Robson, members of management committees should take care in the exercise of their roles. Members still owe duties of good faith and loyalty to the association and a duty to exercise reasonable care and skill in carrying out the role of a management committee member.
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