Letter to ACNC re. insolvent trading relief

Thursday, 04 June 2020

On 21 May, the AICD sent a letter to the ACNC Commissioner noting our concern with the ACNC’s requirement that a charity which is trading while insolvent is still required to notify its members and the ACNC of that occurrence.

In particular, we consider that the continued application of this obligation runs counter to the policy objectives of the insolvent trading changes to the Corporations Act which are designed to encourage organisations to trade through the current crisis. Relevantly, companies that are trading while insolvent are not required to advise their shareholders (or members in the case of companies limited by guarantee), nor indeed ASIC. There is no clear policy rationale for charities to be held to a different standard.

The implications of a charity notifying its members are significant, particularly given the extent to which charities depend on member support to ensure their continued viability. Once it became commonly known that a charity was trading while insolvent, its prospects of continuing its operations with the support of stakeholders (e.g. members, suppliers, clients, lenders, donors) support would be severely limited. For these reasons, we have suggested that the obligation to notify members and the ACNC be removed.

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