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The Associations Incorporation Act 1985 was amended in February 1998 to create a number of offences in connection with the insolvency or winding up of an incorporated association. Some of the most significant of these relate to "insolvent trading".
Put simply, insolvent trading occurs when an association incurs a debt at a time when there are reasonable grounds to expect that it will not be able to pay all its debts when they become due; or when there are reasonable grounds to expect that, if it incurs that debt, it will not be able to pay all its debts when they become due.
Any person who is a member of the association's committee, or who takes part in the management of the association, at the time the insolvent trading occurred commits an offence, punishable by a fine of $5,000-00 or imprisonment for one year.
Any person convicted of such an offence may, in addition to the criminal penalty, be made personally liable for the payment to the association of a sum equal to the debt incurred.
There are a number of complexities in the legislation which will require careful consideration in any given case. However, the message is clear - office-holders, and those concerned in the management, of associations are in this respect in much the same position as company directors, with similar heavy responsibilities and attendant risks. It is essential that they maintain a careful watch on the financial affairs of their associations and seek appropriate advice if they suspect that the association may be in financial difficulty.