NFP Incorporated Association: A Guide to Removing & Disciplining Members

Introduction

For not-for-profit and charity organisations operating as incorporated associations in NSW, effectively handling NFP member disputes is a critical component of good governance. Conflicts between members, or between a member and the committee, can disrupt operations and threaten the organisation’s mission if not handled correctly.

Navigating the process of disciplining or removing a member requires strict adherence to the procedures in your association’s constitution and the Associations Incorporation Act 2009 (NSW). This guide provides essential information for your committee on handling these situations lawfully and fairly, from internal resolution pathways to the final resort of court action, helping to protect your organisation’s integrity and focus.

Interactive Tool: Check If You Are Following Proper Member Discipline & Removal Steps

The Legal Framework for Your Association

The Constitution as a Legally Binding Contract

The constitution of an incorporated association operates as a legally binding contract between the association and its members. Furthermore, this foundational document establishes the legal basis for any internal dispute by clearly defining the rights and obligations governing the relationship between all parties.

Under the Associations Incorporation Act 2009 (NSW), an association’s constitution must address certain key matters to ensure proper governance, an area where expert advice on NFP governance and ACNC compliance is often essential.

These requirements create a self-governing framework that dictates how the organisation must handle conflict and conduct its affairs. Consequently, critical areas that the constitution must cover include:

• Membership qualifications that outline any specific requirements for a person to become a member of the association.
• Fees and subscriptions detailing any entrance fees or ongoing payments required from members.
• Disciplining of members, which provides the formal procedure for taking disciplinary action against a member and must include a process for appeals.
• Internal disputes, specifying the mechanism for resolving conflicts that arise between members or between a member and the incorporated association.
• The committee, describing its composition, functions, election process, and terms of office for its members.

The Role of the Associations Incorporation Act & Model Constitution

All incorporated associations in NSW are regulated by the Associations Incorporation Act 2009 (NSW). This legislation provides the overarching legal structure within which every association must operate.

A key part of this framework is the model constitution, which is set out in the Associations Incorporation Regulation 2022 (NSW).

When establishing their rules, an incorporated association has several options and can choose to:

• Adopt the standard model constitution.
• Implement a modified version of the model constitution.
• Write its own custom constitution.

However, if an association’s own constitution fails to include provisions for disciplining members or resolving an internal dispute, the procedures detailed in the model constitution apply by default.

The Formal Disciplinary Process for an Incorporated Association

Initiating a Complaint & Making a Determination

The formal disciplinary process in an incorporated association begins when a complaint is made to the committee by any person. Under the model constitution, grounds for a complaint arise if a member has:

• Refused or neglected to comply with the constitution.
• Wilfully acted in a manner prejudicial to the interests of the association.

Once a complaint is received, the committee must first assess its nature and can take the following steps:

• Refuse to deal with a complaint if it considers the matter to be trivial or vexatious.
• Proceed with the formal disciplinary procedure if it decides the complaint has merit.

Issuing Notice & the Member’s Right to Be Heard

If the committee proceeds with a complaint, it must serve a formal notice on the member concerned. This notice must clearly outline the details of the complaint made against them, ensuring the member is fully aware of the allegations.

Following the serving of the notice, the member must be given a fair opportunity to respond, which involves:

• Having at least 14 days from the time the notice is served to make submissions to the committee.
• The committee being legally required to take any submissions into consideration before making a decision.

The Committee’s Decision & Notifying the Member

After considering the initial complaint and any submissions from the member, the committee must make a formal decision by resolution. The committee can decide to dismiss the complaint or, if the allegations are proven, it may resolve to take disciplinary action, such as:

• Suspending the member from the association.
• Expelling the member from the association.

The secretary of the incorporated association must then provide written notice to the member within seven days of the committee’s decision. This notification must include:

• The specific action taken by the committee.
• The reasons for the committee’s decision.
• Information about the member’s right to appeal the decision.

A Member’s Right of Appeal to a General Meeting

A member who has been disciplined has the right to appeal the committee’s decision. To exercise this right, the member must lodge a notice of appeal with the secretary within seven days of being served the committee’s resolution.

Upon receiving the notice of appeal, the committee is required to convene a general meeting of the association within 28 days. During this meeting, the appeal process involves the following steps:

• Both the committee and the disciplined member must be given the opportunity to present their respective cases.
• The final decision is determined by a simple majority vote of the members present.
• The members will vote to either confirm or revoke the committee’s resolution.

Upholding Procedural Fairness Standards in NSW

What is Natural Justice for Your Association

When handling an internal dispute, your incorporated association must afford the member natural justice, also known as procedural fairness.

This legal principle ensures the disciplinary process is fair and transparent, protecting the rights of the member facing the complaint. It is a fundamental requirement for any decision that could adversely affect a member’s rights or interests.

The core components of natural justice require that the member is:

• Notified of the complaint — The member must receive clear notice and details of the specific grounds or charges made against them, not just vague allegations of misconduct.
• Given a fair opportunity to be heard — The member must be given a reasonable chance to present their case, respond to the allegations, and offer a defence against the complaint.
• Entitled to an unbiased decision — The final determination on the disciplinary action must be made by an impartial person or body that is free from prejudice.

The Importance of an Unbiased Decision-Maker

A critical element of procedural fairness is ensuring the decision is made by an unbiased party.

An unbiased decision-maker is someone who is not prejudiced in the disciplinary matter and does not have a personal interest in the outcome. Their judgment should not be influenced by any prior involvement or relationship.

This means the person or group making the decision should have no relationship with the member who is the subject of the action or with any other parties involved in the dispute. For an incorporated association in NSW that uses the model constitution, the decision-maker is typically the committee, or the general meeting if the member appeals the committee’s decision.

Legal Risks of an Unfair Disciplinary Process

Failing to provide natural justice during a disciplinary process carries significant legal risks for your association. If the procedures in your constitution are not followed correctly, or if procedural fairness principles are ignored, any disciplinary action taken could be deemed legally invalid.

An aggrieved member who believes they were treated unfairly has the right to take the matter to court.

If a court finds that the association did not afford the member natural justice, it can overturn the decision to suspend or expel them.

This can result in the association being liable for legal costs and undermines the committee’s authority.

Drafting Enforceable Rules & Proactive Dispute Management

Drafting Clear Disciplinary Procedures for NFP Constitution

To effectively manage an internal dispute, it is essential for your incorporated association to have clear and detailed disciplinary procedures outlined within its constitution. Since the constitution serves as a legally binding contract between the association and its members, well-drafted rules provide certainty and help prevent legal challenges.

If your association chooses not to adopt the model constitution, it is considered good practice to include your own comprehensive disciplinary procedures. To ensure that any disciplinary action taken is both fair and legally enforceable, these rules must specify:

• The formal process for taking action against a member.
• A clear mechanism for appeals.

Using Informal Resolution Pathways Like Mediation

Formal disciplinary action is not always the first or only option for resolving an internal dispute.

Before escalating a conflict, your association should consider using informal resolution pathways, such as:

• Initiating a simple discussion with the member concerned to address the issue.
• Encouraging open communication to help change their behaviour before formal steps are needed.

Another effective method is mediation, which can help resolve issues without needing to resort to formal measures.

Key considerations for this approach include:

• Utilising free services from Community Justice Centres in NSW to ensure all parties feel heard.
• Recognising that the model constitution applies by default if your own rules are silent on dispute resolution.
• Understanding the default mandate that disputes must first be referred to mediation before escalating further.

Why the ACNC Will Not Resolve Your Internal Dispute

A common misconception is that the Australian Charities and Not-for-profits Commission (ACNC) will intervene to resolve an internal dispute within a registered charity. However, the ACNC does not get involved in the internal disagreements of an incorporated association, as its role is not to run charities or mediate differences of opinion.

The ACNC will only consider intervening if a dispute poses a serious risk to public trust and confidence in the charity sector. For example, this may occur when a conflict leads to a breach of the association’s obligations to the ACNC.

When an Internal Dispute Requires Court Intervention

Seeking Court Orders & Managing Injunction Risk

When an internal dispute within an incorporated association becomes so severe that all internal resolution methods have failed, taking the matter to the NSW Supreme Court is a final resort. This step should only be considered after exhausting all procedures outlined in your association’s constitution, including mediation and arbitration.

Under the Associations Incorporation Act 2009 (NSW), a member or the incorporated association itself can apply to the Court for specific orders.

In the most extreme cases, this can include an order to wind up the association. The Court may grant such an order if it is satisfied that:

• The association has conducted its affairs to provide financial gain to its members.
• It has engaged in activities inconsistent with its stated objects.
• The association has acted in a manner that is unfair or unjust to its members.
• The court believes it is just and equitable for the association to be wound up.

Potential Court Remedies: Winding Up vs Receivership

While winding up your NFP is a drastic measure, the NSW Supreme Court has an alternative remedy that aims to preserve the organisation. The court can appoint a receiver to manage the association’s affairs and help resolve the internal dispute, which is often a better outcome for the members and the community the association serves.

A receiver can be granted specific powers by the court to address the core issues of the dispute and restore proper governance. These powers may include the authority to:

• Administer and supervise a contentious election process.
• Call and hold a general meeting of the association.
• Approve or reject new membership nominations.
• Determine which members are eligible to vote in an election.

Case Study: Sengthong v Lao Buddhist Society of NSW Incorporated

The case of Sengthong v Lao Buddhist Society of NSW Incorporated [2016] NSWSC 1408 illustrates how the court prefers to preserve a community organisation rather than dissolve it.

The dispute began with a contentious election that created two rival factions, paralysing the association’s governance.

Furthermore, the conflict was worsened by a prior incident involving the misappropriation of funds by the society’s president.

When the long-standing internal dispute could not be resolved, some members applied to the NSW Supreme Court to have the society wound up. However, the Court determined that dissolving the incorporated association would disrupt important religious activities and deprive members of their temple.

Instead of winding up the organisation, the Court appointed a receiver to manage the dispute. The receiver was given specific powers to determine membership eligibility and conduct a court-supervised election for a new management committee, thereby preserving the association for its members.

Conclusion

For not-for-profit organisations operating as an incorporated association in NSW, effectively managing an internal dispute requires strict adherence to your constitution and the Associations Incorporation Act 2009 (NSW). Upholding procedural fairness, following formal disciplinary processes, and knowing when court intervention is required are all essential for protecting your association’s integrity and mission.

To ensure your not-for-profit association handles these challenges correctly, seek professional legal advice to ensure compliance and achieve a fair outcome. To navigate your legal obligations and safeguard your organisation’s future, contact LawBridge’s experienced not-for-profit lawyers today for expert guidance tailored to your association’s needs.

Frequently Asked Questions