Receivership – resolving disputes within Incorporated Associations

In previous articles we have discussed the intricacies of the receivership process, who can appoint receivers and the powers that the receiver has following their appointment. In most cases, the appointment of a receiver is generally over a company however this is not always the case. This article will explore how receivers may be appointed over incorporated associations and what they may be required to do by the Court.

What is an incorporated association?

An incorporated association is a legal entity that is commonly established for recreational, charitable or religious purposes. In New South Wales incorporated associations are governed by the Associations Incorporation Act 2009 (NSW) (‘Associations Act’) and regulated by New South Wales Fair Trading. The Associations Act provides for the appointment of an external administrator and the winding up of an incorporated association in certain circumstances. 

How can a receiver be appointed?

As a starting point, the Supreme Court of New South Wales, may, at any stage of proceedings ‘appoint a receiver by interlocutory order in any case in which it appears to the Court to be just or convenient to do so’.

Whilst every member of an incorporated association has standing to bring an application to the Supreme Court to appoint a receiver, the Court will not usually make those orders where:

• there is a grave risk of injury to the interests of other parties, including other members and the operation of the association; and

• there is a disputed claim where the appointment would prejudge the proceedings before the Court.

What can receivers do?

The Court can appoint a receiver to an association ‘pending the resolution of such disputes, or the ascertainment of the identity of the proper officials, to enable… business to be properly conducted in the meantime’. Having regard to recent receiver appointments to incorporated associations in New South Wales, a receiver may be appointed to an incorporated association with powers to, amongst other things:

• administer and supervise an election process which is expected to be contentious

• hold a general meeting of the association

• obtain and collate feedback from the association’s membership as to any governance issues concerning the association

• approve or reject any nomination for membership of the association received at any time by the receiver

• preside as chairperson at a general meeting of the association, or nominate a person to chair the meeting at the receiver’s discretion

• determine who is eligible to vote as a member of the association at a meeting.

Case study

The case of Sengthong v Lao Buddhist Society of NSW Incorporated [2016] NSWSC 1408 (‘Sengthong’) illustrates the considerations that a Court takes into account when asked to appoint a receiver over an incorporated association and some of the powers that are conferred on them. 

Facts

• The Lao Buddhist Society of NSW Incorporated (Lao Buddhist Society) was incorporated as an association in November 1989.

• As a result of disputes arising from an election in 2006, factionalised members held themselves out as constituting two distinct “Management Committees” for the one organisation. The “Management Committee” recognised and supported by the monks had routinely and consistently maintained and conducted the traditional Buddhist activities routinely conducted at the Temple. 

• In or about 2005, the then Lay President of the Lao Buddhist Society misappropriated around $196,000 in which members attributed the blame to one of the Management Committees. 

• Following a schism in the association which remained unresolved, the Secretary of the NSW Department of Fair Trading threatened to cancel the registration of Lao Buddhist Society under the Associations Act which ultimately led to proceedings being commenced in the Supreme Court of New South Wales.

• During the course of the hearing of the summons, some of the parties came to a mutual recognition that each of the elections of 2006 were invalid and that curial intervention was required.

• On 15 July 2015, the plaintiff applied for an order under section 63 of the Associations Act that the Lao Buddhist Society be wound up on grounds, including that:

  • the Management Committee of Lao Buddhist Society acted in affairs of the Lao Buddhist Society in the interest of the Management Committee, rather than in accordance with the objects of the Lao Buddhist Society, or otherwise in a manner that is unfair to members (s 63 (1)(f) Associations Act); or

  • it is just and equitable that Lao Buddhist Society be wound up (s 63(1)(i) Associations Act).

Findings

The Court found that for the purposes of section 63(1)(f) of the Associations Act, there was insufficient evidence that the factional differences within the Lao Buddhist Society were of a kind that would warrant the association to be wound up. 

The Court considered the nature of the Lao Buddhist Society when determining if the association should be wound up in accordance with section 63(1)(i) of the Associations Act. The Court found that “an order for the winding-up of the first defendant would operate to disrupt religious and community activities at the Temple, to displace the monastic residents around whom the Buddhist community structures activities, and potentially to deprive members of the first defendant of the benefit of capital expenditure made by the association at the Temple” (at [162]). 

The Court instead appointed a receiver and manager to determine any disputes about membership of the association and to conduct a Court-supervised election of a new management committee. 

Summary

The case is a timely reminder that section 67 of the Supreme Court Act provides a jurisdictional foundation ‘for the appointment of a receiver … for the primary purpose of resolving a dispute about the management of property within an organisation, including an association … whilst at the same time preserving the organisation’s property.’

The power of the Supreme Court of New South Wales to appoint a receiver has, in many situations, the ability to create better outcomes for members than if an association is simply wound up or has an administrator appointed in accordance with the provisions under the Associations Act.

Authors: Adam Cutri, Gilbert Olzomer and Elisabeth Krstanovski