Applicability of Insolvency Practice Schedule and Insolvency Practice Rules to incorporated associations

In the judgment of In the matter of Order of AHEPA NSW Incorporated [2020] NSWSC 1626, the NSW Supreme Court has provided helpful guidance to administrators as to whether the Insolvency Practice Schedule (Corporations) (IPSC) and the Insolvency Practice Rules (Corporations) 2016 (IPR) apply to the administration of incorporated associations.

 

Background

The Order of AHEPA NSW (AHEPA) is an incorporated association and not-for-profit organisation which seeks to foster Australian and Greek relations through the promotion of Hellenic culture. The association has been involved in a number of internal disputes. One such dispute relating to the validity of amendments made in respect of AHEPA's constitution, culminated in litigation in the NSW Court of Appeal.

On 8 September 2020, following a judgment of the Court of Appeal against AHEPA, it was placed into voluntary administration. The administrators then applied to the NSW Supreme Court for orders under s 90-15 of the IPSC and 447A(4) and 447C(1) of the Corporations Act 2001 (Cth) confirming the validity of their appointment, and if confirmed, seeking declarations that they were justified in proceeding on the basis that the IPSC and IPR apply to the administration of an incorporated association.

Application of the IPSC and IPR to incorporated associations

The central issue in the case, was whether various provisions of the IPSC and IPR could apply to incorporated associations, an issue which has previously only been considered in relation to co-operatives (see Re University Co-Operative Bookshop Limited (admins apptd) [2019] NSWSC 1898, Re University Co-Operative Bookshop Limited (admins apptd) [2020] NSWSC 97, and Re Australian Wine Consumers Co-Operative Society Limited trading as The Wine Society (admin apptd) [2020] NSWSC 1437).

In deciding the issue, Black J followed the reasoning in the decisions relating to co-operatives to apply the complex statutory regime as follows:

  1. Firstly, section 54 of the Associations Incorporations Act 2009 (NSW) is applied to declare an association to be an applied Corporations legislation matter for the purposes of Part 3 of the Corporations (Ancillary Provisions) Act 2001 (NSW) in relation to the provisions of Part 5.3A and Part 5.9 Div 3 of the Corporations Act subject to specified modifications.
  2. Once an association is declared to be an applied Corporations legislation matter, Part 5.3A and Part 5.9 Div 3 of the Corporations Act operate as State legislation in respect of incorporated associations. This is because of the operation of sections 14 and 15 of the Corporations (Ancillary Provisions) Act 2001 (NSW).
  3. The issue then arises that the above approach does not automatically apply the IPSC and IPR to incorporated associations, because section 54 of the Associations Incorporations Act 2009 (NSW) does not apply Part 5.4 Div 4 of the Corporations Act (which authorised the introduction of the IPSC). Further, the Associations Incorporations Act 2009 (NSW) does not expressly incorporate the IPSC or the IPR.
  4. Accordingly, regard must be had to section 68 of the Interpretation Act 1987 (NSW) which provides that a reference to a provision of a repealed or re-enacted Act, extends to the corresponding provision of the re-enacted Act.
  5. This has the effect that if specific provisions in the IPSC and IPR correspond to earlier provisions in the former Corporations Act, they will apply to incorporated associations through the application of the process referred to above. Directions under s 90-15 of the IPSC can then be made to reflect same.
  6. If, however, there is no corresponding provision in the former Corporations Act, orders are required to be made under s 447A of the Corporations Act to apply specific provisions to incorporated associations.

Effect of the judgment

The effect of the judgment is that administrators can now proceed on the basis that the below provisions of the IPSC and IPR apply to the administration of incorporated associations:

IPSC (pursuant to directions made under s 90-15 of the IPSC)


  • Subdivision B of Div 60, other than sections 60-5(2), 60-10(2) and 60-15 (remuneration);
  • Sections 70-5, 70-6, 70-15 and 70-25 (lodgement and audit of administration returns);
  • Div 75, other than sections 75-20 to 75-40 (meetings);
  • Section 80-35  (committees of inspection); and
  • Sections 90-15 and 90-20 (review of external administration).

IPR (pursuant to directions made under s 90-15 of the IPSC)


  • Rules 70-35 and 70-45, other than rule 70-45(4) (remuneration);
  • Div 75, other than rules 75-120 and 75-135 (meetings); and
  • Rules 80-5(2) and (7) (committees of inspection).

IPSC (pursuant to orders made under s 447A(1) of the Corporations Act)


  • Subdivision E of Div 60 (statutory no profit rule);
  • Div 65 (funds handling);
  • Sections 70-10, 70-20, 70-30 to 70-45, 70-55, and 70-65 to 70-90 (information requests);
  • Sections 75-20 to 75-40 (meetings);
  • Div 80 other than s 80-35 (committees of inspection);
  • Div 85 (directions by creditors);
  • Sections 90-5, 90-10 and 90-21 (inquiry by Court);
  • Subdivision C of Div 90 (review by registered liquidator);
  • Subdivision D of Div 90 (removal of external administrator by creditors); and
  • Sections 100-5 and 100-6 (other matters).

IPR (pursuant to orders made under s 447A(1) of the Corporations Act)


  • Div 60 of the IPR (statutory no profit rule);
  • Rules 70-1 to 70-15, 70-30, 70-55 and 70-60 (information requests);
  • Div 80 other than rules 80-5(2) and (7) (committees of inspection); and
  • Div 90 (review by registered liquidator).
There is no need for administrators of incorporated associations to seek directions as to the application of the provisions in the IPSC and IPR which correspond to former provisions in the Act in the future, since as Black J stated, they may well be entitled to proceed in accordance with the conclusions reached by his Honour in this case. It may however be necessary for them to seek an order under s 447A of the Act in respect of those provisions that would not apply, because they do not correspond to previous provisions in the Act.

This article is not legal advice. It is intended to provide commentary and general information only. Access to this article does not entitle you to rely on it as legal advice. You should obtain formal legal advice specific to your own situation. Please contact McCabe Curwood if you require advice on matters covered by this article. McCabe Curwood has extensive experience advising administrators, company directors, heads of incorporated associations, and creditors in an insolvency context.

Contributors

Samantha Beattie Lawyer