From 1 July 2019, not-for-profit incorporated organisations that meet the definition of a “trading or financial corporation” must comply with the corporate sector whistleblower regime in Part 9.4AAA of the Corporations Act 2001 (Cth) (Corporations Act).

What entities are obliged to comply with the new whistleblowing regime?

The new whistleblower regime applies to “regulated entities”, defined to include not only companies registered under the Corporations Act, but also corporations to which paragraph 51(xx) of the Commonwealth of Australia Constitution Act (Constitution) applies.[1]

A corporation to which the Constitution applies includes foreign corporations or “trading or financial corporations” formed within the limits of the Commonwealth.  Not-for-profit organisations can meet the definition of a “trading or financial corporation”, despite being formed for a not-for-profit or charitable purpose.

When is a not-for profit organisation a “trading or financial corporation”?

The activities performed by the organisation will determine whether it meets the test of being a “trading or financial corporation”. [2]  In broad terms, not-for-profit organisations will be considered:

  • Trading corporations, if a substantial or significant proportion of its activities comprise “trading activities”. [3] The Australian Securities and Investment Commission (ASIC) has indicated that trading activities comprise buying and selling goods or services; [4]
  • Financial corporations, if a significant part of its overall activities comprises “financial activities”.[5] ASIC has indicated that financial activities involve commercial dealings or transactions in finance (eg borrowing, lending, investing or providing advice on financial matters).[6]

Then, if the not-for-profit organisation’s trading or financial activities are a significant proportion of its overall activities, it is likely that the organisation will be a trading or financial corporation.

What not-for-profit incorporated organisations may need to comply with the whistleblowing regime?

If the organisation is considered to be a “trading or financial corporation” it will need to comply with the whistleblowing regime under the Corporations Act.  ASIC has indicated that this may include:[7]

  • Incorporated associations;
  • Other bodies corporate, including not-for-profit bodies corporate;
  • Incorporated organisations registered with ASIC as Australian registered bodies; and
  • Incorporated organisations registered with the Australian Charities and Not-for-profits Commission, such as charities.

All public companies are required to have a whistleblowing policy.[8]  This includes not-for profits and charities that are public companies, usually incorporated through companies limited by guarantee.

Proposed legislative relief for public companies that are small, not-for-profits or charities

Under s1317AJ of the Corporations Act, ASIC may, by legislative instrument, make an order in respect of a specified class of companies, relieving companies in the class from the requirement to have a whistleblowing policy.  Based on this, ASIC is currently seeking feedback on whether they should provide such legislative relief to public companies that are small, not-for-profits or charities.[9]  The consultation closed on 18 September 2019.

If ASIC uses its power under s1317AJ of the Corporations Act, public companies that are small, not-for- profits or charities, may be exempted from having a whistleblower policy.

Contact us

Not-for-profit organisations should review their activities to check whether they might fall within the definition of “trading or financial corporation”.  If in doubt, speak to us for legal advice.

We have designed packages to assist companies in determining whether entities will be obliged to have and implement a whistleblowing policy, as well as updating their existing policy or in implementing a compliant policy and whistleblowing process.  Our packages include user-friendly and cyber-secure technology supported by our investigation and regulatory expertise.  Most importantly, our legal advice in relation to your whistleblower protection regime is covered by legal professional privilege, minimising risk to organisations and their directors.

You can download the brochure or calculate your compliance costs here.

See related article regarding whistleblowers in Australia here.

[1] See section 1317AAB of the Corporations Act 2001 (Cth) (Corporations Act).

[2] State Superannuation Board v TPC (1980) 150 CLR 282; 44 ALR 1.

[3] R v Judges of the Federal Court of Australia and Adamson; Ex parte Western Australian National Football League (Inc) (1979) 143 CLR 190.

[4] See Australian Securities and Investment Commission (ASIC) guide on “Whistleblower protections for not-for-profit organisations” (ASIC Guide) here.

[5] State Superannuation Board v TPC (1980) 150 CLR 282; 44 ALR 1.

[6] See ASIC Guide.

[7] Idem.

[8] Corporations Act, s1317AI(1).

[9]  See ASIC’s Consultation Paper 321: Whistleblower Policies here.

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