The 2023 Act contains no winding-up code of its own. Instead it borrows the one that companies use, which is detailed, tested in the courts, and administered by licensed liquidators. This article explains how it maps onto an association.
Subject to section 143, the provisions of the Companies Act 1997, Part XVIII, Liquidations, “apply, so far as they are applicable and with the prescribed modifications (if any), to and in relation to the winding-up of incorporated associations”. In applying them, a reference to a company is read as a reference to an incorporated association; to the directors of a company, as to the members of the committee; and to the secretary of a company, as to the public officer.
How a winding up starts
Under Part XVIII of the Companies Act 1997 a liquidator may be appointed by special resolution of the shareholders, by the board on an event specified in the constitution, or by the National Court on the application of the company, a director, a shareholder, a creditor, or the Registrar. Read through section 142 of the Associations Incorporation Act 2023, the members of an association may resolve by special resolution to wind it up and appoint a liquidator; section 62(2)(c) confirms that the power to wind up belongs to the members alone, subject to a rule allowing the committee to appoint a liquidator on an event stated in the rules. A creditor may apply to the National Court where the association cannot pay its debts, and the Registrar may apply. Section 156 makes a report of a Registrar’s inspection admissible on an application to appoint a liquidator, and section 108(c) and (d) tie removal from the register to completion of a liquidation.
The liquidator
The liquidator takes control of the association’s property and affairs; the committee’s powers cease except so far as the liquidator allows. The liquidator’s duties under Part XVIII are to take possession of, protect, realise and distribute the assets to creditors, to report to creditors and members, and to investigate the association’s affairs, including the conduct of committee members. The liquidator may apply to the National Court for directions, may examine committee members and others on oath, and may pursue claims against committee members for breach of duty; section 33(a) lets a liquidator apply for a disqualification order and section 50(2)(a) for an injunction. A liquidator must be a person qualified to act under the Companies Act.
Creditors and priorities
Creditors prove their debts to the liquidator, who pays them according to the Companies Act priorities: the costs of the liquidation, then preferential claims such as employees’ wages and certain taxes, then secured creditors according to their security, then ordinary unsecured creditors rateably. Members are not liable to contribute (section 61), unless the rules impose a liability, in which case the liquidator may call on them. Transactions at an undervalue and preferences in the period before liquidation can be set aside under the Companies Act provisions.
Committee members in a liquidation
A liquidation is where committee members’ conduct is examined. The liquidator may sue for breach of the duty of care (section 38) or for an undisclosed material interest (section 41), subject to the volunteer shield in section 38(4) for unpaid committee members; may report offences to the Registrar for prosecution under sections 44, 163 to 166; and may seek disqualification under section 32. A committee member who knowingly allowed the association to carry on with intent to defraud creditors or donors commits an offence under section 166. Section 114 preserves all these liabilities after removal.
Surplus assets
If assets remain after all debts and the costs of the winding up, section 143 displaces the Companies Act distribution to shareholders: the National Court orders distribution in accordance with a resolution of two-thirds of the members if it considers that just, or otherwise as it considers just having regard to the objects, and a public benefit association’s surplus may only go to another public benefit association. See surplus assets.
Completion and removal
When the liquidation is complete the liquidator files the prescribed documents with the Registrar, gives public notice under section 110(1)(a)(ii), and the Registrar removes the association from the register under section 108(d), or, if the documents are not filed, six months after completion under section 108(c). Section 171 provides that a liquidation incomplete when the 2023 Act commenced continues under the 1966 Act.
Alternatives to liquidation
A solvent association that has finished its work and paid everyone can avoid a liquidator’s fees by distributing its surplus and requesting removal under section 109; see voluntary deregistration. An association whose work continues elsewhere can amalgamate under Part XI. Liquidation is for the association with creditors to be paid, assets to be realised, disputes to be resolved, or conduct to be investigated.
Sources
- Associations Incorporation Act 2023 — ss 32, 33, 38, 41, 44, 50, 61, 62(2)(c), 108, 109, 110, 114, 142, 143, 156, 163–166, 171
- Companies Act 1997 — Part XVIII (Liquidations)
- The site’s company law series covers Part XVIII in detail.
Before relying on anything here, read the current text of the Associations Incorporation Act 2023 and check for later amendments. If a decision matters to you, get advice — start with the Office of the Public Solicitor, or find a firm in the law firms directory.