Constitutional Change

Constitutional Change

By Bruce Gotterson

April 02, 2017

This article appeared in the March 2017 issue of Club Life.

All clubs that are public companies (and over 90% are) must have a constitution and all clubs that are co-operatives must have a set of rules. Both documents govern the internal management of the club and are a club’s most important document.

So what is the legal effect of the club’s constitution?

Section 140(1) of the Corporations Act provides:

“A company‘s constitution (if any) and any replaceable rules that apply to the company have effect as a contract:

(a)        between the company and each member; and

(b)        between the company and each director and company secretary; and

(c)        between a member and each other member;

under which each person agrees to observe and perform the constitution and rules so far as they apply to that person.”

Although it may sound obvious, it is crucial for you to establish exactly what your club’s current constitution is so you know what must be changed. In our experience, some clubs are working off an old version of their constitution, despite the fact that it had been replaced or at least amended over the years.

Although changes to a club’s constitution must be registered with the Australian Securities and Investments Commission (ASIC) or with the Registry of Co-operatives in the case of a co-operative, sometimes club members have approved changes to the constitution or the rules but those changes have not been registered.

So what can a club do if it is unclear as to what precisely is the current constitution of the club? Firstly you can search the ASIC register or the Registry of Co-operatives to find out what documents have been registered. Then ask the club’s solicitor if they have an up to date copy. After that, it might be necessary to look at the agendas and minutes of previous annual general meetings and general meetings to see if there have been any changes proposed and adopted by members, which (for some reason) have not found their way into the copy of the constitution and/or been registered with the ASIC or the Registry of Co-operatives.

Although a change made to the constitution of a public company under the Corporations Act will be effective from the date that it is made and registration does not of itself give legal effect to the change, co-operatives are different.  If a rule change is made by a co-operative, it is only legally effected once it has been registered with the Registry of Co-operatives.

Once it has been established what the current version of the club’s constitution is, then it is very important that the board and management are aware of the provisions in the constitution, particularly those provisions relating to composition of the board, requisitioning general meetings of the club, voting rights of members and membership categories.

If the board needs further advice, it should obtain legal advice on the terms and the meaning of the provisions in the club’s constitution.

From a legal perspective, a club’s constitution and/or rules of a co-operative can only be amended by way of a special resolution passed by members at a properly convened meeting of the club.

The following sections in the Corporations Act are relevant.

Section 136(2) and (5) provides as follows:

“(2)      The company may modify or repeal its constitution, or a provision of its constitution, by special resolution.

(5)        A public company must lodge with ASIC a copy of a special resolution adopting, modifying or repealing its constitution within 14 days after it is passed. The company must also lodge with ASIC within that period:

(a)        if the company adopts a constitution–a copy of that constitution; or

(b)        if the company modifies its constitution–a copy of that modification.

This also applies to a proprietary company that has applied under Part 2B.7 to change to a public company, while its application has not yet been determined.”

Section 9 (a) provides as follows:

 (a)       in relation to a company, a resolution:

(i)         of which notice as set out in paragraph 249L (1) (c) has been given; and

(ii)        that has been passed by at least 75% of the votes cast by members entitled to vote on the resolution; or

Section 137 (a) provides as follows:

Date of effect of adoption, modification or repeal of constitution

If a new constitution is adopted or an existing constitution is modified or repealed, that adoption, modification or repeal takes effect:

(a)        if it is the result of a special resolution:

(i)         on the date on which the resolution is passed if it specified no later date; or

(ii)        on a date specified in, or determined in accordance with, the resolution if the relevant date is later than the date on which the resolution is passed; or

The Co-operatives Act also has provisions dealing with Rule changes.

 

For more information contact Bruce Gotterson on b.gotterson@pigott.com.au

This article is intended to provide general information in summary form on a legal topic, current at the time of publication. The contents do not constitute legal advice and should not be relied on as such. Formal legal advice should be sought in specific circumstances.