This article appeared in the July 2019 issue of Club Director Magazine
“Top Tips” for reducing liability
- Your role is governance.
- Let the CEO manage.
- Don’t be afraid to ask hard questions and require answers.
- Ensure that your club has appropriate written systems and procedures.
- Lead by example- your behaviour the behaviour you tolerate matters.
- Don’t underestimate your job – Get advice.
- Require appropriate insurance.
Directors play a crucial role in clubs across NSW. Merely by becoming a director of a registered club you are taking on risk. However, there is a difference between failing to read the Club’s financial report because the CEO is a good bloke and requesting your CEO show you the Club’s written procedures to deal with a future whistleblower. One is inviting personal liability for insolvent trading while the other is reducing the risk of a civil penalty order against the club or even yourself from the possible mishandling of a whistleblower.
The starting point for any director is to understand your obligations to act in good faith and with due care and diligence under the Corporations Act 2001. You also need to understand that to “be a fit and proper person” for the purposes of the Liquor Act and Registered Clubs Act (RCA) you need not only honesty but knowledge and ability. That is, if you don’t understand something, you need to ask questions. You need to continually train and improve your skill set. If you are uncertain of something, ensure that the club seeks advice to comply with its legal obligations.
To protect yourself you need to understand that your role is one of governance and not management. To “govern” you need to ensure that policy documents and written system and procedures are put in place and then allow the CEO to manage. For example, a director doesn’t need to read a CEO’s work emails but those emails should be securely backed up for the next CEO to review if necessary.
Directors that get involved in day to day management open the Club up to possible claims of bullying and potentially a failure to provide a safe workplace for an employee’s health (including their psychological health). An under performing employee who receives one direction from their supervisor and 9 different directions from each of the club’s directors is an unfair dismissal claim waiting to happen.
One of the big areas of risk for directors are breaches of the Work Health Safety Act (WHS Act). Directors (at the highest end of the scale) can be personally liable for up to $600,000 or 5 years imprisonment. Directors need to ensure that the CEO has adequate resources for the Club to comply with its WHS obligations. The CEO needs to be supported to hire the right people with the right experience. You need to check that systems and procedures are put in place to minimize the risks to health and safety. You need to ask whether your club has conducted a risk assessment, holds appropriate risk registers and has in place an appropriate chain of command to deal with work health safety.
If your club doesn’t have a zero tolerance policy on inappropriate behaviour you need to ask “why not?”. Sexual harassment is illegal. Excuses such as: “everybody found it funny” or “she didn’t seem to mind” aren’t good enough. Expecting a bartender to be ok with being on the receiving end of lewd comments from members is failing to provide a safe system of work. You need to remember that you don’t somehow stop being a director when you are out of the board room, so your behaviour and the behaviour of others that you tolerate matters.
Directors need to ensure they stay up to date with legislative changes that impact the Club and use all due diligence to ensure that the Club complies with its obligations. Below are a few key points that should be on your radar.
All directors should understand their personal obligations under schedule 2 of the Registered Clubs Regulations (the Accountability Code). Many obligations were moved from the RCA, for example: to disclose a conflict of interest or any gifts or donations received. However, you also need to be aware that if the “Club” breaches an offence provision of the Accountability Code then each director may be personally guilty of an offence. It doesn’t matter if you personally committed a wrongdoing but rather whether you used all due diligence to prevent the breach. You need to read and understand the Accountability Code and make sure all employees do the same and have written evidence that this has been done.
Employment and Top Executives
Under the Accountability Code all “Top Executives” need to be on a written contract of employment (containing matters set out in the Code) that have been reviewed by an independent adviser and approved by the Board. You also need to ensure that all employees of the Club are being paid properly including superannuation.
As a director you can be personally liable if you allow the Club to trade while insolvent. If you need help to understand the financials- seek advice. You cannot delegate your duties to the “treasurer” or another director. There are “safe harbour” protections that may be available (for example, if the Club is having financial difficulty but seeking an amalgamation). However, to rely on the safe harbour provisions you need to be following appropriate advice and keeping up to date with superannuation, wages and tax payments. If you can’t afford those things you need to call an administrator urgently.
You need to ensure that all agreements that the Club enters into are properly read and reviewed (including the small print!). If there are promises made by the supplier, they need to be incorporated into the contract. Watch out for clauses that seek to automatically extend the contract or grant a “right of refusal”. Be careful of any unspecified costs such as “service charges” or increases for “labour costs”. Don’t feel pressured to enter into an agreement because it appears to have the “best rate”. If a supplier is insisting on using an unfair and unbalanced agreement (and tells you that they can’t amend it) be prepared to walk away. Beware of potentially worthless “guarantees” in favour of the Club by third parties.
Don’t sign a personal guarantee – ever. If you want to donate your house to the club that is very admirable – but don’t do it by way of signing a personal guarantee. How do you know if an agreement has a personal guarantee clause? You have to read the agreement before signing it. Also be careful of any “charging clauses” which gives the supplier any rights in relation to property of the club (or even more concerning the property of a director).
Formalise contractual arrangements
Clubs need to be careful of any agreements which could be covered by the Retail Leases Act. For example if you lease or licence any part of your premises (to a caterer, hairdresser or even a gymnasium that sells protein bars) your club needs a comprehensive agreement. You also need to be careful when terminating any such arrangement. If you are seeking to terminate an agreement early this should be by way of a formal deed (to minimize the risk of a claim against the Club).
There is no such thing as a standard building contract that doesn’t need to be reviewed. You need to ensure that the specifications of the works are clear and unambiguous and document exactly what the Club expects. You also need to be on the lookout for indemnities and warranties. If the Club takes on a liability by agreeing to indemnify the builder there is a risk that your insurer may not cover you.
The new regime commenced 1 July 2019 and brought with it significant penalties for breaches of whistleblower confidentiality and the victimisation of whistleblowers. As a director you are an “eligible recipient”. Accordingly, you need to review your club’s whistleblower policy and ensure that you are properly trained to deal with a potential whistleblower.
Directors and Officers Insurance (D & O Insurance)
You need to make sure that your Club has appropriate D & O Insurance with sufficient coverage. Some of the matters to look out for are:
- what types of claims are covered? what is excluded from the policy?
- is the policy severable (for example, are you still covered if there is fraud by another director)?
- are legal costs covered as you go?
The starting point is to talk to your insurance broker and then read the terms and conditions of the policy in full.
The key thing to understand is that your role as a director is important. It is one of governance, policies and procedures that support your management team and monitor their performance. If you have questions don’t be afraid to ask that the Club seek advice to reduce your personal liability and ensure the long term success of your Club.
For more information, please contact one of our Clubs & Hospitality specialists: