Charities – Don’t Operate Insolvent

The ACNC’s governance standard 5 requires a charity’s responsible persons to ensure that their charity is not operating while insolvent.

Charities must take reasonable steps to ensure its responsible persons fulfil duties set out in the standard.

For a charity that is a company, in addition to standard 5, duties set out in the Corporations Act 2001 apply to responsible persons (directors), including the duty to prevent insolvent trading. If a charity that is a company continues to operate while insolvent, its directors may be subject to legal action.

Charities incorporated as associations might also have responsibilities to their state and territory regulators.

Warning Signs of insolvency for a Charity

The ACNC wants charities to be aware of warning signs that might indicate a charity is facing financial trouble.

The commission nominates:

  • Difficulty in paying bills for goods and services
  • A history of financial losses in consecutive financial periods
  • Trouble producing accurate and timely information about performance and financial positions
  • Overdue tax debts (for example, superannuation guarantee contributions, PAYG withholding, and GST)
  • Late payments to creditors that have resulted in stricter credit terms and creditors requiring cash-on-delivery payment
  • Payments being declined (for example, payments by credit cards and cheques)
  • Loan applications being declined
  • Trouble paying staff on time
  • Loss of a major income source or significant funding
  • Relying on funding from unreliable sources
  • A noticeable increase in costs or decrease in income compared with budget projections
  • Creditors threatening or commencing legal action for unpaid debts, and
  • Board members or staff raising concerns about the charity’s financial situation.

Guide helps with AISs

The ACNC’s 2021 Annual Information Statement Guide aims to help charities complete their annual information statements.

The commission recommends that you use the AIS checklist before filing your statement.

Visit the attached link for more information – 2021 Annual Information Guide from ACNC