Executive and Committee Liabilities
22 February 2018
Being elected to a clubs committee is to be considered something of an honour, it is an important and responsible position to hold. As a committee member your role does mean that you are liable for the legal operation of the club, basically, this means you must make sure you know of and respond appropriately to any issues affecting the successful and legal operation of the club.
Under the Incorporated Societies Act 1908, members of an incorporated society such as a club are not liable for any debt, contract or other obligation made or incurred by the club within the terms of its constitution. Such liability is limited to the assets of the club. However, individual committee members may be liable if they should be involved in a contract which was not authorised under the terms of the club’s constitution, or it is shown that they wilfully disregarded consistent professional advice which later leads to damages being awarded to the club.
Committees (both as a whole and as individuals) have a liability to their members for due and proper administration of the clubs funds. Failure in respect to this responsibility can come in different forms.
If funds are invested on the basis of a committee member having special information or knowledge about an investment source, then should a failure occur, there is the possibility that action could be taken against that committee member for recompense.
If the committee as a whole or one or two members know that there is bad management of funds, and do nothing about it, then this could well amount to a breach of duty. Likewise if the committee as a whole or one or two members are aware of lax or bad management resulting in unnecessary losses and thus affecting club funds, then action could be taken against them for retrieval.
In these circumstances, it is more than likely that the whole committee would be jointly liable on a personal basis.
It is very important that all committee members are fully aware of the club’s operation. They must ensure that a full, accurate and current reporting system on all aspects of the financial well‐being of the club are provided to them, and that any discrepancies are reported on by the club manager, and that the committee is aware of what action has or is to be taken.
Far too often committee members sit back and do not show any concern if there is a problem, be it in the operation of gaming machines, till operations, imprudent purchasing, or lack of operational control, which then results in the club incurring losses and/or liabilities. As the saying goes there is not much sense in parking the ambulance at the bottom of the cliff.
In these circumstances, members of the club are perfectly entitled to look to the committee if it can be shown that they knew about situations of a serious nature but did nothing about it, or failed to bring it to the attention of members.
Committee members assume a duty of care in respect of members of the club and persons with whom they deal outside the club. For example, a Treasurer assuming responsibility for the allocation and expenditure of club funds has to do so with a reasonable standard of care. In failing to do so the Treasurer may well become personally liable to the club for any loss sustained. (An example would be where he or she signs a series of blank cheques without knowing what they were used for).
Committee members could be liable if they fail to pay any attention to how funds are being managed.
Committees are liable if they knowingly or unknowingly (ignorance is not a viable excuse) allow the club to operate while insolvent.
Committees or individuals can be liable for breaches of the Health and Safety Act.
Another example would be if the committee were aware that the club’s assets were under‐insured, or their public liability deliberately set at a very low level. Any resulting claim in which settlement was well below the replacement value of the lost asset, or public liability claim, could lead to the committee possibly being sued for the difference.
Of course, the club is likely to have indemnity insurance in case they are sued over employment, or health and safety issues, but it should be remembered that an insurance payout is not guaranteed, or a lower sum could be paid out, if it can be proved that management and/or committee members acted without regard for correct procedures which they were clearly aware of.
It is not our intention to scare or panic members of committees. It is an attempt to make each member aware of their responsibilities and the need for them to make sure they know all the issues in the operation of their club.
It is not the committee/executives role to run the day to day operations of the club your function is to oversee, the day to day operation is the role of the club manager and that person must be given the direction and the freedom to manage the club and achieve the committee’s goals for the club’s future, without undue interference from committee members. However there must be a transparent reporting system whereby all members of the committee are fully aware of all issues which potentially affect the financial viability of the club and the club’s adherence to all and every Act which applies to it.
More information on committee duties and responsibilities can be found the Clubs New Zealand Resource Room