Many of us are involved in sporting clubs, charities and other community organisations. We freely give our time and expertise in helping to run them but how many of us are aware of the personal liability risks we are running?
The current government’s Big Society initiative encourages people to take an active role in their community. In some cases the organisation they are assisting will be established as a limited company, in rare cases as a community interest company (CIC), which are legal entities in their own right. However many, particularly in the case of smaller clubs, are unincorporated associations.
An unincorporated association has no legal status distinct from that of its members. This raises risks of personal liability, especially for the members of the management committee.
This was the recent fate of the unfortunate Mr Davies, who was the president and a member of the management committee of a rugby club that was an unincorporated association. A building company that was contracted to carry out works at the club served a statutory demand on Mr Davies claiming the sum of £147,000.
Mr Davies applied to the Court to set aside the statutory demand and argued that it was the club’s treasurer, as the signatory to the building contract that was liable. The Court held that under the club rules the management of the club was in the hands of the management committee. Mr Davies and the other members of the committee were liable under the contract.
The one saving grace for Mr Davies was that the Court stated that, as it was not expected that Mr Davies would satisfy the statutory demand from his own funds and it would take some time to realise the club’s assets, it would be oppressive for Mr Davies to find himself in bankruptcy within the usual period for payment of 28 days; the building company was at liberty to commence bankruptcy proceedings any time after the period of three months.
The laudable aims of the Big Society initiative are at risk of being substantially undermined if potential volunteers are concerned about the risk of incurring personal liability with the possibility, at the extreme, of bankruptcy as a result of helping to run clubs and other community activities. In the meantime the message for members of clubs and other community organisations is to by all means get involved in the community but be aware of how the organisation is constituted. Those who are members of the management committee (or similar status) would do well to consider the extent to which they may be running the risk of personal liability and whether it is appropriate to convert to incorporating as a company limited by guarantee or CIC.
Incorporation may not be suitable for some clubs and societies, particularly smaller ones with limited income and other resources. One solution which could assist is for the government to legislate for the introduction of incorporated associations, similar to the Associations Incorporation Acts that have existed in the Australian states for well over 100 years and provide a legal status for not-for-profit associations with as few as six members.