QUESTIONS & ANSWERS in advance of the Special General Meeting of the membership of PAC Australia, THURSDAY, 23rd April 2020
Introduction:
Notification of a Special General Meeting of the association was issued on 26 March 2020. The meeting is scheduled for Thursday, 23rd April 2020 (4pm AEST).
The PAC Australia Board of Management planned this for May but have brought it forward because of the impact of the coronavirus crisis on the finances of the association.
The purposes of the meeting are to:
– formally adopt changes to the Association’s Constitution required by changes to the Associations Incorporation Act (ACT) required by the ACT’s new Red Tape Reduction legislation.
– modernise the Association’s requirements with regard to its reserves to align with Australian arts sector models used by the Australia Council and other agencies. The proposed amendments will remove the requirement to maintain a base amount of $800,000 within PAC Australia’s investment portfolio. PAC Australia will instead adopt an Operating Reserves Policy.
Statement from PAC Australia Treasurer, David Barrett:
PAC Australia’s Board of Management adopted an ambitious, forward-thinking and sustainable Strategic Plan in 2018 that our staff have been delivering over the past 18 months. To deliver the Plan, the Board understood that significant investments in staffing resources, program delivery and Member services were required to realise potential growth for, and ensure viability of, the Association.
The financial investment required to deliver the Strategic Plan was rigorously debated by the Board of Management and has been regularly scrutinised and refined over time. Long-term viability of the Association was always forefront of mind and financial modelling indicated that after 3-consecutive years of operational deficits the Association would return to surplus without any reliance on grant funding. However, the Constitutional requirement to maintain a base amount of $800,000 within PAC Australia’s investment portfolio prevents the Association from moving forward and achieving these goals.
The recent Coronavirus pandemic has further impacted the Association with some $200,000 being wiped from the bottom line of its portfolio in the past 8 weeks. This sizeable, very sudden, market downturn and associated economic challenges across the world are very real issues for PAC Australia to deal with that are forcing us into a situation of non-compliance with our own Constitution.
Adopting the proposed changes to the Constitution will enable PAC Australia to stabilise its finances and continue providing member services.
David Barrett, Thursday, 26th March 2020
QUESTIONS & ANSWERS:
AMENDMENTS RELATED TO THE ASSOCIATIONS ACT AND RED TAPE REDUCTION LEGISLATION
Q: Why now? Should the membership be concerned about the finances of the Association?
A: The organisation’s reserves are currently held in a mix of investments and cash holdings, and there is no question that the sudden market downturn has significantly impacted our investment portfolio. Some $200,000 has been wiped from the bottom line of PACA’s portfolio in the past 8 weeks. This sizeable, very sudden, market downturn and associated economic challenges across the world are hurting the Association financially. However, the Board of Management is implementing a range of strategies to ensure the Association remains viable. The proposed changes to the Constitution and implementation of the Operating Reserves Policy are examples of the Board’s proactivity in this space.
Q: How do the changes related to the changes to the Associations Act (ACT) and Red Tape Reduction legislation affect the management of the association and its membership?
A: These changes are largely to meet new compliance requirements in the legislation.
The most substantive change is that the audit requirements have changed according to the size of the organisation. Small organisations (revenue of less than $400,000 per financial year) are not required to appoint an auditor, but must have their accounts reviewed by a person who is not a member or officer, and who has not prepared or assisted with the preparation of their accounts (reviewer).
As a medium sized organisation, PAC must appoint an auditor, but can have its accounts either reviewed or audited. If they are to be reviewed this must be done in accordance with the auditing standards.
Other changes serve to modernise the constitution (e.g. execution of documents without common seal).
AMENDMENT RELATED TO PROXIES
Q: How does this change affect voting rights and member representation?
A: This amendment does not affect the member quorum required at meetings of the association. It does, however, make it easier to reach a quorum and creates greater efficiencies in administering proxy voting. A single attendee can now hold up to five proxies. No member voting rights are otherwise affected.
AMENDMENTS RELATING TO ASSOCIATION RESERVES
Q: Why now? Should the membership be concerned about the finances of the Association?
A: The organisation’s reserves are currently held in a mix of investments and cash holdings, and there is no question that the sudden market downturn has significantly impacted our investment portfolio. Some $200,000 has been wiped from the bottom line of PACA’s portfolio in the past 8 weeks. This sizeable, very sudden, market downturn and associated economic challenges across the world are hurting the Association financially. However, the Board of Management is implementing a range of strategies to ensure the Association remains viable. The proposed changes to the Constitution and implementation of the Operating Reserves Policy are examples of the Board’s proactivity in this space.
Q: Does this mean that the organisation will be reducing the current reserve level to meet current operating expenses?
A: In part, yes. The board made the strategic decision to invest in our growth 18 months ago. This included approving a deficit budget for up to three years to invest in staff and propel the organisation through a steep and ambitious growth phase. We were ahead of our targeted income growth through memberships and other sources of revenue, until the recent disruptive coronavirus response halted our growth strategies.
The board is now adapting to this upheaval. The fixed amount to be held in reserves required by the constitution limits the organisation’s capacity to access much needed reserves to ensure sustainability during the dramatic market downturn and the anticipated impact on future revenue due to postponing and cancelling events and services during and after the lockdown period. .
However, it’s important to note that the strict financial policies outlined in the Operating Reserves Policy do not enable the organisation to act outside of approved budgets, but allows the organisation to access additional reserves in unforeseen, emergent circumstances. The Board, with the executive team, is reducing spending wherever possible and considering further reductions as income forecasts become more reliable.
Q: How will PAC Australia continue to responsibly manage the funds of the Association?
A: As above, the Operating Reserves Policy (in addition to other association financial management policies) set strict rules on budget approval, expenditure and when/how reserves may be accessed.
Q: How does the constitution align with accepted models of reserves management?
A: The Australia Council’s recommended threshold for Unrestricted Reserves (“Total Unrestricted Reserves at year-end divided over Total Expenditure for the year”) is 20%. PAC Australia’s policy will requires a more conservative 30%.
It’s highly unusual for a constitution to state a prescribed amount to hold in reserve. This was a valid decision at the time the reserves became available through sale of an asset, interest rates were at a level which enabled a strong flow of income and the share market was operating in an upward trend for a number of years, providing excellent growth within the portfolio. The prescribed amount is now an impediment to the growth and sustainability of the association at a time of low interest rates and economic uncertainty.
Q: How is PAC Australia currently responding to the anticipated financial impact of the coronavirus?
A: Strict cost control measures are in place, including revising the 2020/21 budget to ensure PAC Australia remains financially viable whilst delivering services to members.
Like many arts organisations right now, we are taking the opportunity to review our outputs and reassess how we can provide services to members that build their capacity which will ultimately enable their ongoing membership.
Please contact the Executive Director (katherine[@]paca.org.au) or any member of the board if you have any further questions or concerns about the proposed changes to the Constitution.
Related documents:
Attachment A – Proposed Revised Constitution