In a raft of reforms to the responsibilities of approved providers of aged care related to governance which commenced in December 2022, the term ‘governing body’ was inserted into the Aged Care Act 1997. It has created a lot of confusion in the context of the obligation to have a governing body comprised of a majority of independent non-executive persons.
For example, we have been recently asked by a number of approved providers that are companies whether they could meet this obligation but not appoint them as directors. The confusion is not helped by statements such as the following on a website (it was recently removed):
Does a member of the governing body need to be a director of the company?
No. It is possible for a member of your governing body to be a director of the company, but it is not essential.
It is important to remember that the majority of your governing body should consist of independent non-executive members. A company director would not be considered independent in this context.
This alert provides an overview of the meaning of ‘governing body’ in aged care legislation, how the term ‘governing person’ is not relevant, and how the new responsibilities relating to approved providers’ governing bodies will affect their organisations.
Key points
- For most approved providers, including companies, the governing body will be the board of directors, however described. For those approved providers which are not incorporated or taken to be incorporated under the Corporations Act 2001 (Cth), the governing body will be the group of persons responsible for the executive decisions of the provider.
- The term, ‘governing body’, should not be confused or in any way conflated with the term, ‘governing person’. The two terms refer to different concepts in aged care legislation, and various obligations apply to only to one or the other only.
- Therefore, approved providers who incorrectly assume that an obligation of the governing body is an obligation of a governing person and vice versa, run the risk of inadvertently failing to comply with the responsibilities which apply only to governing bodies and governing persons, as the case may be.
- Approved providers should be cognisant of who their governing body is, who their governing persons are, and the differences between the two when considering what changes, if any, need to be made to their organisation to comply with their responsibilities as approved providers of aged care.
What is the ‘governing body’?
The definition of the term ‘governing body’ in the Aged Care Act indicates that, for most approved providers, the governing body will be the board of directors, however described. This is because the definition states that, if the provider is a body corporate incorporated, or taken to be incorporated, under the Corporations Act 2001 – [the governing body is] the board of directors of the provider’.
‘Board of directors’ is a commonly used and well understood term. For proprietary limited corporations, corporations with limited liability and incorporated associations, the governing body will be the directors, collectively the board. In the case of an incorporated association, the equivalent is the committee of management.
Unless a member of your company’s executive is on the board of directors, they will not be part of your governing body. This means that a Chief Executive Officer or a Chief Financial Officer, for example, will not be considered part of the governing body.
For approved providers who are not incorporated or taken to be incorporated under the Corporations Act 2001, the governing body will be ‘the group of persons responsible for the executive decisions of the provider.’
We are aware that statements made on a page on the Aged Care Quality and Safety Commission’s website have caused confusion in the aged care industry because those statements may be inconsistent with the meaning of the term, ‘governing body’ in the Aged Care Act. We are also aware that changes have been made to those references on the website over the past several weeks and so we urge providers who have relied on the content of that web page to review it again.
Is a ‘governing person’ a member of the ‘governing body’?
Not necessarily.
While a member of your governing body would be a ‘governing person’, not all governing persons will be members of the governing body.
The definition of ‘governing person’ does not refer to members of the governing body. Rather, in determining whether a person is a ‘governing person’, providers must look to the list of individuals who will be their key personnel under the Aged Care Quality and Safety Commission Act 2018.
Not all a provider’s key personnel will be governing persons – only those who are part of the group of people who is responsible for the executive decisions of the approved provider and any other person who has authority or responsibility for, or significant influence over, planning, directing or controlling the activities of the approved provider at the relevant time.
This clearly encompasses a wider scope of individuals than the definition of ‘governing body’ does.
Therefore, approved providers should approach the task of delineating the responsibilities of their governing bodies and their governing persons with caution. Approved providers should also note which statutory obligations are imposed on approved providers or governing persons or governing body. The terms are not interchangeable and are used to define the obligations imposed specifically on an entity or individual.
For example, one of the responsibilities of governing persons is to comply with the Code of Conduct. This should not be taken to be a responsibility of the governing body. Providers making this assumption may run the risk of failing to ensure that all of its governing persons comply with this responsibility.
On the other hand, the responsibility for approved providers to ensure that a majority of the members of their governing bodies are independent non-executive members does not mean that a majority of governing persons must be independent non-executive members. Rather, in the case of a company for example, it means that a majority of the company’s board of directors must be independent non-executive members.
How we can help?
Russell Kennedy is experienced in assisting approved providers review policies, procedures and systems for compliance, and with responding to requests or notices from the Commission. We can identify the areas for improvement, provide a suite of documents compliant with the Standards which can be tailored to your organisation and / or training for Governing Body members and / or governing persons.
Please contact Victor Harcourt via the email rkagedcare@rk.com.au for further information.
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Disclaimer
The information contained in this Alert is intended as general commentary only and should not be regarded as legal advice. Should you require specific advice on the topics discussed, please contact the firm directly.