Charities Amendment Act – Be Alert

Effective from 25 February 2012, the Charities Act 2005 has been changed, and those involved in or advising charities registered with the Charities Commission need to be aware of changes which impact on their administration and what needs to be notified to the Commission.

Definition of officers extended – section 4(1)

The definition of an “officer” of a charity under section 4(1), Charities Act, now:

(a)  means, in relation to the trustees of a trust, any of those trustees; and (b)  means, in relation to any other entity,—

(i)   a member of the board or governing body of the entity if it has a board or governing body; and (ii)  a person occupying a position in the entity that allows the person to exercise significant influence over the management or administration of the entity (for example, a treasurer or a chief executive); and

(c)  includes any class or classes of persons that are declared by regulations to be officers for the purposes of this Act; but (d)  excludes any class or classes of persons that are declared by regulations not to be officers for the purposes of this Act

The Charities Commission has helpfully notified charities of the changes under the Amendment Act.  Arising from this amendment:

  1. The Commission states out that “… the definition of officers has widened (except for trusts), to include the members of the highest governing body …”  Trustees of a trust are the only officers under paragraph (a), and the extended definition under paragraph (b)(i) only applies to charities which are not trusts.  Why this is so escapes me as charitable trustees are surely as open to “significant influence” as committee members of a charitable society or directors of a charitable institution.
  2. For charities other than trusts, by virtue of paragraph (b)(i) an officer now includes people with significant influence over such charities day-to-day operations and activities, expenditure, and decision-making such as chief executives, general managers, administrators, treasurers, contract managers and financial controllers, whether those people are paid or unpaid.  In some cases, the deemed officer could be a professional adviser, such as a lawyer, accountant or investment adviser.  The larger and more complex a charity’s operations the more people are likely to come within this description.
  3. As pointed out by the Commission, a charity “may need to certify as an officer anyone in the charity who could direct a personal benefit or a business advantage to themself or anyone else. This may be someone who could influence the letting of a contract to a close business associate or family member.  If in doubt, we suggest you certify people that you think may be officers, rather than not certifying them.”
  4. The section does not attempt to define “a position … that allows the person to exercise significant influence over the management or administration” of a charity.  That leaves charities in a state of some (undesirable) uncertainty.  My view is that no “rule of thumb” can be applied because the dynamics of governance and management vary considerably between different charities.  Now that an officer includes someone with “significant influence over the management or administration” of a charity, not just its governance,  those in governance need to examine very carefully exactly influences those in governance and also management – something which may not be obvious at first glance.  It could include people external to the charity, and the influence could be indirect as well as direct.

All charities (other than trusts) need to review carefully who may come within this new definition of officer, and notify the Commission without delay.  While section 16 of the Charities Amendment Act 2012 deems the effective date of a change consequent on the alteration to the definition of “officer” to be 25 February 2012, section 16(3)(e) allows changes consequent on the legislative amendment to be notified as part of the next Annual Return filed after 25 February.  Thereafter, under section 40, the period for notification is within 3 months of a change in the officers of a charity.

If a certified officer becomes disqualified – section 40(1)(ca)

Charities registered with the Charities Commission must notify the Commission (on a prescribed form) if an officer becomes disqualified during the officer’s term of office, for instance:

  • Becomes bankrupt,
  • Is convicted of a crime of dishonesty and sentenced,
  • Disqualified from being an officer under the rules of the charity,
  • Becomes subject to a property order under the protection of personal and property rights act 1988, or
  • Is prohibited from being a director or promoter of an incorporated or unincorporated body under the companies Act 1993, Securities Act 1978, Securities Markets Act 1988, or Takeovers Act 1993.

Charities cease to be qualified for registration if an officer becomes disqualified after they have been originally certified, so failure to notify places the charity’s registration with the Commission in peril. There is, therefore, an ongoing obligation to ensure that officer disqualifications are identified and then notified to the Commission without delay.  The only safe course, in my view, is that potential disqualifications should become a regular agenda item for meetings of a charity’s governance committee or board.

The Commission advises that “Our Monitoring and Investigations team will start contacting charities later this year to confirm that they are not operating with disqualified officers.”

Promotion of amateur sport – clarifying charitable status

The promotion of amateur sport has regularly been accepted as a charitable activity, and many such charities are already registered with the Commission.  However, section 5(2A) of the Act now specifically recognises that “The promotion of amateur sport may be a charitable purpose if it is the means by which a charitable purpose … is pursued,” i.e. it is the means by which “the relief of poverty, the advancement of education or religion, or any other matter beneficial to the community” is pursued.

This is one of a series of articles on societies and charitable trusts (originally published in the NZ Lawyer magazine) by Mark von Dadelszen, a Hastings lawyer and author of Law of Societies, 3rd Edition, 2013. If any reader has examples of issues that have arisen or questions about societies or charitable trusts that might be a suitable subject for one of these articles please contact Mark at mark.vondadelszen@bvond.co.nz.