Consequences of failure to register a change to a society’s or trust’s constitution

My last article (“Remedying a procedurally unlawful change to society rules”) discussed the issues when changes are made to society rules without following the appropriate procedure. This article considers a closely related issue.

Statutory requirements to register a change to a society’s or trust’s constitution

Section 21(2)(c), Incorporated Societies Act 1908 requires that “Every alteration of the rules must be — delivered to the Registrar accompanied by a certificate by an officer of the society or a solicitor certifying that the alteration has been made in accordance with the rules.” Then subsection (3) states “The Registrar, if satisfied that the alteration has been duly made, and that the rules as so altered conform in all respects to this Act, shall register the alteration in like manner as in the case of the original rules, and the said alteration shall thereupon take effect according to the tenor thereof. …” The section also protects the interests of creditors (subsection (4)), and confers on the Registrar a discretion (in subsection (5)) in the case of any alteration of a society name to “… refuse to register the alteration until the making thereof has been publicly advertised in such manner as the Registrar thinks fit.” Strangely, there is no time specified within which the Registrar should be advised of the change, but, taken together, the effect of section 21(3), (4) and (5) is that registration of rule changes is no mere automatic formality, and the apparent effects of these subsections are discussed below.

Under section 23(1), Charitable Trusts Act 1957, a copy of any variation of trusts of a trust board or alteration of the rules of a society, certified by a trustee of the trust board or member of the committee or governing body of a society and accompanied by a statutory declaration from the same person, must be lodged with the Registrar within a month of adoption of the alteration (and under subsection (3) failure to comply within time is an offence attracts a maximum fine on conviction of 10c per day for the period of the default). Alterations under section 61 of the Act are covered by section 23(2).

Section 40(1)(e),(f) and (3), Charities Act 2005 require a charitable entity registered with the Charities Board to provide notice of “a change to the rules of the charitable entity,” and of “a change to the purposes of the charitable entity” within 3 months of any such change.

The effect of failing to register a change to a society’s or trust’s constitution

The effect of the statement in section 21(3) of the Incorporated Societies Act that on registration “the said alteration shall thereupon take effect according to the tenor thereof” is far from clear. Section 21(4) and (5) of that Act establish that the Registrar has a role in filtering alterations prior to registration, because the Registrar must be “satisfied that the alteration has been duly made, and that the rules as so altered conform in all respects to this Act,” and also that “the alteration is not of such a nature as to prejudicially affect any existing creditor of the society or that all creditors who may be so affected consent to the alteration.” From these provisions I therefore conclude that registration of rule changes is no mere automatic formality, and, consequently, it may be inferred from section 21(3) that alterations to the rules of societies incorporated under the Incorporated Societies Act are ineffective until registered. The position under the Charitable Trusts Act appears potentially to be different as it has no provisions equivalent to those in section 21, Incorporated Societies Act.

Other issues relating to changes to a society’s or trust’s constitution

Changes to rules should not apply retrospectively (see Feilding Club Inc v Perry [1929] NZLR 529 at 540 (CA); and Dawkins v Antrobus (1881) 17 Ch D 615 at 632). A constitution can include a provision that no amendment to it is legally effective until the amendment is registered (and this can be argued to be consistent with s 21(3) of the Incorporated Societies Act), but such a provision can create its own potential difficulties. In particular, if registration of the amendment is overlooked all actions taken in reliance on the adopted amendment would be ultra vires with potentially disastrous consequences. For instance, if an amendment changed the way elections are to be conducted and a society acts on the amendment without that amendment being registered the actions of the executive so elected would be illegal and, depending on the provisions of the rules, it may be technically impossible to call new elections.

It is not uncommon for an alteration to rules to be made to amend provisions relating to the executive with elections then held at the same meeting in reliance on the amendments just effected. Despite section 21(3), Incorporated Societies Act, and any rule requiring an amendment to be registered before it is effective, a Court is unlikely to declare such elections invalid.

What do these issues teach us?

The lack of consistency between the Incorporated Societies Act 1908 and the Charitable Trusts Act 1957 is, at the very least disconcerting, but the problems discussed in this and the preceding article highlight the difficulties entities registered under those statutes can get themselves into when considering, approving and registering (or failing to register) changes to their constitutions. Lay people trying to do their best periodically and rather inevitably fall into error in dealing with these issues, but even for those supposedly “learned in the law” its lack of clarity is distinctly unhelpful.

The Law Commission’s current work on both statutes and the law draughtsman may provide more clarity and certainty.

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.