Reforming the Not-For-Profits Statutes – Constitutional Questions

In the article “Reforming the Not-For-Profits Statutes – Fundamental Questions”, the Law Commission Issues Paper (NZLC IP, 24 June 2011) was first mentioned.  This is the second article which sets out the questions asked in the Issues Paper, and readers are urged to make their own submissions before 30 September 2011 (sent to Geoff McLay, Commissioner, New Zealand Law Commission, PO Box 2590, Wellington 6011, DX SP 23534, or by email to incsocs@lawcom.govt.nz).

Question 7: Do the New South Wales’ requirements for matters that must be dealt with by a constitution offer a good starting point for New Zealand legislation? Have you any other suggestions about other types of rules that might be required?

The Incorporated Societies Act prescribes a short list of minimum requirements for a society’s rules (the Charitable Trusts Act has no list at all); the society’s name with the word “Incorporated” as the last word of the name, the society’s , how people become members, how people cease to be members, how the society’s rules may be altered, added to, or rescinded, how general meetings are summoned and held, and how members vote at meetings, how officers are appointed, control and use of the common seal, control and investment of society funds, any powers to borrow money, and disposition of society property if it is put into liquidation.

The NSW list of minimum requirements is somewhat more extensive; any qualifications for membership, the register of members, entrance fees, subscriptions and any amounts to be paid by members, the liability (if any) of members to contribute towards the debts and liabilities of the society or the costs, charges and expenses of its winding up, any procedure for the disciplining of the members and any disciplinary appeals, how disputes between members (and between members and the society are to be dealt with, the constitution and functions of the committee (including election or appointment of the committee members, terms of office, grounds on or reasons for which committee vacancies occur, filling of casual vacancies, the quorum and procedure at committee meetings, the intervals between general meetings and how they are called, the time within which and how notices of general meetings and notices of motion are to be given, the quorum and procedure at general meetings, and whether members can vote by proxy at general meetings, what kinds of resolution may be voted on by postal ballot, the sources from which the funds are to be or may be derived, how funds are to be managed and how cheques are drawn and signed, the custody of books, documents and securities, the inspection by members of books and documents, and the financial year.

My view is that the present minimalist list in the Incorporated Societies Act (and the absence of any list in the Charitable Trusts Act) results in important issues simply not being considered by many preparing society constitutions.

Question 8: Australian jurisdictions provide for model rules that an incorporated association is deemed to have accepted unless it expressly decides to derogate from a rule by providing its own version. Do you agree that New Zealand should adopt this approach? Question 10: If model rules are implemented, when a rule has been superseded by a new rule, should the society to be deemed to be governed by the new rule as opposed to the old one?

While the Registrar may check that rules meet minimum standards for content that does not ensure that the rules registered will make sense.  Having seen some truly appalling sets of rules, I would like to think that having a basic set of coherent rules upon which to base amateur efforts might avoid some of the problems that flow from many badly prepared constitutions.

If a regime involving model rules is introduced, there are likely to be problems associated with inconsistencies between the model rules deemed to apply and efforts made to adapt them to meet the needs of a particular society.  This problem will be exacerbated if the model rules are changed (see Question 10)

Question 11: Whereas, in New South Wales, rules are merely required that govern discipline, the Victorian legislation explicitly sets out certain natural justice aspects (for example, the disciplinary procedure is handled by an unbiased decision maker). Do you agree that the Victorian approach is the preferable one for New Zealand? If not, why not? Question 12: How should the requirement be phrased?

One of the commonest issues that arise with societies is that of complaints against members and how they are handled.  Applying prescribed minimum standards of natural justice to societal disciplinary procedures makes good sense to me.  The devil will be in the detail.

Question 13: Should a society require a minimum number of members, to be incorporated? If yes, what minimum number of members do you consider would be appropriate? The current number is 15. Australian statutes require five.

There is no objectively correct answer to this question.  Companies can have a sole shareholder, so why have any minimum number of members for a society.  Given that companies are usually formed for business purposes, there is, however, a distinction, and the question really addresses a philosophical issue – at what point should the State afford a group of like-minded people the ability to obtain the benefits of a society’s incorporation?

Question 14: Do you have views on whether it might be advantageous to require societies to form governance committees, or appoint any particular type of officer?

Australian statutes require societies to have governance committees, but, as long as a society is governed on democratic principles, why should the State require it to be governed by a committee rather than by all the members in general meeting?  Would a rule deeming all members to be on the committee satisfy any prescriptive legislative provision?

Question 15: Is it appropriate to move towards a name regime similar to that in the Companies Act?

The Companies Act prevents the registration of names identical existing or reserved company names, while the Incorporated Societies Act also precludes closely similar names.  If the present legislative provisions work why change them?,

Question 16: Does your experience suggest that there is a greater role for a regulator of this sector, beyond the role currently played by the Charities Commission, or the Registrar of Incorporated Societies? If so, what should that role be?

Over the years I have advised on numerous issues where the lack of any external authority to resolve disputes has caused stressful, destructive and expensive problems.  The Registrar has extremely limited powers and High Court litigation is costly and takes far too long.  Innovative solutions are required – suggest them to the Commission!

Question 17: Is a general variation power justified? Who would appropriately exercise it and what safeguards ought to exist to prevent its misuse?

This is, to a degree, a sub-set of the last question, but sometimes societies find that they have adopted inappropriate rules they find difficult to change (that may seem unlikely, but I have advised on such a problem).  There should be a way of resolving such problems without the need to apply to the High Court.

Governance issues are important

Of all the questions posed in the Law Commission Issues Paper those briefly covered in this article are probably of most regular practical significance for many societies and those that advise them.  Please take the time to consider them and make your views known to the Law Commission together with your suggestions for reform.

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.