Reforming the Not-For-Profits Statutes – Liquidation, Dissolution, Mergers and Transition

This is the last of my series of articles on the Law Commission Issues Paper (NZLC IP 24) the first having been published on 15 July.

Question 38: Have you experienced problems with the liquidation or dissolution provisions?

Question 39: In what ways can the procedure for liquidation and dissolution be improved?

Question 40: In particular, should the double meeting requirement for members’ liquidation be altered?

Questions 38, 39 and 40 are fairly open-ended, probably because the last acts of most societies cause few ripples in legal ponds.  My response is that the present provisions work pretty well.  Section 24(1), Incorporated Societies Act, provides that “A society may be put into liquidation if the society, at a general meeting of its members, passes a resolution appointing a liquidator, and the resolution is confirmed at a subsequent general meeting called together for that purpose and held not earlier than 30 days after the date on which the resolution to be confirmed was passed.” The rationale for the double meeting requirement is to avoid liquidation occurring without all members having the opportunity to reflect on the wisdom of winding-up. In practice, however, once members lose enthusiasm for maintaining a society, expecting them to meet once, let alone twice, does cause practical difficulties in achieving a quorum.

Question 42: Should there be a provision for mergers of societies?

In practice, at present mergers are achieved either as a take-over of one society by another, or the formation of a new society with the two former societies transferring their assets to the new society. This is frequently a costly business. I favour a simple merger provision whereby societies could resolve to merge, would be required to give notice of their intention to merge by public notice, and with provision for objections by members or creditors which could be resolved by a Court.

Question 43: What are your views on workable transitional arrangements? Do you support the Companies Act approach, which enabled re-registration of existing companies, and provided that those that did not would be deemed to have done so? Should there be a longer transitional period relation to the adoption of model rules?

Question 44: How can we minimise the costs for societies in the transitional period?

The Commission is considering a transition involving, like the Companies Act 1993, re-registration of societies, with deemed re-registration of those that failed to act. That would give all societies the benefits of the reforms and minimise costs, and seems a workable approach.

Three weeks left to go

This is the last of five articles highlighting the main issues discussed in the Law Commission Issues Paper.  Those articles have only skimmed the surface of the issues that need to be addressed.

If you have not already done so, please at least advise the Commission that you support the need for reform of the law on not-for-profit organisations, and not just the Incorporated Societies Act 1908 and Charitable Trusts Act 1957, but also the Agricultural and Pastoral Societies Act and the Industrial and Provident Societies Act 1908.  To me the prime driver of reform is the undeniable fact that:

  • “The law that governs unincorporated associations is uncertain and unclear” (paragraph 1.36 of the Issues Paper), and
  • The many thousands of community organisations in New Zealand under-pin much of the social, cultural and spiritual fabric of our society.

The Commission’s Issue Paper advocates a “back-to-basics” reform of the legislation, and in my opinion that is unquestionably the right way to address the issues.  While the preferences expressed in the Commission’s Paper might be debated, the general thrust of the proposals strikes a good balance.

Normal service will resume

When this series of articles was first conceived, I doubted that there was enough material for a fortnightly article.  I rapidly discovered how wrong I was, as there has been plenty to write about.

These columns do not require the same rigour and academic objectivity as are involved in writing a text, particularly as the articles can respond more quickly to current issues and news. That allows me greater freedom for comment and speculation. Feedback on the articles from lawyers and many others (for which I’m most grateful) has been useful in identifying areas for discussion and commentary that might not otherwise have occurred to me, so please do contact me if you have comments or questions.

Unless I am provoked to write about some unfortunate not-for-profit organisation in the news, the balance of the articles this year will resume examination of issues relating to meeting procedure.

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.