Reforming the Not-For-Profits Statutes – Legal Powers and Resolving Disputes

The Law Commission Issues Paper (NZLC IP 24, June 2011) questions on the legal powers in, and the dispute resolution provisions of, not-for-profit entities’ constitutions raise issues well beyond anything contemplated by the Incorporated Societies Act or the Charitable Trusts Act.  They are, however, extremely important questions because they touch on issues with which lawyers advising societies and trusts commonly have to grapple.  The lack of legislative clarity or guidance is frustrating when constitutions are often inadequate. Question 29: Should the new Act grant incorporated societies the powers and privileges of a natural person, in the same way as is done in the Companies Act? Question 30: Do you agree that the new statute should limit the ultra vires doctrine, and if so, how? Which model is preferred, the Companies Act one, or the New South Wales’ one? Chapter 4 of the Issues Paper reviews the inherent problems in applying the ultra vires (excess of powers) law that had its origins in pre-1993 company law, and Question 29 seeks a response to those problems. The Companies Act model may suit commercial entities, but is not so obviously appropriate for not-for-profits, so my first reaction to Question 29 was an emphatic “no.”  On reflection, I’m not so sure that my initial response is right.  My experience of some organisations (especially charities) is that their purposes and mission tend to develop over time, whereas a sports club associated with a particular sport may be less likely to extend its operations (but a club established for a particular sport might want to extend its operations to establish and run a gym or...