Background – the problem
The COVID-19 epidemic resulted in restrictions on travel and public gatherings being imposed at a very awkward time, because most societies and charitable trusts were required by their Constitutions and by Statute to have their annual accounts (where their financial years ended on 31 December 2019 or 31 March 2020) approved by their members, and then to file some form of annual return filed promptly with the Registrar of Incorporated Societies or Charitable Trusts, and, if a registered charity under the Charities Act, with Charities Services.
On 15 May 2020 Parliament enacted a statute providing a framework to resolve these problems; the COVID -19 Response (Requirements for Entities- Modifications and Exemptions) Act 2020.
CAUTION: This general article is intended to assist not-for-profit organisations facing problems related to the COVID-19 restrictions by drawing attention to key aspects of the Act. This Act is 25 pages in length and can be readily accessed here. For those with specific problems, professional advice should be obtained.
Section 3(1) of the Act explains its purposes, while section 3(3) and section 9 make it clear that what the Act provides for is only temporary:
3 Overview of Act
(1) This Act provides processes for an entity affected by COVID-19—
(a) to, in some circumstances, use electronic means for doing things if its constitution or rules would otherwise prevent this; and
(b) to modify certain requirements or restrictions in its constitution or rules if it is not reasonably practicable to comply with them.
(3) Modifications made to constitutions or rules under section 13 are temporary. However, an entity may make lasting amendments to its constitution or rules through electronic voting (see sections 10 and 11).
9 Sections 10 and 13 apply for relevant period
Each of sections 10 and 13 applies in relation to an entity—
(a) until the close of 30 November 2020; and
(b) if its application is extended by an Order in Council made under section 42 in relation to the type of entity, for the further period.
Practical difficulties when an Annual General Meeting has had to be postponed or cancelled, or will be postponed or cancelled, because of COVID-19 restrictions
The Constitution of a society or the Trust Deed of a charitable trust usually specifies when it should have an Annual General Meeting, how that Meeting should be called, the minimum number of people required to hold the Meeting (the quorum), and how votes are cast at the Meeting. If the society or charitable trust is incorporated with the Registrar of Incorporated Societies and/or if a charity registered with Charities Services, it is obliged to lodge an annual return with those regulators.
The restrictions on travel and public gatherings imposed because of the COVID-19 epidemic meant that it became impossible for those responsible for the governance and administration of many societies and charitable trusts to comply with those reporting obligations, since very few society or charitable trust constitutions make provision for deferring the necessary meetings or holding them by alternative means.
The solution – the COVID-19 Response (Requirements for Entities— Modifications and Exemptions) Act 2020
Section 13 of the Act allows temporary modifications (and sets out procedures which must be followed to modify certain requirements and restrictions in a constitution or rules).
Section 14 sets out which provisions may be modified. These are:
- Calling or holding of meetings (including procedures at meetings),
- A method or form of voting,
- Giving or receiving information,
- Making or keeping new records,
- A method or form of dispute resolution,
- A method or form of disciplinary procedure,
- A waiver, suspension, deferral, or reduction of fees or other amounts payable by members of the entity to the entity,
- A deferral of auditing, assurance, or financial reporting or review requirements,
- Use of electronic means to do any matter listed in section 10(2)(having or recording information in writing, calling or holding meetings, including for the purpose of establishing a quorum, voting, giving or receiving information, making or keeping new records, providing access to records or information held by or on behalf of the entity, signing any instrument, and retaining any information), and
- Other procedural or administrative processes.
Section 15 specifies things that may not be modified under section 13 (including the purpose or objects of the entity, the powers of the entity (other than a procedural or an administrative power), the sale, transfer, or other disposition of real or personal property, voting rights, the number, or need, for a quorum, the duties of the governing body or governing officers (other than a procedural or administrative duty).
Under section 16, section 13 retrospective modifications can be made as long as the due date was no earlier than 21 March 2021 and the modification is made by 16 August 2020, while section 17 requires that most modifications must expire by 30 November 2020.
When such modifications are made the process requirements under section 13(2) must be followed:
(2) The entity may, by a notice in writing that is signed by the majority of its governing officers (or signed by its governing officer if it has only 1), modify the requirement or restriction if—
(b) the modification is not inconsistent with any enactment or rule of law or equity; and
(c) a majority of the entity’s governing officers believe, on reasonable grounds, that—
(i) because of the outbreak of COVID-19, it is not, or is not likely to be, reasonably practicable for the person referred to in subsection (1) to comply (or comply fully) with the requirement or restriction; and
(ii) the modification goes no further than is, or is likely to be, reasonably necessary in the circumstances; and
(d) the modification—
(i) complies with section 17 (which relates to expiry); and
(ii) if it relates to dispute resolution or disciplinary proceedings, complies with the principles of natural justice; and
(e) the majority of the entity’s governing officers believe, on reasonable grounds, that the modification is not oppressive, unfairly discriminatory, or unfairly prejudicial to any member, creditor, or other person; and
(f) if the modification relates to a method or form of voting, the majority of the entity’s governing officers believe, on reasonable grounds, that the requirements or restrictions in the entity’s constitution or rules that relate to the integrity of the voting process are substantively maintained or enhanced (and section 11(2) applies to the forming of this belief with all necessary modifications); and
(g) the entity complies with the conditions in section 18.
(3) A modification made by an entity in accordance with this section has legal effect to the same extent as if it were made in accordance with the constitution or rules (and the procedures for amending the constitution or rules in any enactment).
(4) A modification does not actually amend the text of the constitution or rules (but has legal effect under subsection (3) as if the text were amended).
(5) To the extent that the modification is inconsistent with any enactment or rule of law or equity, the modification is of no effect.
(6) See section 16 in relation to retrospective modifications.
(7) For the purposes of subsections (2)(b) and (5), provisions in other enactments (and any rules of law or equity) that relate to amending, or require compliance with, constitutions or rules are disregarded.
Section 18 requires that an entity comply with the following requirements when it relies on section 13 of the Act:
(1) An entity that relies on section 13 must do all of the following:
(a) keep a written record of—
(i) the notice of the modification; and
(ii) its reasons as to how the requirements of section 13 were satisfied in respect of the modification; and
(iii) the reasons for the beliefs of the majority of its governing officers referred to in section 13(2)(c), (e), and (f); and
(b) as soon as practicable after making the modification, make reasonable efforts to notify all members and governing officers of the entity of the modification; and
(c) as soon as practicable after making the modification, give to the responsible Registrar or agency a written notice that—
(i) states that the entity is relying on section 13 of this Act; and
(ii) contains, or is accompanied by, a copy of the written record referred to in paragraph (a); and
(iii) contains, or is accompanied by, a certificate by a governing officer of the entity certifying that, in making the modification, all requirements of this Act were complied with.
(2) If there is more than 1 responsible Registrar or agency, the entity must give the notice under subsection (1)(c) to each of them.
(3) Subsection (1)(c) does not apply to a firm (within the meaning of the Partnership Law Act 2019) or to a post-settlement governance entity of a type not listed in section 4(1).
As already noted, this article could do no more than outline the key aspects of the Act. As noted above, the Act is readily accessible and, for those with specific questions or problems, it is recommended that professional advice should be obtained.
While an epidemic may be a rare event, it is not uncommon in New Zealand to have meeting plans disrupted by bad weather, earthquakes and volcanic eruptions, so when not-for-profit entities next revise their constitutional documents they should consider making provision for deferring meetings and using technological means to hold meetings with people participating remotely.