Resolving deadlocks in Societies and Charities

2012 Article, updated March 2018 Dealing with Deadlocks At a mediation I was involved in some years ago, a mediator observed that those who go to Court should be seeing a psychiatrist rather than a lawyer.  That is doubly true where society deadlocks cannot be resolved, especially in view of the deficiencies of the Incorporated Societies Act 1908 (see Porima v Te Kauhanganui o Waikato Inc [2001] 1 NZLR 472, [80] [84]).  Such deadlocks usually occur in meetings or in elections. Deadlocks in Committee and General Meetings Subject to any contrary constitutional provisions, a chairperson has a normal vote as a member (a “deliberative vote”) and no further or “casting” vote (see Turner v Pickering [1976] 1 NZLR 129 at 134 and a number of UK decisions, three involving one Council are cited below). As noted in R v Bradford Metropolitan City Council ex p Wilson [1989] 3 All ER 140 (Divisional Court) at 151 (and see 147-148), the “… purpose of granting a casting vote to chairmen of local authorities cannot have been to enable them to preserve the status quo, because any motion will lapse if there is no majority for it . . . Unless the tie is broken, decisions cannot be made. That is essential if the administrative measures necessary for the proper conduct of local government are to be passed.” The wisdom of that decision was reflected in the 2004 amendment to the Local Government Act 2002 (which, as first enacted, was intended to remove the casting vote of the chairperson of local authority meetings), with Clause 24, Schedule 7, now confirming that although there...

Responsibilities of those in Governance

2012 Article, updated March 2018 Judging from email correspondence I have received after my article “Liability of Charitable Trustees” was first published, it appeared to have hit some raw nerves, as I have received illustrations of (allegedly) inappropriate behaviour by those governing community organisations.  Without considering whether the allegations are justified, it is worth recording some of the issues raised.  This I have done by identifying categories of behaviour which are patently inappropriate: Employment Harassment, bullying and intimidation of staff. Side-lining or dismissing staff drawing financial problems to the attention of those in governance. Comment:  Those employed in the voluntary sector are entitled to all the rights of employees, and to the protections afforded by legislation such as the Employment Relations Act 2000, Human Rights Act 1993, and criminal law. Member relationships Members browbeating, tormenting and threatening other members. Comment:  Such behaviour is likely to be contrary to the Human Rights Act 1993 and in some circumstances may be subject to sanctions under the criminal law.  In my article “Peace and Goodwill to all Members” I referred to the need for members to treat other members of a society with respect, saying “The membership of most societies is glued together by membership respect, honesty and integrity.  If members treat each other or guests in a rude, contemptuous, or disrespectful manner, or abuse the privilege of using society property, then all members and the society suffer.  Acting in a civilised mature way is not much to ask.” Failures in governance Failing to be objective when dealing with complaints by showing bias against upholding complaints against members. Seeking to marginalise or coerce anyone who dares...

Revisiting Audits or Review of Accounts

2011 Article, updated February 2018 Legislation such as the Industrial and Provident Societies Act 1908, Agricultural and Pastoral Societies Act 1908, Building Societies Act 1965, Friendly Societies and Credit Unions Act 1982, and Racing Act 2003, and Acts specifically dealing with professions are seldom considered other than by those who have a particular interest in such entities, and are minefields which are not readily covered in material intended for those running and advising more “mainstream” community societies and charitable trusts.  Indeed, to do so would tend to confuse most people who read these articles.  Therefore, this series of articles has tended to shy away from more esoteric societal legislation. However, in late 2011 a reader kindly drew my attention to statutory issues relating to the audit of the industrial and provident societies, which prompted me to revisit the subject of the auditing or reviews of the accounts of not-for-profit organisations discussed in my article, Audits or Reviews of Accounts. Industrial and Provident Societies Act 1908 This Act contains conflicting messages: Section 7 provides that “With respect to the rules of societies the following provisions shall have effect: (a) The rules of every society sent for registry shall contain provisions in respect of the several matters mentioned in Schedule 2,” and item 7 of Schedule 2 states “Provision for the audit of accounts.”  Read with section 19, it would appear to me that the rules could provide for no audit.  Section 19 provides for the “Appointment of auditors”: (1)      Any registered society may from time to time appoint a quaified auditor of the society. (1A)   Whenever any registered society has...

Charities Amendment Act – Be Alert

2012 Article, updated February 2018 Effective from 25 February 2012, the Charities Act 2005 was changed, and those involved in or advising charities registered with the (then) Charities Commission (now, Board) had to change their administration and reconsider what they needed to be notify to Charities Services. Definition of officers extended – section 4(1) From 25 February 2012 the definition of an “officer” of a charity under section 4(1), Charities Act: (a)  means, in relation to the trustees of a trust, any of those trustees; and (b)  means, in relation to any other entity,— (i)   a member of the board or governing body of the entity if it has a board or governing body; and (ii)  a person occupying a position in the entity that allows the person to exercise significant influence over the management or administration of the entity (for example, a treasurer or a chief executive); and (c)  includes any class or classes of persons that are declared by regulations to be officers for the purposes of this Act; but (d)  excludes any class or classes of persons that are declared by regulations not to be officers for the purposes of this Act The Charities Commission helpfully notified charities of the changes arising from this amendment: The Commission stated out that “… the definition of officers has widened (except for trusts), to include the members of the highest governing body …”  Trustees of a trust are the only officers under paragraph (a), and the extended definition under paragraph (b)(i) only applies to charities which are not trusts.  Why this is so escapes me as charitable trustees are surely as open to “significant influence”...

Personal Liability of those in Governance

2012 Article, updated February 2018 My article, “Winding up a society or charitable trust”, closed warning of the officers’ potential liability on liquidation: Society committee members and charitable trustees may be personally liable following liquidation if the entity they have governed has suffered losses caused either by the failure to keep adequate accounting records or by misapplication or retention of an entity’s money or property, or they have been guilty of negligence, default, or breach of duty or trust in relation to the entity.  Recovery may be ordered at the instigation of a liquidator, member or creditor. The new Incorporated Societies Act is likely to make those obligations explicit in the new statute. Ralph Chivers, Chief Executive of the Institute of Directors, writing in the Dominion Post, 5 March 2012, referred to “the possible collapse of a venerated rugby union” as one of the reasons why the quality and accountability of those in governance was then being much discussed.  He commented that those in governance “must keep an eye on the big picture, but still drill down to the detail.  They are there to identify risks and opportunities, and implement strategies to manage them.  It is a weighty responsibility.”  He concluded by saying “Crucially, the board will also take time to reflect, appraise and evaluate its own performance, to regularly ask: ‘What could we be doing better?’”  While Mr Chivers’ remarks referred to company directors, they apply equally to those governing not-for-profit entities. The responsibilities of those governing a society or charity must be proportional to the nature and scale of its activities, but what does that mean in practice? ...