When a Society can Find no Officers

A practical problem, and not uncommon We are quite frequently asked by members of incorporated societies for advice about a problem which is not uncommon – a society which is unable to find anyone willing to stand for office as chairperson, secretary or treasurer, and where the constitution does not outline what should be done in those circumstances (and few society constitution do so). Most society constitutions provide that these positions are to be filled by people elected from the membership and may provide for the co-option of people to fill vacancies. However, finding volunteers to stand for election or for co-opted appointment is often difficult, and few society constitutions provide any solution in the absence of volunteers willing to take office. In addition, of course, it is sometimes difficult even to find enough people to form the size of committee prescribed in a society constitution. If an incorporated society fails to comply with its constitution by failing to elect officers (or the number of people required to form its committee) as prescribed under the constitution then High Court proceedings could be commenced (at considerable expense) to try to find a remedy, and if the society is a charity the failure to comply with the constitution could be the subject of a complaint to Charities Services.   Is there a sensible answer to the problem? If a society is unable to elect or appoint enough officers or committee members as required by its constitution and the issue came before the High Court, the presiding judge is likely to look for a practical solution, particularly as ordering the society to...

GOVERNING CHARITABLE TRUSTS AND CHARITABLE SOCIETIES

Background This article has been prepared to help trustees of a charitable trust or committee members of a charitable society governing the charity more readily to understand the obligations they assume when appointed or elected. Because committee members of a charitable society are effectively “trustees” of the society they are referred to as “trustees” in the balance of this article. A trustee’s first obligation is to become familiar with: The trust instrument establishing the charity (such as the trust deed, or will, or the rules of the charitable society), generally referred to in these Notes as the charity’s constitution, which governs what can and cannot be done, especially the charity’s purposes, The charity’s property and records, Any limitations to which the charity is subject, The charity’s strategic plan and policies (which must always be consistent with the charity’s purposes), and then Never to forget the purposes and terms of the trust. It has been said that too many trustees accept appointment without fully understanding that being a trustee involves serious and onerous duties and a commitment of potentially significant time. Being a trustee may be a complex burden, involving not only an understanding of the trust but also being acquainted with relevant legal rules and principles. This article may help to redress those deficiencies, but it is of limited value for two reasons. First, this article is not specific to the circumstances of any particular charity and, second, the detail which may be found in text books cannot be included in such a relatively short article (rather more detailed notes are available to charities which are clients of Bannister...

Not-for-Profits and Anti-Money Laundering and Countering Financing of Terrorism

Risks relating to Money Laundering or Financing of Terrorism The Anti-Money Laundering and Countering Financing of Terrorism Act 2009 (AML/CFT) is intended to prevent money-laundering by criminals and the financing of terrorism. Societies and charitable trusts (“not-for-profits”) and those providing them with services (such as legal, accounting and banking) are now affected by this legislation: The “risk profile” of a club or society will be assessed having regard to its purpose and size and whether it is a national or local entity. If the organisation has or will have a social or local community focus, such as a sporting or cultural group, the potential risk associated with it is likely to be low. If the club’s or society’s activities are likely to be cash-intensive (with greater potential for it to be used for the placement of illicit money) the risk will be assessed as being higher. The “risk profile” of a charitable trust is considered to be higher because of the potential for trusts to be used to disguise the criminal origin of funds or the true ownership and effective control of the trust, particularly where ownership and control arrangements are sophisticated or complex. As a result, all charitable trusts are subject to what is called “Extended Due Diligence,” and any charitable trusts that are geographically or financially linked to higher risk countries, or include politically exposed persons, may have increased Money Laundering or Financing of Terrorism risks.   Lawyers and Accountants Advising Not-for-Profits and Financial institutions providing Not-for-Profits with financial services Before any lawyer or accountant provides a proposed or existing club, society or charitable trust with advice,...

Be Prepared – Incorporated Societies Law Reform

January 2015 Article, updated June 2018 According to comic Tom Lehrer, “Be Prepared” is the Boy Scouts’ marching song.  That clarion call should now be resounding in the ears of all societies and New Zealand lawyers as replacement of the Incorporated Societies Act 1908 looms (possibly 2020). All lawyers, whether or not in private practice and whatever their legal specialty, are fair game if they are associated with a not-for-profit organisation – lawyers are asked to join committees and people assume we know the law, including law we have never looked at. According to the website of the Registrar of Incorporated Societies, at 30 June 2013 (the latest information I could locate when this article was originally written) there were 24,476 registered incorporated societies and 21,782 registered charities (charities which are either trusts or societies registered under the Charitable Trusts Act 1957 – the numbers of each are not known). Given that there were, respectively, 802 and 747 new registrations in the 20123-2013 period, and allowing for some dissolutions, by now we may have around 28,000 registered incorporated societies and 25,500 registered charities (both trusts and societies). Those charitable societies registered under the Charitable Trusts Act 1957 (perhaps around a quarter of registered charities registered under that Act) will be transferred to the new incorporated Societies Act regime. Constitution review This all means that we may now have over 34,000 incorporated societies whose constitutions will need to be reviewed in the proposed 4 year transitional period after the new Incorporated Societies Act is passed. According to “Snapshot of the Profession” at 1 February 2018 (28 February 2014) we have around 7,690 lawyers in private practice...

Overview of Proposed New Incorporated Societies Act

2015 Article, updated June 2018 NOTE: These notes, prepared by Mark von Dadelszen QSM, provide an overview of the more significant elements of the proposals to replace the Incorporated Societies Act 1908. The Exposure Draft of the Incorporated Societies Bill released in November 2015 (see http://www.mbie.govt.nz/info-services/business/business-law/incorporated-societies), largely followed the recommendations in the 2013 Law Commission Report 129 (see www.lawcom.govt.nz/project/review-incorporated-societies-act-1908/report). This overview is a much abbreviated summary of the main proposals. We recommend that new and existing societies be proactive in anticipating the reforms when adopting or revising constitutions. The most recent advice w Bill may be introduced in 2019, and enacted in 2020. 1. The Incorporated Societies Act 1908 is badly out-of-date Our companies’ legislation has been totally re-enacted six times in the last 152 years (1868, 1882, 1901, 1903, 1933 and 1993) since the Joint Stock Companies Act 1860, all with regular amending Acts. In contrast, the Incorporated Societies Act 1908, the Agricultural and Pastoral Societies legislation, and the Industrial and Provident Societies Act 1908 have been changed little in over a hundred years, and: Do not reflect current good governance practices, Have been overtaken by technological advances, Are all well past their respective “use-by” dates, and Do not reflect modern legislative drafting. 2. A new Incorporated Societies Act The Government in early 2015 accepted most of the Law Commission’s Recommendations, and the Exposure Draft of the Bill proposed to: Completely replace the Incorporated Societies Act 1908, Provide a clearer statutory framework for society governance, Require better processes for how societies deal with member grievances and complaints, Provide standard constitutional provisions for use by incorporated societies, Transfer charitable societies...

Third Party Approval to Change Constitutions

May 2012 Article, updated June 2018 In 2011, a reader raised an issue for consideration in this series of articles, saying: Over the years I have had cause to read many constitutional documents, perhaps more carefully than some of the officers or members of the societies concerned. Frequently there is a clause relating to changes to the objectives of the society that requires the approval of the Inland Revenue Dept to any such changes. … Such clauses have less relevance since the establishment of the Charities Commission in 2005 … Past practice with the IRD The correspondent is correct in referring to such clauses in constitutions (commonly, also covering the winding-up clause), but I suspect that the provisions in the IRD clauses were, in the past, more honoured in the breach than the observance. Following enactment of the Charities Act, the Department at http://www.ird.govt.nz/charitable-organisations/chart-orgs-intro/ now graciously states “Some organisations may have rules that prevent additions or alterations to the charitable objects, personal benefit and winding up clauses without first getting Inland Revenue approval. For charitable organisations that are registering with the Charities Commission, we will no longer give approval for changes to rules and recommends that any such requirement be removed from your rules. To enable this to happen, we give general consent to any amendment removing such rule.” Entrenching a constitution The idea of entrenching a constitution may come from an entity’s founders, parent bodies, or third parties (such as, previously, the IRD). Whether such entrenchment (requiring third party approval for change) is lawful is a partly statutory and partly philosophical question. In 2000 when I first wrote...