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 The Incorporated Societies Act 1908 is badly out-of-date Our companies’ legislation has been totally re-enacted six times in the last 152 years (1868, 1882, 1901, 1903, 1933 and 1993) since the Joint Stock Companies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...

What should supplement a constitution

June 2012 Article, updated June 2018 In my article, “Responsibilities of those in Governance” I mentioned the need for those governing a community organisation to be aware of what is in the organisation’s “constitutional documentation, including any policy, strategic and regulatory documents.”  Many trust deeds and society rules are cluttered with material that need not be there, but should be in supplementary documents which can be changed more readily than the constitution. What should a charitable trust’s deed or a society’s rules contain? The Incorporated Societies Act 1908 (section 6) sets out certain minimum requirement of a society’s rules for registration, but the Charitable Trusts Act 1957 fails to specify any basic essentials.  I suggest that the following basic, core requirements should be specified (the Incorporated Societies Act sections are shown in brackets): The name and purposes of the organisation (section 6(1)(a)-(b)) – but preferably not in unduly restrictive terms which leaves the entity with little room to develop its mission with experience, Given the theme of this article, provision for the making of policies, regulations or bylaws, How the organisation is to be governed, with any powers and limitations on governance powers clearly set out, How people join, resign from and can be removed from membership (section 6(1)(c)-(d)), and details concerning any subscriptions, membership rights and obligations, and complaint procedures, How meetings of the entity are called, held and chaired (section 6(1)(e)), what specific things must be done at annual meetings, and how deadlocks are resolved, How those in governance are elected or appointed (section 6(1)(g)), including any powers of co-option, How meetings of the governing body are...

Economic Development – Charitable?

2011 Article, updated May 2018 The law before the Charities Act The promotion of industry and commerce has been long been held to be charitable in both England and New Zealand.  The decision in Crystal Palace Trustees v Minister of Town and Country Planning [1951] Ch 132; [1950] 2 All ER 857n, concluded that the promotion of industry and commerce for the public benefit was charitable, a decision followed in Re Tennant [1996] 2 NZLR 633. However, some overseas decisions, in particular, CIR v Oldham Training and Enterprise Council (1996) 69 TC 231 and Travel Just v Canada (Canada Revenue Agency), 2006 FCA 343, have laid the seeds of doubt in the collective mind of Charities Services.  In the Oldham decision, despite indicia of charity, the Court concluded that the council promoted the interests of individuals engaged in trade and commerce, providing private benefits regardless of likely beneficial consequences for employment, with the benefits to the community being deemed to be too remote. In the Travel Just case similar conclusions were reached, with the objects there also being held to be “broad and vague” and “subjective.” The Oldham decision also indicates that: To ascertain the objects of an institution . . . where the objects are comprehensively set out in a document, it is necessary to refer to that document. . . .  It is irrelevant to enquire into the motives of the founders or how they contemplated or intended that [the entity] should operate or how it in fact operated.  To determine whether the object, the scope of which has been ascertained by due process of construction, is a charitable purpose, it may be necessary to...

The Need for an Effective Societies’ Complaints Mechanism

2012 Article, updated March 2018 A Society Problem Since I started writing and publishing articles about not-for-profit entities in 2010 they have generated various enquiries and responses, but few are more difficult to answer than the type of enquiry set out below (for obvious reasons, the details have been changed): Hi Mark.  I have just read one of your articles from last year.  We’re having terrible trouble with the Erewhon Community Society.  It built up assets, but a bad committee got in and the society’s premises were closed recently.  The chairman and also the secretary refuse to hold a meeting to wind up society.  The treasurer refuses to let any members see the financial statements, but we got a copy.  They are completely wrong, and the committee and members have not seen or approved them.  The Registrar won’t help us and says it’s an internal matter.  Some of the committee sold off majority of assets without other committee members knowing, and one of them bought some of the equipment for less than a hundred dollars.  You can imagine the rows going on.  We want society wound up legally and financial statements out in public.  Why are they hiding everything?  One of the chairman’s friends is screaming and shouting abuse at anyone who asks the chairman to do the right thing.  We won’t give up on it but we desperately need someone to help us. Information-gathering While some key information is usually provided when I receive an enquiry, there is other information to clarify (some may be obtainable by doing searches into the society through the http://www.societies.govt.nz and http://www.charities.govt.nz websites), including: Is...

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...