Charities Amendment Act 2012
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 administrative practices 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 Board helpfully notified charities of the changes arising from this amendment:
- The Board 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” as committee members of a charitable society or directors of a charitable institution.
- For charities other than trusts, by virtue of paragraph (b)(i) an officer now includes people with significant influence over such charities day-to-day operations and activities, expenditure, and decision-making such as chief executives, general managers, administrators, treasurers, contract managers and financial controllers, whether those people are paid or unpaid. In some cases, the deemed officer could be a professional adviser, such as a lawyer, accountant or investment adviser. The larger and more complex a charity’s operations the more people are likely to come within this description.
- As pointed out by the Board, a charity “may need to certify as an officer anyone in the charity who could direct a personal benefit or a business advantage to themself or anyone else. This may be someone who could influence the letting of a contract to a close business associate or family member. If in doubt, we suggest you certify people that you think may be officers, rather than not certifying them.”
- The section does not attempt to define “a position … that allows the person to exercise significant influence over the management or administration” of a charity. That leaves charities in a state of some (undesirable) uncertainty. My view is that no “rule of thumb” can be applied because the dynamics of governance and management vary considerably between different charities. Now that an officer includes someone with “significant influence over the management or administration” of a charity, not just its governance, those in governance need to examine very carefully exactly influences those in governance and also management – something which may not be obvious at first glance. It could include people external to the charity, and the influence could be indirect as well as direct.
If a certified officer becomes disqualified – section 40(1)(ca)
Charities registered with the Charities Board must notify Charities Services (on a prescribed form) if an officer becomes disqualified during the officer’s term of office, for instance:
- Becomes bankrupt,
- Is convicted of a crime of dishonesty and sentenced,
- Disqualified from being an officer under the rules of the charity,
- Becomes subject to a property order under the protection of personal and property rights act 1988, or
- Is prohibited from being a director or promoter of an incorporated or unincorporated body under the companies Act 1993, Securities Act 1978, Securities Markets Act 1988, or Takeovers Act 1993.
Charities cease to be qualified for registration if an officer becomes disqualified after they have been originally certified, so failure to notify places the charity’s registration under the Charities Act in peril. There is, therefore, an ongoing obligation to ensure that officer disqualifications are identified and then notified to Charities Services without delay. The only safe course, in my view, is that potential disqualifications should become a regular agenda item for meetings of a charity’s governance committee or board.
The Board advised that “Our Monitoring and Investigations team will start contacting charities later this year to confirm that they are not operating with disqualified officers.”
Promotion of amateur sport – clarifying charitable status
The promotion of amateur sport was generally accepted as a charitable activity, and many such charities had already been registered under the Act. However, the 2012 statute inserted section 5(2A) into the Act to recognise specifically that “The promotion of amateur sport may be a charitable purpose if it is the means by which a charitable purpose … is pursued,” i.e. it is the means by which “the relief of poverty, the advancement of education or religion, or any other matter beneficial to the community” is pursued.
For specific advice about any of the issues discussed in this article, please contact Mark at mark@nfplaw.co.nz.