Registrar’s Dissolution of Societies and Charitable Trusts
Amending legislation in 2010
The Incorporated Societies Act 1908 and Charitable Trusts Act 1957 were both amended in 2010. The primary focus of those amendments was on the Registrar’s power to dissolve societies and charitable trusts (other minor amendments had little impact on societies and trusts). Most significantly, section 28, Incorporated Societies Act 1908, and section 26, Charitable Trusts Act 1957, are now expressed in effectively identical terms. (The closeness of the phrasing has, however, led to a legislative error. In the Charitable Trusts Act a charitable society or trust is referred to as a “Board,” with section 26(1) correctly using that expression, but sub-sections 3 and 6 incorrectly refer to the entity dissolved as a “society.”)
Declarations of dissolution
Under both Acts, if the Registrar is satisfied that a registered entity “is no longer carrying on its operations” or “has been registered because of a mistake of fact or law” the Registrar may make a declaration of dissolution that the entity is dissolved. Then the Registrar must:
- Record the dissolution in the Register, and
- Publish the dissolution in the Gazette and on the www.societies.govt.nz website for not less than 20 working days.
A new section 26A to the Charitable Trusts Act now echoes section 26(4), Incorporated Societies Act, in providing that failure to respond to a registered letter addressed to an entity’s registered office provides that Registrar with grounds to conclude that the entity “is no longer carrying on its operations.”
Reversing a dissolution
Both Acts contain a “slip clause,” with each sub-section 4 providing that “If the Registrar is satisfied that a declaration of dissolution was made in error and should be revoked, the Registrar may make a declaration (a declaration of revocation) that the declaration of dissolution is revoked.” In that event, the Registrar must record the revocation in the Register and publish it in the Gazette and on the www.societies.govt.nz website for not less than 20 working days.
Subsection 6 of both sections helpfully explains the legal consequences of restoration to the Register: “At the time the declaration of revocation is recorded in the register the society is revived, as if no dissolution had taken place, with effect from the time that the society was dissolved.” That phrasing may, however, still leave some uncertainty over the status or legality of events between dissolution and restoration.
Consequences of dissolution
Sub-section 3 of both dissolution sections provides that “A society is dissolved at the time the declaration of dissolution is recorded in the register, with effect from the date of the declaration.” Once dissolved, under section 27(1), Incorporated Societies Act, a society’s surplus assets are to be distributed in accordance with a society’s rules or if that is not possible “as the Registrar directs,” while under section 27, Charitable Trusts Act, a charity’s surplus assets “shall be disposed of as the Court directs.”
In Law of Societies (2nd and 3rd Editions) I drew attention to some inconsistency between the two Acts (at 12.2.1), now resolved, and also to the conceptual difficulties inherent in the concept of “dissolution” (at 12.2.4). Those conceptual difficulties remain unresolved after the 2010 amendments. In summary, the problems include:
- The Supreme Court in Discount Brands Ltd v Westfield (New Zealand) Ltd [2005] 2 NZLR 597 considered that a previously incorporated society was a still body of persons that came within the definition of “person” for the purposes of the Resource Management Act 1991. However, the Discount Brands judgments did not refer to the statutory consequences of dissolution or address the effect of (now) both dissolution sections. I consider that the fact that a society or trust is not merely removed from the register but “dissolved” is important as, in contrast under section 317 of the Companies Act, a company is not “dissolved” but merely “removed.”
- One needs to be cautious about assuming that case law under the companies’ legislation applies equally to incorporated societies and charitable trusts, as there are fundamental differences between the different statutory regimes applying to, and the disparate nature of, companies and incorporated societies and charitable trusts.
- The statutory assumptions in the Incorporated Societies and Charitable Trusts Acts are clear; a formerly incorporated entity’s assets are to be “disposed of” in accordance with the provisions of the respective statutes, and the doctrine of bona vacantia (essentially forfeiture to the Crown) does not apply. Neither statute contemplates dissolved entities continuing to exist as unincorporated entities, and no such unincorporated entity can be said to have any right to the dissolved society’s assets unless by post-dissolution direction of the Registrar or the High Court as provided for by the statutes.
- Once an entity is removed from the register on its dissolution, there is no legal entity capable of holding any general meetings (and any attempt to hold a general meetings would be a nullity), and there is no legal entity to which the constitution or rules of the former entity could apply (although former rules might govern any unincorporated society that exists after dissolution). Further, the assets of the former entity cannot legally be used by any person until distributed under s 27(1) of the Incorporated Societies Act, or by High Court order under s 27 of the Charitable Trusts Act, and any other use after dissolution could result in action to recover assets effectively misappropriated. As the former entity no longer exists, anyone purporting to enter into any commitments on its behalf would be legally liable, personally, for any such commitments, including debts and other contractual obligations.
Adequacy of the amendments
While Parliament has brought the two statutes into closer alignment and effected some improvement in the process, much more could be done, as my article “Reforming Incorporated Society and Charitable Trust Law,” indicates LINK.
For specific advice about any of the issues discussed in this article, please contact Mark at mark@nfplaw.co.nz.