Melissa Chester

If you are involved with sports clubs, religious groups, other community or social associations, or even certain iwi organisations – the new Incorporated Societies Act 2022 (the Act) may affect you and your organisation. At over 100 years old, the Incorporated Societies Act 1908 was no longer able to keep up with the needs of New Zealand’s 24,000 incorporated societies. The new Act came into force on 6 April 2022 and puts in place a more modern governance framework for societies and the volunteers who administer them. It aims to give more guidance to these self-governing groups and provides new dispute resolution options that did not exist previously. Now that it is enacted, societies need to understand how they are affected by the Act and what needs to be done to transition to the new regime. This is particularly important because failing to comply (and failing to re-register) will result in the de-registration of the society. Fortunately, the provisions do not come into force all at once, but over a staggered transitional period of around three and a half years. Key changes The Act makes a number of key changes to the current framework including: Registration:  All incorporated societies will be required to re-register under the Act by 1 December 2025. Failure to re-register by this date will mean that a society ceases to exist. To re-register societies must satisfy the new requirements under the Act. Constitution:  The Act will require all societies to have a constitution which provides specific detail of the composition, roles, powers, functions and procedures of the committee. This is more substantial than what is required under the former Act. The Act also expressly acknowledges the ability for a society to incorporate and express tikanga practices within its constitution. Minimum membership requirements:  The minimum number of members has reduced from 15 to 10. All societies will be required to start with and maintain a membership of at least 10 members. Bodies corporate will continue to count as 3 members. Consent:  Every person must consent to becoming a member of a society. With groups like sports clubs, it may not be clear that signing up means joining as a member of the incorporated society. Committees:  All societies must have a committee (a governing body) which is comprised of at least three members of the society who are appointed as officers. This is a new requirement which was not provided for in the 1908 Act. The Act outlines the core duties of the committee such as managing or directly supervising the affairs of the society. It also outlines the qualification criteria for members and other officers. Officers:  The Act codifies existing common law duties owed by officers. These align with those under the Companies Act 1993 and include: The duty to act in good faith and in the best interests of the society. The duty to exercise powers as an officer for a proper purpose. The duty not to act, or agree to the society acting, in a manner that contravenes the Act or the constitution of the society. The duty to exercise the care and diligence that a reasonable person with the same responsibilities would in the same circumstances. The duty not to permit the activities of the society to be carried out in a manner that is likely to create a substantial risk of serious loss to creditors. The duty not to permit the society to incur an obligation unless the officer believes at that time on reasonable grounds that the society will be able to perform the obligation when it is required to do so. These duties are owed to the society rather than to members. However, a member can apply to the Court to enforce those duties. Dispute Resolution:  Societies must have procedures in place to resolve disputes and grievances. These can be personal to a society but must meet minimum procedural requirements including natural justice requirements. Reporting:  Societies will be required to prepare financial statements and accounting records that comply with generally accepted accounting practice. Requirements for this are size-based, with larger societies being required to have their accounts audited. Offences:  The Act outlines various offences including making false or misleading statements, fraudulent use or destruction of property, falsification of register, records, or documents, operating fraudulently or dishonestly incurring debt, improper use of “Incorporated”, “Inc.”, or “Manatōpū”. Financial Gain:  The Act tightens provisions relating to a society not being for financial gain and provides guidance as to when a society will be considered to be operating for the financial gain of its members. Following this it introduces a fine not exceeding $50,000 for failure to comply with this rule. Amalgamation:  The Act allows two or more societies to amalgamate. This is essentially a simplified version of the amalgamation process contained in the Companies Act 1993. Enforcement:  Enforcement provisions will be introduced which outline who is able to apply for Court orders and the type of order a Court can make. This is important to ensure accountability where there may be a breach of constitution or officer duties. Registrar:  The registrar of Incorporated Societies will have reinstated functions and powers, with the addition of wider powers to inspect, copy and take possession of documents and standing to initiate enforcement proceedings if it is in the public interest to do so. What do you need to do? If you are an officer, or otherwise involved with a society’s governance, you will need to consider how the above changes impact your organisation. You should: Review your membership application process to ensure that you are clearly seeking and obtaining consent to become a member of your club or organisation. Review your constitution to ensure it is compliant with the regulations in the Act and if not, make necessary changes. Review your members’ register to ensure it is up to date and that you meet minimum membership requirements. Consider whether your current officers meet the new criteria to continue as officers. Prepare your application for re-registration and ensure it complies with regulations in the Act (including s 5(3) of Schedule 1). Apply for re-registration of your society before 1 December 2025. It is not yet possible to register under the new Act. But it is important that societies are prepared and ready to step into the new regime when the time comes. Well governed societies may benefit from beginning the transition, consulting members on updates to their rules or constitution, and being ready for registration, which will be looked upon favourably by members, sponsors and funders. Holland Beckett Law is passionate about assisting local not-for-profit and community organisations. Please reach out if you would like to discuss how the above changes are going to affect your society. We would be happy to assist you through the re-registration process, or review your rules/constitution to ensure compliance.

COVID-19 has placed unprecedented stress upon businesses and employers across New Zealand. While some are struggling to fill roles, others are discovering that they need to restructure to reduce costs, or operate more efficiently. Businesses are able to change their structuring as is commercially necessary. In doing so they need to ensure that their restructure process and the outcome for employees, is carried out and justified in accordance with New Zealand employment law. What is restructuring? A restructure occurs when changes are made to a business structure, generally to make it run more efficiently, optimise performance, change focus, or cut costs. Restructuring might involve: creating new roles; merging existing roles; disestablishing roles that are surplus to requirements; or a combination of the above. If employees are impacted, employers need a genuine business reason for the change, for example, financial reasons, downturns in work, changes in products, changes in consumer behaviour, or merging with another business. What is redundancy? If a role is disestablished and the employee affected is not redeployed to another role, their employment will be terminated for redundancy. Redundancy should be the last option. Before doing so, employers are required to consider potential redeployment options within the business for the impacted employee. When certain of the same roles are to be disestablished, an employer must select the employees for redundancy using a fair selection process. There must be a clear criteria for selecting the employees to be made redundant (and alternatives considered). Alternatives need to be explored first. It is unlawful to make an employee redundant and then replace them, or make an employee redundant due to poor performance or other issues not related to the restructure. These matters can be complex where a restructure is driven by unsuitability or performance issues as well as business requirements, or if the employer has already got a performance or disciplinary process underway when a restructure is implemented. We can assist to navigate the complexity. Restructure Process We recommend that employers obtain legal advice before they proceed with a restructure process affecting employees. Employers must act in accordance with the principle of good faith under the Employment Relations Act 2000 throughout the restructure process, meaning that employers must be communicative, act fairly, and be active and constructive in maintaining a productive employment relationship. In terms of the restructure process, as a guideline, we set out below the necessary steps: Step 1. Document the Proposal: the ‘what is proposed’ and ‘why’; Step 2. Consultation Meeting: the ‘what does it mean for you’ and ‘what do you say in response’; Step 3. Consideration of Feedback: employer reflection, ‘what does the feedback mean for the proposal?’ and ‘are further changes required/further consultation necessary?’; Step 4: Communication of Outcome: with reflection on feedback; Step 5: Meeting to Discuss Outcome: ‘what does this mean for you’ and if the role is disestablished, ‘what alternatives are available?’ (if alternative roles are available, these should be considered). Redeployment and Retraining Employers must consider redeploying employees as an alternative to redundancy, as failure to do so could result in claims of unjustified dismissal. An employer is not obliged to offer an employee redeployment to a position requiring a significant amount of retraining or skills and experience the employees does not have. However, if there is an alternative suitable role that the employee has the skills and experience to perform or could perform after some retraining, the employer must offer it to the employee. It is not enough for the employer to simply offer the employee the opportunity to apply for a suitable alternative role. An employee is not obliged to accept an offer of redeployment to an alternative role. If an employee turns down an offer of redeployment, the employee will be redundant. Mistakes to Avoid To reduce the risk of a personal grievance claim, employers should not: make a predetermined decision as to the outcome of the proposed restructure process (and express an opinion on the outcome in writing! – even private emails may be discoverable); be unclear about the proposal or the possible consequences if implemented; use redundancy as a mechanism to remove staff for other reasons eg. due to poor performance; refuse to give relevant information in support of the rationale for the proposed restructure; and fail to consider redeployment as an alternative to redundancy. If you have any questions regarding this guidance on restructuring and redundancy, our Employment team can assist.

The Court of Appeal recently released a judgment concerning the scope of a restraint of trade clause, following the sale of a business. The business bought by the purchaser involved the manufacture, distribution and installation of partitioning systems and door systems, commonly used in office fit-outs. Shortly after the sale, the vendors bought another business that was a supplier of components of partitioning and door systems. The sale and purchase agreement signed by the parties included a restraint clause that sought to prevent the vendors from engaging in any business that was “the same or substantially similar to” the business being sold to the purchasers. Importantly, the restraint specified the business activities it sought to protect: “namely the manufacture, importation distribution or installation of … partitioning systems or door systems”. The purchaser believed that the vendor was in breach of the restraint of trade clause given the relatedness of the products being sold, and the High Court agreed. However, the Court of Appeal thought differently. Overturning the decision of the High Court, the three judges held that the business activity of each business was not the same or substantially similar on account of the fact that the business that was sold by the vendor dealt with complete systems, while the business that was bought dealt only with components of such systems. In reaching its conclusion, the Court relied on the specific wording in the restraint clause. Because the clause named complete systems only, and because componentry could not be regarded as a complete system and only a small part thereof, there was no substantial similarity. The decision has highlighted the importance of using wording in a restraint that will provide the parties with the certainty required for them to understand the parameters of what is being agreed. Had the clause used in this situation included the further wording: “namely the manufacture, importation distribution or installation of … partitioning systems or door systems, and including componentry of such systems”, There is a possibility this matter would have been decided differently or may never have made it before the Courts in the first place. Of course, expanding the scope of a restraint of trade clause too widely may result in it being deemed invalid. So, the specific wording used should be carefully considered and seek only to extend the scope of protection to a reasonable level. If you need any advice or assistance in determining the reasonableness or validity of a restraint of trade clause, please remember that it is better to seek help prior to making any big decisions. You may save yourself the headache of being embroiled in legal action and be in a position to move forward with confidence.

A new law has come in affecting how creditors can take enforcement steps against borrowers and guarantors of farm debts. The Farm Debt Mediations Act 2019 (FDMA) came into force in 2020, which prevents secured creditors from taking enforcement action in relation to farm debts without taking certain steps. What is a farm debt? A “farm debt” is defined as being: a debt owed by a farmer (a person involved in a primary industry or a debtor where the debt was incurred to conduct a primary production business) as principal debtor or guarantor; incurred for the purpose of conducting a primary production business (eg. horticulture, agriculture, aquaculture, including businesses such as sharemilking but does not include forestry, mining or providing labour/materials to a primary production business) or related activities; and secured wholly or partly in farm property (being any property used in connection with a primary production business. Property can include vehicles, animals, resource consents) What is an enforcement action? “Enforcement action” includes appointing a receiver, serving notice under s119 of the Property Law Act 2007 to exercise powers of sale, taking possession or assuming control of the farm property or applying to liquidate or bankrupt the farmer. A letter advising of a default and reminding the debtor to make payment is not an enforcement action. When can ‘enforcement action’ be taken by a creditor? A secured creditor can only take enforcement action in relation to the farm property when either: an enforcement certificate is in force in relation to the relevant farm debt. A creditor can apply to MPI for a certificate if the farmer declined to attend mediation or the creditor attended mediation with the farmer in good faith. An enforcement certificate lasts for 3 years; or the parties have entered into a mediation agreement in the past 3 years. If any of enforcement steps are taken without an enforcement certificate or mediation agreement, the enforcement steps will be void. If the farmer obtains a “prohibition certificate”, a creditor cannot take any enforcement action for 6 months. The farmer can apply to MPI for a prohibition certificate if the creditor declined to mediate or did mediate but not in good faith. Action could be taken against non-farm property (of the farmer) secured under a farm debt, or potentially against farm property (of the farmer) if the farmer is insolvent or subject to insolvency proceedings. However, action cannot be taken against a guarantor in relation to any kind of property, farm or non-farm unless an enforcement certificate or mediation agreement is in place. If there is an urgent need to protect a creditor’s interests, the creditor can apply to the High Court to appoint a receiver. Mediation Generally, farmer and a creditor can both request mediation, although a farmer can request one at any time and the creditor can only request one once the farm debt is in default. The mediation process is confidential. There are specific formalities and procedures under the FDMA, including that: the request must be in writing; the other party (‘respondent’) must respond to the mediation request within 20 working days. If they do not reply, they are deemed to have declined mediation; if the respondent responds by declining to attend, they must set out the reasons why; a creditor must agree to mediation unless there is good reason; and unless the parties agree, the mediation must occur within 60 working days of the request. A farmer can only be asked to contribute up to $2,000 towards the cost of the mediator, and a creditor must meet it own costs of the mediation process. The legislation indicates that any of the creditor’s mediation related costs cannot be recovered from the farmer in any way, which would override standard contractual cost indemnities. The parties must mediate in “good faith”. If a creditor declines to attend mediation without good reason or without setting out its reasons, that will be evidence of ‘bad’ faith. The legislation also indicates that a creditor refusing to reduce or forgive a debt, or alter the loan terms, could be evidence of bad faith, but not on its own. What now? The FDMA applies to all farm debts, irrespective of when the debt was incurred. The FDMA cannot be contracted out of. As this legislation is brand new, it has not yet been interpreted by the Courts, so it will be interesting to see it work in practice. Holland Beckett has expertise in rural law and can advise you on the impact of the FDMA on any farm debt, and assist you to navigate the mediation and enforcement process.

Trustees and beneficiaries of trusts should be aware of a recent court decision, which clarifies two factors that trustees can take into account when deciding whether to distribute trust assets. In December 2021, the Court of Appeal’s decision in Kain v Public Trust [2021] NZCA 685 has given trustees some guidance on whether two types of factors can or should be considered by trustees. These are: A settlor’s wishes after the trust was established; and If a beneficiary has received (or can expect to receive) a benefit from a separate but related trust. Settlor’s later wishes When establishing a trust, a settlor expresses their intention (or wish) for how the trust’s property is to be used. Later on, a settlor may convey further or different wishes for the way in which they want the trust property to be used. The Court of Appeal held that: A trustee is entitled to take into account wishes and subsequent wishes if they are consistent with the terms and purpose of the trust. To do this, a trustee can read and understand these wishes; and If the more recent wishes are inconsistent with the settlor’s original wishes, a trustee can consider the more recent wishes, however it is a matter for the trustee’s discretion to actually give effect to those recent wishes (in effect overriding the original wishes). An example would be, as in the Kain case, if there is a statement by the settlor wanting equality between beneficiaries that is not contained in the trust deed. Depending on the circumstances, this wish for equal treatment may be able to be taken into account by a trustee, but those wishes do not have to be followed. Interrelated Trusts The Court of Appeal confirmed the general principal that a trustee must take into account all relevant considerations, and not take into account any irrelevant ones. The Court then held that where there are multiple trusts that are related (ie. are connected to one family group), it can be relevant what a beneficiary has received (or might be expected to receive) from a related trust. But it is not a requirement to do so. For example: There are two trusts relating to the Smith family, Trust A and B. Peter is a beneficiary of both. Mary, the trustee of Trust A, wants to make a decision in relation to Trust A’s assets. Peter has received a house from Trust B. Mary can take account of the house which Peter has received from Trust B when making her decision, but she does not have to. At Holland Beckett, our litigation and estate lawyers can guide trustees through making difficult decisions, or can give advice to beneficiaries about decisions that have been made by trustees if you think the decision is wrong. Please do not hesitate to get in contact.