Good gover­nance saves prob­lems later


Don’t get caught out by bad gover­nance – make sure you al­ways act within your rules.

A char­i­ta­ble trust owned a prop­erty that was used for com­mu­nity groups and de­cided to put the prop­erty on the mar­ket.

The trust kept its meet­ings fairly in­for­mal, and when the de­ci­sion was made to put the prop­erty on the mar­ket for sale, three out of five trustees voted in favour by a show of hands.

Shortly af­ter­wards, when the prop­erty had been ad­ver­tised for sale, the trust chair­per­son was con­tacted by a dis­grun­tled fel­low trus­tee, who ar­gued that the de­ci­sion to put the prop­erty on the mar­ket was not validly made be­cause it was not made unan­i­mously and the quo­rum (re­quired num­ber of trustees present at a meet­ing) re­quire­ments were also not met, both of which breached the trust’s gov­ern­ing doc­u­ment.

When the chair­per­son asked his lawyer to check whether the claim was cor­rect, he dis­cov­ered it was. The de­ci­sion to put the prop­erty on the mar­ket could not be en­forced be­cause it had not been made in ac­cor­dance with the trust’s gov­ern­ing doc­u­ment. The trust had to can­cel the ad­ver­tis­ing of the prop­erty, which caused it em­bar­rass­ment and stress.

Re­gard­less of the type of gov­ern­ing en­tity you have, you need to abide by its rules to make sure you do not get caught out like the above chair­per­son did.

Here are key things to be aware of:

Make sure you know who has vot­ing rights in re­la­tion to your en­tity (eg share­hold­ers, mem­bers) and what de­ci­sions they have to be party to (eg, ma­jor trans­ac­tions).

Make sure you are aware of whether res­o­lu­tions have to be passed as or­di­nary or spe­cial res­o­lu­tions and ob­tain the req­ui­site ma­jor­ity/per­cent­age re­quired by your gov­ern­ing doc­u­ment.

Make sure you have a quo­rum for your meet­ings. If you do not, de­ci­sions made will not be legally ef­fec­tive.

Meet­ings and res­o­lu­tions. You can prove to mem­bers, trustees, char­i­ties ser­vices or a court you fol­lowed the right pro­ce­dures. Of­ten these chal­lenges can come a long time later, when mem­o­ries have faded.

If your or­gan­i­sa­tion is char­i­ta­ble, make sure you al­ways con­sider whether the ac­tion you pro­pose fur­thers the char­i­ta­ble pur­pose of the en­tity, that when the en­tity is wound up, as­sets are trans­ferred only to an­other char­i­ta­ble en­tity, and that you sign doc­u­ments in ac­cor­dance with your gov­ern­ing doc­u­ment (eg, with a com­mon seal, by one of­fi­cer in the pres­ence of a wit­ness).

En­sure all de­ci­sion mak­ing fol­lows the process in your gov­ern­ing doc­u­ment (eg, moved, se­conded etc).

Make sure trustees/of­fi­cers are re­placed when their ten­ure has ex­pired and that the process for re­plac­ing of­fi­cers/trustees is fol­lowed.

It is easy to get caught up in the day-to-day run­ning of or­gan­i­sa­tions. How­ever, it is im­por­tant to fre­quently re­fer back to your gov­ern­ing le­gal

Make sure you have a quo­rum for your meet­ings. If you do not, de­ci­sions made will not be legally ef­fec­tive.

doc­u­ments. Oth­er­wise there can be se­ri­ous prob­lems for the or­gan­i­sa­tion. Col­umn courtesy of Rainey Collins Lawyers, phone 0800 733 484 or rain­ey­ If you have an in­quiry you would like dis­cussed, email aknowsley@rain­ey­ nz. Our next free pub­lic sem­i­nar, deal­ing with Em­ploy­ment Dis­ci­pline and Per­for­mance is­sues, will be on April 13, 12.15pm till 1.30pm. See our web­site.

It is im­por­tant for or­gan­i­sa­tions to fol­low their rules.


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