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Chris The Lawyer
Chris The Lawyer, Lawyer
Category: New Zealand Law
Satisfied Customers: 23068
Experience:  38 years qualified as a lawyer; LLB, MMgt and FAMINZ.
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Present situation: I am the Treasurer of an Incorporated

Customer Question

Good morning,
Present situation: I am the Treasurer of an Incorporated Society. Article 7.1 of the constitution states that voting member organisations (VMO) must submit each year before the AGM audited financial statements and audited listings of their members reconciled to their financial statements to be carry out by a Chartered Accountant in NZ. For every 250 members a VMO can claim 1 Board member thus 1 vote.
Last May's AGM every single VMO breached this article. Yet all 6 VMO's which are also incorporated societies claimed al together 14 Board members (in total 14 x 250 = 3.500 members).
The 5 Officers were elected among the 14 Board members being the President, 2 Vice-Presidents, Secretary General and Treasurer (myself). The Secretary General has already resigned leaving 4 Officers.
Because it turned out that the listings of members of at least 2 VMO are very suspicious. This has caused for a division among the remaining 4 Officers. The President and one Vice-President against the Treasurer (myself) and the other Vice-President.
I as Treasurer have put 3 options on the table:
A. incorporate a new Society and bind the 2 major VMO to that new Society to repair the division and negotiate a new constitution with the other smaller VMO's. The new VMO will replace the 2 major VMO's
B. form a contractual alliance between the 2 major VMO which is legally binding with no escape clauses and negotiate a new constitution with the other smaller VMO's.
C. file legal proceedings on de bases that: listings of members of at least 2 VMO are very suspicious and that article 7.1 was breach by all voting member organisations Ask the Court to dissolve the Board and its Officers and order the Society to convene a new AGM and that all voting member organisations comply with article 7.1
The constitution states: to alter the constitution is needed 2/3 of the Board members which is 10 out of the 14 Board members. However the number of 14 Board members turned out to be dubious.
Please advise
Kind regards
Treasurer
Submitted: 1 year ago.
Category: New Zealand Law
Expert:  Chris The Lawyer replied 1 year ago.

I suspect that your constitution does not tie the financial statement requirement, to the ability to put forward board members and votes. By this I mean that it is not a pre-requisite of electing the board members that the member organisations have complied with the separate requirement about financial statements. That no doubt would be good practice, but unless it is a pre-requisite condition, the nomination of the board members is likely to be permissible and legal.

Expert:  Chris The Lawyer replied 1 year ago.

I assume that the failure to provide the audited financial position and membership figures has made you suspicious. In such a process it would be up to an officer such as the secretary to receive nominations for the board and either accept them or reject them. If there were question marks as to the numbers, which is why you are concerned about the voting position, that should have been challenged at the time the names based on numbers were submitted.

Expert:  Chris The Lawyer replied 1 year ago.

For a voluntary organisation it can be an expensive burden to have audited books of account. Of course I don't know anything about the amount of money in the organisations, but for small voluntary bodies, it may not be appropriate to have elaborate audit procedures.

Expert:  Chris The Lawyer replied 1 year ago.

I don't see why you should need to incorporate a new society. If people are prepared to volunteer their time to serve on boards, it is not usually helpful to take an overly legalistic view of their eligibility, particularly when I see this as a reasonably burdensome requirement.

This may not be the answer you are expecting. But my experience of voluntary organisations is that if you start to engage in legal proceedings about issues like this, it is sometimes fatal for the organisation and destroys a great deal of goodwill.

Of course there is nothing to stop you from setting up a new organisation altogether. You could then invite the member organisations to join or not join as they see fit.

Customer: replied 1 year ago.
To answer your first question: I suspect that your constitution does not tie the financial statement requirement, to the ability to put forward board members and votes. By this I mean that it is not a pre-requisite of electing the board members that the member organisations have complied with the separate requirement about financial statements. That no doubt would be good practice, but unless it is a pre-requisite condition, the nomination of the board members is likely to be permissible and legal.A find it a pre-requisite condition plus please advise furtherThe exact wording of article 7.1 is:The (name Society) will be controlled by an Executive Board consisting of Appointees from each of the Voting Member Organisations. There shall be one appointee per 250 members from each Voting Member Organisation, with a maximum of four (4). Membership numbers of the Voting Member Organisation, must be based upon financial statements audited by a Chartered Accountant incorporating a reconciliation of membership fees to a listing of members. Where a member of a Voting Member Organisation has membership of two or more Voting Member Organisations, they must nominate only one Voting Member Organisation for their membership to be counted for voting purposes. A statement confirming membership numbers sworn before a Notary Public must also be provided as evidence and accompany the Financial Statements. The Financial Statements and certified Statements on Membership must be submitted to the Secretary each year in advance of the AGM”.
Expert:  Chris The Lawyer replied 1 year ago.

If the auditing is as you set out, then the nomination may be unacceptable. Did the secretary question these as they came in? It could be arguable this has been waived if historically that is how it happened.

Customer: replied 1 year ago.
Indeed every year article 7.1 was breached and during last May's AGM the Secretary did not question this because there was no reason for to question. Only now new information revealed that at least 2 VMO were losing members which makes their member numbers suspicious.
Please also further comment on option A and B which I have put on the table.
Expert:  Chris The Lawyer replied 1 year ago.

The problem is that if this has been accepted in the past, and could not specifically challenged at the time, then the ability to object has been waived. If there is a specific requirement to check statements and reconciliation of membership fees before nominating board members, but this has not been done in the past, then as legal interpretation of the situation, this would have been waived. Problems like this must be challenged at the time rather than some time later.

There is nothing to stop you from setting up a new arrangement with the member organisations as you describe. But it may be too late to challenge the breaches of the previous voting, based on the historical waiver.

In a situation like this there would be merit in calling a special meeting to mediate a solution. If the auditing and membership requirements are too onerous, or need to be changed, then rather than get into litigation, a facilitated discussion with an independent mediator is more likely to come up with a solution.

Customer: replied 1 year ago.
An Extra Ordinary Meeting is useless because relationships have broken down.So now I want to explore with you how to best set up new arrangements with the VMO. Let's start with an alliance contract between the 2 major VMO which is legally binding. A simple MOU will not work is has got to be legally binding. Please comment
Expert:  Chris The Lawyer replied 1 year ago.

I wasn't anticipating calling an extra ordinary meeting, but rather a specific facilitated meeting to mediate the issues and move forward. I assume the clubs have specific objectives and that your primary purpose is to ensure that the organisation can service those objectives. It may be that the supporting structures do need to be changed, and relationships repaired, but I always try to recommend mediation in this situation even where bridges appear to have been burned already. A skilled facilitator/mediator can often rebuild relationships.

If you are setting up a new organisation, that would depend on what is in the constitutions of the supporting membership organisations. You would need to ensure that they have the ability to enter into such contracts. If they do have this flexibility, then there is no reason why they should not enter into contractual arrangements.

Customer: replied 1 year ago.
Mediation is not possible.I've checked and our VMO can enter in to contractual arrangements and I suspect the other party as well.The arrangement is the following: for the purpose of adopting a new constitution in the next year's AGM one VMO agrees to submit itself to the other VMO with the objective of gaining a majority voting to alter the constitution which is out-dated in todays environment to develop the objectives of both VMO.Off course this is not the legal wording but this is where you need to advise me, please
Expert:  Chris The Lawyer replied 1 year ago.

There is nothing illegal about getting together to lobby to update the constitution. That sounds prudent where it has not been possible to comply with the old Constitution. The constituencies can of course work together to obtain suitable majorities at any time.

Customer: replied 1 year ago.
Exactly right but this working together needs drafting.I need you to type me a draft contract and to emphize that it is legally binding in case one VMO breaches the contract
Expert:  Chris The Lawyer replied 1 year ago.

That is a substantial drafting job. Any contract needs to have parts to make it binding, being clearly identified contracts, the purpose of the contract, the consideration for the contract (the value which is passing) and consequences for breaches, and then signing. Beyond that, there needs to be agreement of the parties as to what you need to achieve.

Customer: replied 1 year ago.
I would appreciate if you could send me a template or a sample of another contract that I can copy and try to draft it myself.
Expert:  Chris The Lawyer replied 1 year ago.

It should say something like this with headings

The parties to this contract are (insert names of organisations)

The purpose of this contract is to enable (set out the purpose and function of the contract)

In consideration of the understandings and purposes as outlined the parties agree as follows

1. Here and in successor paragraphs set out the terms of the contract
2. More terms of the contract
3. If the parties cannot agree on (issues) then they agree to appoint a mediator from the lists held by the Arbitrators and Mediators Institute of New Zealand

Date

Signature of first party

Signature of second party (and so on)

Customer: replied 1 year ago.
I have drafted a memorandum of agreement (MOA) and would like to look at it for recommendation. It is in word format. How can you upload it to you
Expert:  Chris The Lawyer replied 1 year ago.
Make sure there are no names on the document, as it could be seen. Then use the attach tool
Customer: replied 1 year ago.
I've emailed you the MOA. Did you receive it
Regards
Abraham
Expert:  Chris The Lawyer replied 1 year ago.
No, you must use the attach function to do this
Customer: replied 1 year ago.
Where is the attach button
Customer: replied 1 year ago.
Did you get the MOA
Expert:  Chris The Lawyer replied 1 year ago.

Got this and reading now

Customer: replied 1 year ago.
I will be off line the whole day till tomorrow afternoon. Will contact you then
Expert:  Chris The Lawyer replied 1 year ago.

So I have attached a marked up copy