Last year, when the country went into lockdown, the Government introduced legislation to temporarily ease administrative burdens on private entities. This included changes to temporarily enable electronic handling of matters like meeting and voting.
These changes expired in April earlier this year, but have been brought back into force, effective 3 November 2021.
If you’re a governing officer of an entity, and you need a refresher on this legislation and how you can make use of its re-enactment, here’s some helpful information on the options available to you. We have addressed some common scenarios here.
Does it apply to you?
The legislation applies to almost all private entities, including companies, incorporated societies, credit unions, charitable trusts, Māori trusts, Māori incorporations, assemblies of Māori owners, firms, and limited partnerships.
How long will it apply?
The legislation will stay in force until 30 April 2022, and can be further extended by an Order in Council by the Governor-General until 30 October 2022.
You can now handle some matters electronically
The legislation allows an applicable entity to handle a variety of administrative matters electronically, even if doing so wouldn’t normally be allowed under the entity’s constitution or rules.
Matters that can be dealt with include recording information in writing, calling or holding meetings, voting, giving, receiving or retaining information, keeping and providing access to records, and signing any instrument.
You should know there are a few boxes you must check before you can shift to handling matters electronically.
Firstly, you may only do so if, because of the outbreak of COVID-19, it is not reasonably practical to do it by non-electronic means. For everyone north of Waikato, this is an easy one, but it may be a tougher sell for our readers based in Bluff.
Secondly, you will need a majority of governing officers to record their reasons for this in writing, and send those reasons, alongside any communications used to handle a matter electronically, to the relevant registrar or agency. For example, for incorporated societies and charitable trusts, the relevant entity is the Registrar of Incorporated Societies, for companies and limited partnerships it’s the Registrar of Companies, and for Māori trusts it’s the Chief Registrar of the Māori Land Court, and for firms and Post-Settlement Governance Entities, there is no responsible minister.
Thirdly, you will also have to notify all governing officers and members when you are relying on the Act to do something by electronic means. The Act gives some leeway, and allows notification to be given to the registrar and members shortly after the matter is dealt with electronically, instead of beforehand. Just keep in mind that it has to be ‘as soon as reasonably practical’—it’s not an excuse to dawdle!
Fourthly, if you choose to handle voting electronically, a majority of the governing officers will have to sign a certificate saying that they believe, on reasonable grounds, that the integrity of the entity’s voting process will be substantively complied with and will not be substantively compromised as a consequence. You will also have to include your reasons for this belief. Think carefully about whether all those entitled to vote will have a reasonable opportunity to do so. This will be particularly pertinent if you have reason to believe a significant share of your membership isn’t tech-savvy, or if you don’t have email addresses for them.
When handling matters electronically, you can use any email address you have been provided with by a member, provided you don’t have any reason to think it’s incorrect or will materially disadvantage the person. This means you can rely on email addresses to send and receive information and electronic signatures.
You can modify constitutional requirements or restrictions where necessary
The legislation gives a majority of governing officers powers to modify requirements, or restrictions on the manner or form of the exercise of powers.
Modifications can be made to calling or holding meetings, the form of voting, communication, record-keeping, dispute resolution, disciplinary procedures, waivers, suspensions, or deferrals of fees, deferrals of auditing, or any other procedural or administrative process.
These powers are not without limits. You can’t use this to make sweeping changes to the purpose of your entity, the substantive powers of the entity, to sell or dispose of property, to change voting rights or rights to a dividend, the number or need for quorum, the right of access to courts and tribunals, or the substantive (as opposed to procedural) duties of the officers. You also can’t use it to increase fees or payments, or change any rule that has been imposed on the constitution by an order of a court. There is a broad catch-all limitation that you cannot make a modification if it would have a material detrimental effect on the substantive rights of any creditor or other person.
There are a few additional considerations and limits too. If the modification relates to dispute resolution or disciplinary proceedings, it needs to comply with the principles of natural justice. More generally, the modification must not be oppressive, unfairly discriminatory, or unfairly prejudicial to any member, creditor, or any other person.
As with handling matters electronically, you can only do so if a majority of the governing officers believe, on reasonable grounds, that due to COVID-19 it’s not practical to comply fully with the requirement or restriction. You will need to keep a written record of the modification and the reasons for the belief of the officers, and as soon as practicable, you will need to notify all members and governing officers of it.
You will also need to send the relevant registrar or agency a written notice of the modification, alongside the written record, and a certificate of a governing officer certifying that the Act has been complied with. (Law firms and Post-Settlement Governance Entities can ignore this step.)
Keep in mind too, these modifications cannot be permanent. They must explicitly expire by the end of the legislation’s period on 30 April 2022. (If the Governor General extends the period until 30 October 2022, any expiry for 30 April 2022 will also automatically extend until then as well.)
An interesting quirk is that while these modifications have effect as though they modify the entity’s constitution or rules, they explicitly don’t actually change the constitution or rules.
You also have the power to make retroactive modifications, if they relate to either a failure to do a required task, or relate to something done in an attempt to do a required task. This only applies to tasks due after 3 November 2021, and the window for retroactively approving matters is only open until 3 February 2022.
You should be aware that if you use a modification to handle a vote, that vote is bound by the same limitations as modifications, as previously mentioned. (So you can’t change the purpose of the entity, dispose of property, voting rights, quorum, etc.) You can, however, use it to make changes to the constitution or rules of the company, provided those changes expire in the same way that modifications do.
There’s a missing gap from April to November this year
There is a gap between 1 April 2021 and 3 November 2021 to which the legislation does not apply. If you were hoping to use the Act to retroactively apply modifications to processes and obligations, you’re out of luck.
If you are in this situation, and you need modifications retroactively applied, your best bet would be to have the modifications retroactively approved at a meeting of your organisation alongside other house-keeping.
Agencies and registrars can issue broad exemptions
Something to keep an eye out for is a broad registrar or ministerial exemption from compliance. The relevant registrars or ministers have the power to grant an exemption to classes of people from compliance with parts of their respective legislation. This includes exemptions for calling or holding meetings, procedures at meetings, methods or forms of voting, communicating information, dispute resolution and disciplinary processes, auditing and assurance, and any other matter set out by the Governor General.
Māori entities can apply for individual exemptions
Māori entities, such as Māori land trusts, Māori incorporations, or Māori reservations entities, can apply to the Chief Judge of the Māori Land Court for relief from complying with the terms of their trusts or orders, provided that relief is necessary or desirable for the purpose of the Act.
As with other registrars and agencies, the Chief Judge also has the power to issue broad exemptions to classes of people.
For more information
Morrison Kent is available to assist you remotely with tailored advice for any of the matters discussed here. Please call 04 472 0020 for advice or to arrange a virtual consultation.