EXPLORING THE CHANGES IN THE CHARITIES ACT 2005

Posted by Paranpal Singh on February 27 2024 in News

If you are involved in the operation of a charity, you need to be aware of the recent changes to the Charities Act 2005 (Act). Different changes come into play on three critical dates between 2023 and 2024. Most relevant to registered charities include the amendment to the definition of an “officer” and the requirement to review the charity’s rules and procedures to check that they are fit for purpose.

Who is an officer?

The role of an “officer” of a charity is to support the charity in delivering its charitable purpose and complying with obligations under the Act.

As of 5 October 2023, the definition of an officer has been amended to include those with significant influence over the management or administration of the charity. An officer is now anyone (including a body corporate) occupying a position in the entity who is able to exercise significant influence over substantial decisions of the entity, including, but not limited to:

• in relation to a trust, its trustees;
• in relation to any other entity, a member of its board or governing body; and
• a person occupying any other position (for example, CEO or treasurer) if that position enables them to exercise such influence.

Regarding the above, it is important to consider now whether the officers of your charity include additional persons, such as senior management. If such persons are officers for the purposes of the Act, their details will need to be entered in the charity’s registration details on www.charities.govt.nz. Given the role and duties of an officer, those persons will also need to ensure that they have a thorough understanding of the charity’s rules, legal structure, and operations, particularly in the case of an unincorporated entity where an officer will not have the same protection that a limited liability entity affords them.

Time to review governance procedures

Another key change to the Act, which applied from 5 October 2023, is the legal requirement for a charity to review its governance procedures (whether these are stipulated in its rules or elsewhere) at least every three years.

When conducting a review, the charity must consider whether its rules and governance procedures:

• are fit for purpose;
• assist the charity to achieve its charitable purpose; and
• assist the charity to comply with the requirements of the Act.

The process is self-driven and will look different for each charity. In practice, it will turn the minds of the officers to review, on a regular basis, the charity’s charitable purposes and governance procedures to ensure that they continue to be fit for purpose and to ensure continued compliance of the charity under the Act and its rules.

What to do from here

Given the recent changes to the Act as discussed above:

• Who are the officers of your charity?
• Do you need to update the charity’s registration details to include any new officers?
• Do all of your officers have a thorough understanding of the charity’s rules, legal structure, and operations?
• Do all of your officers have a thorough understanding of the charity’s legal obligations?
• Diarise a governance review now. We recommend that such a review occur more often than prescribed by the Act (i.e. annually) to ensure ongoing compliance and a clear understanding of the charity’s purposes.

We also remind you, like Tier 3 and 4 charities, Tier 1 and 2 charities must now, for reporting periods beginning on or after 1 January 2022, include a statement of service performance alongside the financial statements that they file with Charities Services. While less prescriptive than the Tier 3 and Tier 4 standards, the Tier 1 and 2 Service Performance Reporting standards provide a set of principles to be used by a charity in deciding what should and should not be reported.

If you would like more information regarding the above or guidance on compliance under the Act or best practice, please contact our Shieff Angland team. We would be happy to assist you.

Kellie Bright | Special Counsel | kellie.bright@shieffangland.co.nz

Paranpal Singh | Associate| paranpal.singh@shieffangland.co.nz