(Note: In this article, the term “rules” is used in a general sense to refer to an organisation’s governing document – ie its rules, constitution, bylaws, trust deed etc and the term ‘charity/ies’ denotes any form of incorporated/registered non-profit))

Q: Can you give us guidance on winding up a charity when there is no provision in the rules about the subject?

A: Current New Zealand legislation in respect of charities and incorporated societies require that to be registered, an organisation’s rules must contain a ‘winding-up’ clause. However, many older charities may not have such a clause. For example, two charities with which we have recently worked have a clause along the lines of “upon winding up, any residual assets …” but there was no clear guidance in the rules about the mechanism of how to wind up (for example, the quorum for a meeting called to determine whether a charity should wind up, what percentage of the vote is required and so on).

The simplest advice we could give was that the easiest solution would be to hold a meeting that met the charity’s rules in terms of notice required, quorum and percentage of votes required in order to change the rules. The meeting would then consider a proposal to amend the rules to include a winding up clause. Then the charity could be wound up per the amended rules. This of course takes additional time during which the charity must be operated in accordance with the rules and follow all legal reporting requirements.

We stress that it’s important for the governing body to ensure that they follow all legal requirements and fulfil their fiduciary duties throughout the dissolution process to avoid any potential legal or regulatory issues. Consulting with legal experts and relevant regulatory authorities would be strongly advised in navigating the complexities of dissolving a charity without a specific winding-up clause.

We also suggest that it is usually better to learn from others’ experiences. An organisation’s rules should be examined regularly to ensure that they are currently fit for purpose, and If your rules do not contain a clear winding-up clause, now would be the time to insert one!

Guidance on winding-up can be found on the DIA Charities Services website here and here, and on the Companies Office website here.

See also

Please note: this is general comment and should not be construed as legal advice.
As always, do not hesitate to seek qualified legal advice.