Category: Commercial

Introduction

The divisive Government Communications Security Bureau Amendment Bill (the Bill) was passed into law after its third reading on 21 August 2013 by a vote of 61 to 59. It amends the Government Communications Security Bureau Act 2003 (the Act), the Inspector-General of Intelligence and Security Act 1996 (IGISA), and the Intelligence and Security Committee Act 1996 (ISCA).

It is currently proposed that the Bill will be divided into three separate amending Bills, each corresponding to their respective Act.

The history of the Government Communications Security Bureau

The New Zealand Government has recognised the need for signals intelligence, technical security, and communications security since the Second World War. However, these services were historically provided for by various agencies such as the New Zealand Defence Force and the New Zealand Security Intelligence Service (NZSIS). It was not until Prime Minister Robert Muldoon approved the formation of the Government Communications Security Bureau (GCSB) in 1977 that these activities were centralised in the GCSB.

In early 2000 it was decided that the GCSB should have a statutory basis similar to the NZSIS and so began an extensive legislative process and public consultation that culminated in the the Act coming into effect on 1 April 2003.

The Government Communications Security Bureau Act 2003

The Act sets out the GCSB’s objective as contributing to the national security of New Zealand by providing the New Zealand Government with foreign intelligence. The external oversight of its activities is set out in the IGISA and ISCA.

The Act essentially provides that the three core functions of the GCSB are information assurance and cyber security; foreign intelligence; and cooperation with and assistance to other entities. It sets out that the GCSB:

• Can gather intelligence through spying on foreigners;
• Cannot spy on New Zealanders to gather intelligence;
• Protects New Zealand Government communications from cyber attack; and
• Assists domestic agencies like the NZSIS, the New Zealand Defence Force and the New Zealand Police (although it does not specify the manner in which it does this)

The Government Communications Security Bureau Amendment Bill

On 15 April 2013, John Key, as Prime Minister and hence Minister responsible for the GCSB, announced the introduction of the Bill, which was seen as an attempt to strengthen the oversight regime of New Zealand’s intelligence community. However, the Bill has been met with significant controversy, with opposition arguing it will have potentially invasive impacts on the New Zealand public.

The three main purposes of the Bill are:

• To provide a clear governing framework for GCSB activities;
• To update this framework to accommodate changes in the security and public environment since the Act; and
• To enhance external oversight mechanisms by strengthening and improving the offices of the Inspector-General of Intelligence and Security (IGIS) and the Parliament’s Intelligence and Security Committee (ISC) functional capabilities.

So, bearing these in mind, what exactly are the amendments the Bill makes to the three acts it purports to amend?

With respect to the Act:

• The GCSB will continue to collect foreign intelligence, and will still be prevented from spying on New Zealanders under this function (as is the case in the Act). However, this protection will only extend to private communications and not to metadata (data logs) or conversations that could reasonably be expected to be interrupted;
• The GCSB will be allowed to assist the NZSIS, the New Zealand Police and the Department of Defence in spying on New Zealanders but only to the extent these agencies are authorised under warrant or statute to do so;
• The GCSB’s cyber security function will be extended from protection of Government communications only to private-sector cyber systems as well, if they are deemed important enough to New Zealand;
• A written reporting requirement on the GCSB to maintain records of warrants and authorisations;
• Certain principles of the Privacy Act 1993 may be modified to allow the GCSB to achieve its functions more effectively and efficiently; and
• An increase in the maximum penalty for unauthorised disclosure of information.

While the main amendments are directed toward the Act, the Bill also affects the IGISA and ISCA.

The IGIS is supposedly a source of independent external oversight that is responsible for examining issues of legality and propriety. Under the Bill the key amendments to the IGISA are:

• The working nature of the IGIS is extended to include regular examination of issues affecting operational activities;
• The IGIS is able to conduct its own independent inquiries;
• IGIS reports will be unclassified (up to a certain point); and
• The pool of potential IGIS candidates extends beyond retired High Court Judges.

The ISC is the parliamentary mechanism of oversight for intelligence agencies and examines efficacy, efficiency, budgetary and policy issues.

Under the Bill the key amendments are:

• The Prime Minister must relinquish the Chair of the ISC if reviewing an intelligence agency they are ministerially responsible for; but can nominate the Deputy Prime Minister or the Attorney-General to act as an alternate chair; and
• Subject to sensitive information restrictions, the ISC will also be required to table its reports in the House and make them publicly available.

The future

In light of the recent intelligence scandal surrounding Kim Dotcom and the media furore created by Edward Snowden’s acknowledgment of the National Security Agency’s use of ‘PRISM’ in the United States, the public has been put on red alert and are generally calling for greater transparency and accountability for intelligence and security services.

The Snowden issue is particularly relevant to New Zealand due to its membership with the ‘Five Eyes’ spying alliance initiative between the United States, Australia, Canada and Britain.

Make of it what you will, whether the Bill achieves its desired status within New Zealand is still unclear. However, what is evident will be the continuing debate and controversy this Bill will stimulate over the coming months, and even years, as the New Zealand public wait with bated breath to see the true effect this Bill will have on their personal privacy.

If you would like further information please contact Laura Monahan on 07 958 7479.

The legislation

On 30 June 2013 the Anti-Money Laundering & Countering Financing of Terrorism Act 2009 came into force. The new legislation aims to identify money laundering proceeds which have been generated from underlying criminal activities.

What is money laundering and terrorist funding?

“Money Laundering” is the process of disguising money that has originated from illegal activities, which is then ‘laundered’ in an attempt to make the money appear as if it has come from a legitimate source.

Financiers of terrorist activities adopt similar techniques to money launderers, with an emphasis on concealing the identity of the individuals or groups involved in the transaction. An example may be transferring $9,999.99 between individuals to avoid reaching the $10,000.00 threshold which could automatically trigger a financial institution to look further into the transaction.

The impact on New Zealand

Despite New Zealand being geographically distant from international terrorism, New Zealand is not immune to terrorist activities. With advances in technology, it is now much easier for criminals/terrorist to take advantage of countries with minimal money laundering or terrorism regulations. Terrorists do this by depositing and withdrawing money through other countries banking systems, therefore minimising the threat of being caught by their own country’s authorities.

By implementing this legislation, New Zealand is building and enhancing its international reputation. New Zealand cannot be seen as a ‘weak link’ as this could detrimentally affect New Zealand businesses which may be subject to costs, delays and other barriers when trading internationally.

How will it affect consumers?

Customers of a financial institution (including banks and finance companies) may notice more stringent processes in comparison to the period prior to the legislation coming into effect. A request to your bank which may have once seemed relatively simple, may now involve customers having to provide copies of additional documentation, such as certified copies of photo identification, confirmation of address, or a pay slip to verify the source of income.

When requesting a service or product from a financial institution, each component of the requests must be assessed by the financial institution in order to be legally compliant. A customer will be required to provide identification; provide details of individuals who will benefit from the transaction and may be required to justify the transaction among other things.

All information gathered under the new legislation is protected in accordance with the Privacy Act 1993.

If you would like further information please contact Laura Monahan on 07 958 7479.

Introduction

IRD has released a consultation paper seeking feedback on proposals to clarify the tax rules that apply when a charity is removed from the Department of Internal Affairs’ Charities Register.

There are many benefits for an entity which qualifies as a registered charity, including tax-exempt status. However when a charity is deregistered it can face significant tax consequences, depending on the reason for deregistration. This issue has resulted in uncertainty for some entities.

The paper seeks to canvass public opinion on proposed changes to the tax rules that could help to deal better with the varied circumstances of charities when they are deregistered. These include:

• Clarifying how the general tax rules, including the company, trust or other entity-specific regimes, apply to deregistered charities;
• Establishing the opening values of any depreciable property or consideration for any financial arrangements held by a deregistered charity when it becomes a tax-paying entity; and
• Prescribing specific timing rules for when the tax provisions apply.

Feedback is also being sought on whether additional measures might be helpful to ensure that affected charities are aware of their tax obligations following deregistration.

The complete paper is available on the IRD website.

Proposed solution

The paper outlines the proposed solution as follows:

Source

If you would like further information please contact Jessica Middleton on 07 958 7436.

Introduction

The Anti-Money Laundering and Countering Financing of Terrorism Act 2009 (the Act) comes into full force on 30 June 2013. One of the Acts aims is to ensure that “reporting entities” take appropriate measures against money laundering and financing of terrorism.

Reporting entities

The definition of “reporting entity” is activity-based, and will broadly include casinos and financial institutions (which include persons who, in the ordinary course of business, accept deposits/repayable funds, lend to or for a customer, manage portfolios etc).

What will reporting entities need to do?

If a business is a “reporting entity”, it will need to do the following:

• Undertake a “risk assessment” to identify potential money laundering and financing of terrorism issues that it could expect in the ordinary course of running its business. The risk assessment will look at the nature of the business, its products, delivery, customers, countries and institutions;
• Adopt an ongoing compliance programme and ensure that programme is monitored by a specially appointed Compliance Officer;
• Undertake customer due diligence – in relation to the customer, its beneficial owner, and any person acting on behalf of the customer. This will involve assessing each new and, in certain cases, existing customer and determining what level of due diligence should be carried out (standard, simplified or enhanced). Generally a full name, date of birth/company registration number and, if acting on behalf of the customer, the person’s relationship to the customer will be required. Customer due diligence must be undertaken before the business relationship is established or the transaction is started;
• Monitor transactions and report suspicious transactions; and
• Keep records of transactions and identity information for five years.

These steps will change the way people interact with financial institutions going forward.

Supervisors

Three agencies have been appointed as “supervisors” for different types of reporting entities:

• The Reserve Bank will supervise banks, life insurers and non-bank deposit takers;
• The Financial Markets Authority will supervise securities issuers, trustee companies, future dealers, collective investment schemes, brokers and financial advisors; and
• The Department of Internal Affairs will supervise casinos, non-deposit taking lenders, money changers and others that are otherwise not supervised.

Conclusion

The Act will come into full force in less than three months. If you consider that your business may be a “reporting entity” for the purposes of the Act, you will need to act now.

Note that this regime is similar – but not identical – to the Australian regime, and you should therefore be careful when purchasing software/training programmes from Australia, as these will need to be reviewed carefully for compliance with the Act. Customers of financial institutions (including banks) and casinos will also need to be aware that they may experience more stringent identity checks than they did prior to the Act coming into force.

Laura is an Associate in our Commercial Team and can be contracted on 07 958 7461.

Limited partnerships seem to be growing in popularity. The Limited Partnerships Act was passed in 2008, so the structure is no longer something new. There are now over 500 registered, and they seem to be increasingly used as a business vehicle. There are a number of advantages to limited partnerships (as well as disadvantages), and they can usefully be used in a range of situations. But they must be used critically. As the use of a limited partnership structure becomes more common, further issues – what we could call ‘second generation issues’ – are likely to arise. This article briefly outlines what limited partnerships are, before considering when they are most useful, when they are not useful, and the key issues that need attention for those forming or considering a limited partnership structure.

Limited partnerships

Each limited partnership (properly abbreviated as ‘LP’ not ‘LLP’) is governed by the Limited Partnerships Act 2008. An LP consists of a general partner, and at least one limited partner. The general partner is essentially the manager of the partnership, while the limited partners are the investors in the partnership. The limited partners cannot be involved in the management of the partnership, though the Act contains various “safe harbours” which make it relatively easy to structure arrangements so that the limited partners can do so in a permissible way – for example, by making the general partner a company, and the limited partners (or their associates) directors of that company. Because of potential liabilities on the general partner, the general partner is often a company.

A limited partnership is a legal entity separate from its partners. In this way, it is like a company, which has a legal identity separate from its shareholders: both a company and an LP can enter into contracts, sue others, be sued, and so on, without the investors behind the entity being personally liable. However, a limited partnership has very different tax implications from those that apply to a company. A company pays tax in its own right. A limited partnership, on the other hand, does not pay tax in its own right. Rather, the individual partners pay tax on profits, and gain the benefit of any losses (up to the amount of their committed capital – a similar arrangement to a look-through company (LTC)).

Why have a limited partnership?

Tax drives the establishment of most limited partnerships – though sometimes they seem to be driven by being something new and different. The good reasons for setting up an LP include:

• Tax: Where investors in a joint venture are on different tax rates (for example, an iwi charity forming a property development joint venture with a private trust), then a limited partnership allows each investor to pay tax on profits at its own rate (zero per cent for the charity; 33 per cent for the private trust), rather than the JV company paying its own tax. Similar issues might apply when a New Zealand and Australian investor are doing business together.
• Tax (mark 2): Where significant losses are expected upfront (as might be the case with a forestry venture, or a dairy conversion), the LP structure allows losses to be used by the limited partners personally, rather than remaining in the company. This can be very tax advantageous to investors.
• Streamlining: We used to see partnerships of loss attributing qualifying companies, or LAQCs (now look through companies, or LTCs), for tax efficiency. Though it has an inherent degree of complexity, a limited partnership is less cumbersome than these kinds of structures, and has fewer restrictions on ownership than an LTC.
• Overseas investment: This is perhaps the real reason for limited partnerships being established as a legal structure: to attract overseas investment. How? Because the structure is well understood overseas, and because an overseas investor can be taxed at his/her home rate, rather than the New Zealand company tax rate.
• Confidentiality: This is often underrated as an advantage. The name of the limited partnership and the identity of the general partner are a matter of public record. The identity of the limited partners must be disclosed to the Registrar, but is not a matter of public record. With a company, the names of shareholders must be disclosed; with a limited partnership, investors’ names can remain hidden.
• Liability as between investors: This is perhaps a less well-known point. In a company, directors owe duties to shareholders and to the company. Shareholders can also owe duties to each other, particularly in a ‘quasi-partnership company’, where the shareholders are a close-knit group with expectations of trust and confidence, where they work in the business together, and (usually) where there are restrictions on share transfers. These duties can be those of utmost good faith (fiduciary duties) – a step above contractual duties. Under the Limited Partnerships Act, partners can expressly provide that they do not owe fiduciary duties to each other, thereby limiting their legal risks as between each other.

When not to have a limited partnership (1)

There are negatives to any business structure. The key negatives for a limited partnership include:

• Complexity: A limited partnership is inherently more complicated than, say, an ordinary company – and an ordinary company, with its director duties, shareholder remedies, and creditor rights, is often more complex than many people recognise.
• Time: A company is easy to set up, while a limited partnership is not. A limited partnership is also not well suited to a situation where you want a new entity fast and cheap. A detailed limited partnership agreement is compulsory, and registration can take some time. The costs involved in setting up and registering a limited partnership are much higher than for a company.
• Involvement: Conceptually, the limited partnership structure is based around a division between management and investment – between the general partner and the limited partners. If all investors want to be actively involved in the business, then a limited partnership is not really the ideal structure. It may still be usable, but conceptually the fit is wrong. For this reason, limited partnerships are better suited to hands-off, passive investors than they are to hands-on businesses, such as professional service firms. I don’t think limited partnerships are right for most professional service firms, or your average small business where Mike and Jim both want employment, ownership, and control in the business. A standard company is generally better.

When not to have a limited partnership (2)

There are some reasons for a limited partnership that people think are good, but that can really be bad:

• Tax: Tax can be a good reason. But should tax drive all commercial decision making? Of course not.
• “They sound cool/different/trendy”: So did finance companies, once upon a time. There should be good commercial reasons for having a limited partnership structure, not just because it sounds more intriguing than an ordinary company.

Key issues needing attention

Governance and exit strategies are two critical points that often go largely unconsidered in limited partnership agreements. As limited partnerships become more common, it is important – essential – that advisers become more sophisticated about them. It is too easy for limited partnership agreements to be based on templates unsuited to the parties and their situation.

For example, where there are only two limited partners, exit strategies need to be very different than if there are six or 10 limited partners. Do they have roughly the same resources, if A needs to buy B out? Or will B always win a ‘bidding war’ between the two? If B breaches the agreement, what will A do? Should A have the ability to pay out B over a period of time, rather than immediately? What if A and B fall out and simply cannot agree on a decision requiring a resolution of the limited partners? The answers to these kinds of questions need to be tailored, and a standard template pre-emption clause won’t do the trick.

Again, where there are only two limited partners, do they need an advisory committee? This appears in many templates, but is it really necessary? What if there are four or five limited partners? Is it any more necessary then?

Commercial lawyers have become quite used to dealing with these issues in the context of shareholders’ agreements. It is now essential for limited partnership agreements to reach the same levels of customisation. As headings, we could ask:

Governance

• Are limited partners also shareholders and directors in the general partner company? Do they want to be?
• Is an advisory committee really necessary? What will it add to the governance of the limited partnership?
• What decisions are fundamental to the limited partnership (eg the line of business the limited partnership undertakes)? What influence do limited partners have? What role do limited partners have in decision making?

Exit strategies

• How will A exit the limited partnership? Is there a standard pre-emption provision, or something more detailed (Russian Roulette; Drag-Tag; etcetera)? Will A find his/her own buyer, or sell out to another limited partner? Can A require B (or B and C) to buy out A’s limited partnership interest?
• Will payment be immediate or staggered?
• If another limited partner joins, will the agreement remain in place, or be renegotiated to take into account what might be different governance arrangements?
• If A sells his/her limited partnership interest, is A also required to leave the general partner company?
• What warranties is A providing on exit?

Contribution

• If the limited partnership is to borrow money, what bank guarantees will be required?
• Are limited partners obliged to provide these?
• Are limited partners required to contribute work to the limited partnership? How are these obligations documented? Do they fall within the safe harbours of the Act?

This list is far from exhaustive, but I believe there are many limited partnership agreements that have been signed up with only cursory attention to issues of governance, exit, and contribution.

Sale of an LP interest

It is still early days of course, and it seems there are (so far) many more limited partnership agreements than there are agreements for the sale of an interest in a limited partnership. These too require more detailed attention, in terms of sale price, valuation, timing, settlement obligations, and warranties. The negotiation of warranties on departure from a limited partnership may well come to vex an increasing number of lawyers.

The sale of a limited partnership interest bears a familial resemblance to the sale of shares in a company, but the two are of course quite distinct, and need to be documented in very different ways.

Conclusion

Limited partnerships are an increasingly common, but still immature, business structure. In the world of ‘Limited Partnerships 2.0’, advisers need to look beyond what a limited partnership is, and beyond the use of templates, into second-generation questions like:

• Why use a limited partnership?
• When? When not?
• What model of governance best suits this limited partnership?
• What is the best model of funding?
• What exit strategies should be put in place?
• How will I document my exit from this LP?

Increasingly, parties to a limited partnership will be better served by customised and tailored arrangements. These should take into account the points raised above, and many others besides. Otherwise, those entering into limited partnership arrangements may get more confusion, and less clarity, than they bargained for – and the 2.0 issues will be ones of concern and loss, rather than opportunity and prosperity.

If you would like further information please contact Laura Monahan on 07 958 7479.

Introduction

Are you an officer of a charity? Perhaps you are on the committee of the local swimming club, or a trustee of a charitable trust. If so, you need to be aware of the increased attention being paid to charitable officers.

The Charities Act 2005

The Charities Act 2005 (the Act) is a relatively recent development in charities legislation. The Act established a Charities Commission, now called the Charities Board (the Board) with the function of promoting public trust and confidence in the charitable sector. The Board encourages good governance and management practices, by providing educational material and other help to enable organisations to be more effective. To perform these functions, the Board has wide powers under the Act. In June 2012, the Board (then the Charities Commission) made its first significant order disqualifying an individual from being an officer of a charitable entity for a period of three years. The Board found that Mr Smyth engaged in conduct that amounted to “serious wrongdoing” under the Act.

Serious wrongdoing

The Act sets out that serious wrongdoing is:

• An unlawful or a corrupt use of the funds or resources of the entity; or
• An act, omission, or course of conduct that constitutes a serious risk to the public interest in the orderly and appropriate conduct of the affairs of the entity; or
• An act, omission, or course of conduct that constitutes an offence; or
• An act, omission, or course of conduct by a person that is oppressive, improperly discriminatory, or grossly negligent, or that constitutes gross mismanagement.

The Act also provides that the Board may, if it has removed an entity from the charities register, make an order disqualifying an officer from being an officer of a charity for a period of up to five years.

A person must not state or imply that an entity is registered under the Act when that entity is not registered. Every person who does so may be liable for a fine not exceeding $30,000.

Decision of the Board

After an extensive investigation, the Board found that Mr Smyth had engaged in a number of activities that were breaches of the Act, constituted serious wrongdoing, could mislead the public, and erode the public’s trust in the charitable sector. These included:

• Using a false name on behalf of a registered charity;
• Stating that the false name held status as a trustee of a registered charity;
• Listing the false name as a primary contact on another entity for which Mr Smyth was trustee, and that sought registration with the Board;
• Posting six online auctions, indicating that the auctions were on behalf of a registered charity when in fact, the charity had been deregistered;
• Posting a further online auction after receiving a formal warning not to engage in such conduct;
• Failing to respond to notices sent by the Board without reasonable excuse;
• Failing, significantly and persistently, to attend to the Trust’s administrative duties and its obligations under the Act to the point the Trust was being grossly mismanaged.

Mr Smyth was disqualified from being an officer of a charity for a three year period.

Comment

It is clear from the facts that Mr Smyth was actively involved in breaches of the Act: he was not an “innocent victim” of the Board. What this case does show is that there are real consequences for those involved with charities (or non-charities, as the case may be).

Tips to avoid disqualification

We recommend all charities adopt the following practices:

• Be familiar with your rules and follow them;
• Keep accurate records of all meetings and correspondence;
• Consider engaging an administrator to assist with compliance;
• File annual returns under the Act;
• Do not ignore communication from the Board.

If you would like further information please contact Jessica Middleton on 07 958 7436.

Introduction

The Financial Markets Authority has allowed the Securities Act (Real Property Proportionate Ownership Schemes) Exemption Notice 2002 (the Exemption Notice) to expire, with effect from 1 October 2012. This will have implications for property syndicates and their potential investors.

Real property proportionate ownership schemes

The Exemption Notice applied to proportionate ownership schemes, or property syndicates, which allow investors to “pool” their funds in order to purchase a commercial property that might otherwise be out of the investor’s financial reach.

Property syndicates have seen a resurgence in popularity in recent years, partially due to the collapse of finance companies. Property syndicates generally promise high returns and appeal to those who want to invest in real estate but do not want the responsibility of managing a property.

The previous position

Prior to the expiry of the Exemption Notice, issuers that fell within the class exemption were not required to prepare a registered prospectus and investment statement, or appoint a statutory supervisor. These issuers could instead simply provide potential investors with an “offeror’s statement” (similar to an investment statement) and a recent valuation of the target property.

Financial Markets Authority decision

The Financial Markets Authority made the decision to allow the Exemption Notice to expire largely due to the risks involved in syndicated property investments. Potential investors should have access to information sufficient that they can assess these risks and make an informed decision as to whether or not to invest.

The Financial Markets Authority has indicated they will refuse to grant specific exemptions along the lines of the Exemption Notice in the future.

What now?

With the expiry of the Exemption Notice, property syndicate promoters and issuers will now have the following main options:

• Register a full prospectus with the Companies Office, prepare and distribute an investment statement and appoint a statutory supervisor. This may prove costly and time-consuming, but sound legal advice would ensure the issuer is fully compliant with securities legislation.
• Apply to the Financial Markets Authority for a specific exemption tailored to their particular circumstances. However, given the Authority’s indication that it will not grant specific exemptions to syndicates in the future, such an application is unlikely to be successful barring extraordinary circumstances.
• Structure the offer so that securities are only offered to excluded or exempted persons. Using this option will severely limit the number of people to whom offers may be made.

Conclusion

Securities law is an area that is fraught with risk, and can carry hefty penalties for non-compliance. Any person looking to offer securities to the public, or who is unsure whether their offer is to the “public” or not, should seek legal advice to ensure they are fully compliant before proceeding.

Laura is an Associate in our Commercial Team and can be contacted on 07 958 7461.

As of 1 July 2012, the Charities Commission has been wound up and its core functions have been moved to the Department of Internal Affairs. These functions include education, registration, monitoring and investigation. A new board has been appointed to make decisions about registration and de-registration.

A press release from the Minister for the Community and Voluntary Sector sets out that there will be no substantive changes for registered charities or for those organisations seeking registration.

If you would like further information please contact Jessica Middleton on 07 958 7436.

Introduction

Three significant changes to the Charities Act have come into force from 25 February 2012. These affect:

• Disqualification of officers;
• Recognition of those involved in management or treasury as officers; and
• Charitable purposes – particularly for amateur sport.

Disqualification of officers

All registered charities must now tell the Charities Commission if a certified officer becomes disqualified (section 40(1)).

An officer will be no longer qualify to be an officer of a registered charity if the officer:

• Is adjudicated bankrupt;
• Is convicted of a crime of dishonesty and sentenced;
• Is prohibited from being a director or promoter under company or securities legislation;
• Becomes subject to a property order under the Protection of Personal and Property Rights Act 1988; or
• Is disqualified from being an officer under the rules of the charity.

There is an ongoing obligation to notify the Charities Commission if an officer is disqualified. If an officer becomes disqualified, the charity must send notice to the Charities Commission. If a charity does not remove a disqualified officer, the charity will no longer qualify for registration.

We recommend having a regular agenda item at meetings for “Qualification of Officers”, with each officer confirming that he or she still qualifies.

Recognition of management and treasury as officers

The definition of “officers” has been extended. Charities must now certify as officers the members of their highest governing body and all people in a position to have significant influence over the management or administration of the Charity.

This change does not apply to trusts, but for incorporated societies and other charities, spreads a wider net for who may be an “officer”.

According to the Charities Commission, positions of significant influence are voluntary or paid positions that have significant influence over a charity’s:

• Management or administration;
• Decision-making;
• Expenditure of funds or resources; and
• Day-to-day operations.

Positions of significant influence include:

• Chief executive;
• Treasurer;
• Finance officer;
• Paid or unpaid staff who manage contracts for the charity; and
• Paid or unpaid staff that have access to, or control over, the charity’s funds or its financial arrangements.

Every charity will need to ensure that officer certification forms are completed for every Officer and every person in a position of significant influence.

Amateur sports

Whether sport is charitable has for some time been a tricky question. However, a new change to the Charities Act clarifies that the promotion of amateur sport may be a charitable purpose – if it is the means by which other charitable purposes (the relief of poverty, the advancement of education or religion, or the provision of another benefit to the community) – are pursued.

So, for example, a rugby or tennis club with a focus on promoting health and education through physical activities among young people may be charitable – providing more certainty in this area.

If you would like further information please contact Jessica Middleton on 07 958 7436.