Recently the Trustees of a Charitable Trust decided to formally disestablish the charitable organisation. Upon winding up the Trust surplus assets needed to be distributed. A significant donation had been provided to the Trust prior to it being wound up by one of the Trustees in his personal capacity.  During the distribution process, this significant donation was returned to the Trustee.

In general a donation once made should be used for the charitable purpose intended. The Solicitor-General, who investigated the winding up of the Trust, commented:

“In general, once a gift is made to charity, the gift is irrevocably committed to charitable purposes and cannot be returned to the donor.”

From a legal perspective, in returning the donation to the donor, the Trustees failed to comply with the Trust’s governing document – its Trust Deed.

In light of this error, the Solicitor-General has urged all Trustees and officers of charitable organisations to ensure “strict adherence” to their governing document.

Officers and Trustees of all charitable organisations are subject to a wide range of legal duties. The most basic of these duties is to ensure compliance with the organisation’s governing document. This may be a Trust Deed, Rules, Constitution, Charter or (in some cases) an Act of Parliament. Trustees should check what the provisions are for distribution of the assets on winding up and then follow those requirements.

This document will usually include provisions relating to the winding up or dissolution of the organisation; more specifically, about the distribution of surplus assets upon dissolution.

To meet the requirements of the Charities Act 2005, winding up clauses must direct all assets to charitable purposes or charitable organisations.

It is not enough to allow funds to be distributed to “an organisation with similar purposes” as “charitable purpose” has a special meaning in law and two organisations may have similar purposes, but the specific nature of each organisation may mean that one organisation’s purposes are charitable while the other organisation’s purposes are not.

In the example outlined above, as the result of another sizeable donation being made by the Trustee to another charitable organisation during the intervening period of the Solicitor-General’s investigation, the matter was determined to be resolved. However, it is a timely reminder to Trustees and officers to operate within the rules of their governing document or risk being investigated and being personally liable for failing to adhere to those rules.

If the organisation had been an incorporated society (rather than a trust) the members of the society would need to appoint a liquidator to call in and distribute the society’s assets after paying any debts. A two-step process is required, with the members voting to wind up and then having another vote (no sooner than a month later) to confirm the original vote. All members must be advised of the proposed resolutions to wind up so they have the opportunity to attend and have their say.

For further information on winding up a charity or society please contact Alan Knowsley at aknowsley@raineycollins.co.nz or on (04) 473 6850.

Alan Knowsley
Partner
Wellington


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