Keep your house in order: the importance of keeping accurate membership records

The Supreme Court of New South Wales has appointed a receiver to return the Cambodian Buddhist Society of New South Wales, an incorporated association in NSW, to constitutional order (replace the Constitution, oversee admission of membership and election of the board) having found that the affairs of the Society were ‘littered in conflicts and anomalies’.

The case centred on a dispute between two rival factions within the Society. Each argued that they had been validly elected as the ‘governing body’ or ‘management committee’ (one in December 2016, the other in April 2017). Conversely, each argued that the other faction, due to defects in how it admitted members and conducted elections, was illegitimately elected.

In fact, each election had irregularities. In the December election, non-members were allowed to vote, candidates’ speeches were interrupted, people were instructing others how to vote (and in some cases voting for them), and people were placing multiple ballot papers into the box. This, together with other underlying hostilities, led to a special meeting of the members in April 2017, where the meeting voted to declare the board and presidency of the Society vacant and then elected a new president, unopposed.

The Supreme Court’s decision

The Court found that neither team was validly elected, saying ‘neither party have (sic) a valid mandate to act on behalf of the Society as the legitimate “Committee”.’ 

This came down to the fact that in 2000 the Society purported to amend several provisions of its Constitution relating to election and removal of directors, membership and voting rights. Below the amendments to the Constitution was a handwritten notation, which read: ‘25 votes in favour’, ‘16 votes against’. Although one of the factions argued that the ‘16’ was in fact an ‘11’, His Honour found this was of no consequence. Whether there were 41 or 36 people who attended the meeting, neither scenario meant that the Constitution had been amended by a resolution passed by a 75% majority of members present, which is a legislative requirement (and one required by the Society’s Constitution).

The Court found that the failure to pass the amendments as required was more than ‘a procedural irregularity’ and was ‘a matter of substance’. The amendments had the effect of completely changing the Society’s corporate governance structure from that of a democratically elected board to a presidential-style regime where the President could nominate his team at his complete discretion. The judge said:

The Constitution is the lifeblood of the Society. To change the Constitution, and in particular to change or alter key provisions going to the governance of the Society, the criteria for membership and the level of democracy and participation of the members of the Society is, in my view, to change the very fabric of the Society.

He added that he could not presume that the amendments were validly passed when the handwritten notation was evidence to the contrary. Nor could the mere fact that the Society’s members abided by the amendments for 17 years mean they had been ratified, as the members did not know the amendments were invalidly made.

What does this mean for incorporated not-for-profits and charities?

Although the case concerned the running of an incorporated association, the principles apply equally to a company limited by guarantee. 

Quite simply, board members must ensure that amendments to the Constitution are passed properly (that is, by a 75% majority of members present). If not, this can have flow on effects even 17 years later, as the Society found out the hard way.

The Court criticised the Society’s ‘ad hoc approach to membership’, saying ‘membership of any organisation is a fundamental provision in the sense that the association is all about its members’. In practice, this means not-for-profits and charities must be able to determine who and how many people are members on the date of an election, and so eligible to vote.

In our experience, many charities do not keep accurate membership records. While this might not be an issue for many years, when it does matter, the time and cost of rectifying the situation is often huge. Please contact g%9D%99%B8%9F%B2t%8C%A1%C8%97t if you would like some help to get your house in order.