Iwi corporate structures and governance

Transcription

1 Iwi corporate structures and governance Te Tau Ihu Economic Summit OCTOBER 2012

2 Beyond Treaty settlements The Treaty settlement process has been a feature of the New Zealand landscape, in some shape or form, long before the establishment of the Waitangi Tribunal in 1975 and much has been learnt along the way Now, the majority of iwi have either concluded Treaty settlements or are in the process of doing so As a result, iwi are now putting in place different structures and strategies to grow their settlement assets We recommend structures which build on those currently being implemented and moving away from the largely charitable model implemented as part of earlier settlements Iwi corporate structures and governance 19 OCTOBER 2012 / 2

3 PSGE structures As a pre-condition of settlement, the Crown requires iwi to put in place a post-settlement governance entity ( PSGE ) The PSGE must be: Representative of the claimant group Transparent in its decision-making and dispute resolution procedures Accountable to the claimant group For the benefit of the members of the claimant group Ratified by the claimant group Iwi corporate structures and governance 19 OCTOBER 2012 / 3

4 Commonly used PSGE structure Directors Elected Trustees Asset Holding Company [May be a tax charity] PSGE [Usually a tax charity] Social Services Trust [Usually a tax charity] Sometimes a merged entity Trustees PSGE Receives the settlement assets, and may hold certain cultural redress assets Usually a private trust May be a registered tax charity Trustees are members of the claimant group, and are often all elected at the same time Asset Holding Company Holds and manages the claimant group s commercial assets (obtained before and through the settlement), and provides funds to the PSGE by way of dividend payments Limited liability company, wholly owned by PSGE May be a registered tax charity Directors are usually appointed by the trustees of the PSGE May have a number of subsidiaries Social Services Provider Provides social benefits to members of the claimant group (e.g. education grants, health services) The PSGE may also undertake some social functions itself Usually a tax charity Entities providing social benefits will usually be charitable Iwi corporate structures and governance 19 OCTOBER 2012 / 4

5 Commonly used PSGE structure Key Issues: 1. The trustees are often exposed to personal liability 2. Charitable entities are prohibited from making non-charitable distributions; therefore, a charitable structure does not allow for noncharitable distributions/benefits to claimant group members 3. If a charitable trust (in our example structure, the Social Services Trust) receives income derived from business activities, it is prohibited from making charitable distributions to claimant group members living overseas 4. Lack of stability with certain structures due to uncertainty around delegated authority 5. The claimant group may lack the expertise to effectively govern and manage its commercial asset holding company 6. Sudden changes of control, policy and direction I will address each of these key issues during the course of this presentation, and discuss different structuring options for solving each issue Iwi corporate structures and governance 19 OCTOBER 2012 / 5

6 Commonly used entities We will look at the key characteristics of the following entities commonly used by iwi in their post-settlement structures: 1. Trusts 2. Incorporated societies 3. Companies 4. Limited partnerships Iwi corporate structures and governance 19 OCTOBER 2012 / 6

7 1. Trusts: Key characteristics Legal personality: Not a separate legal entity cannot contract in its own name or own property All trust property vests in the trustees personally, and is held on trust by them for the benefit of the claimant group Perpetuity period of 80 years applies (unless the trust is charitable, in which case there is perpetual succession) Iwi corporate structures and governance 19 OCTOBER 2012 / 7

8 1. Trusts: Key characteristics Governed by: Its trust deed, which is a private document (although PSGE trust deed is normally made available to claimant group members) Trustee Act 1956 If charitable, the trust can be incorporated as a board under the Charitable Trusts Act 1957 Other rules developed by the courts over time (i.e. equity) Under each of these governing documents and laws, trustees owe certain fiduciary duties to the beneficiaries of the trust in this case, to the members of the claimant group If the trustees fail to discharge any of these duties, they can be personally liable for breach of trust Iwi corporate structures and governance 19 OCTOBER 2012 / 8

9 1. Trusts Key Issue 1: Trustees are often exposed to personal liability Trustees owe duties to the beneficiaries of the trust (i.e. to the claimant group) personally this means that they will be personally liable if they fail to discharge, or breach, a duty In certain circumstances, the trustees may be indemnified out of the trust fund however, this does not offer watertight protection Iwi corporate structures and governance 19 OCTOBER 2012 / 9

10 1. Trusts Solution: Incorporate an entity to be the corporate trustee of the PSGE trust Elected representatives are directors and shareholders Corporate Trustee Trustee PSGE Generally two types of entity to choose from: 1. Incorporated society 2. Company We discuss our recommended option shortly... Iwi corporate structures and governance 19 OCTOBER 2012 / 10

11 1. Trusts Key Issue 2: Charitable entities are prohibited from making non-charitable distributions; therefore, a charitable structure does not allow for non-charitable distributions to claimant group members Iwi corporate structures and governance 19 OCTOBER 2012 / 11

12 1. Trusts Solution: The PSGE trust remains a non-charitable entity this will allow it to make non-charitable distributions to members of the claimant group A new charitable trust is created with the Corporate Trustee as the settlor ( Charitable Trust 1 ) A new entity is created to be the corporate trustee of the new charitable trust ( Corporate Trustee 2 ) Iwi corporate structures and governance 19 OCTOBER 2012 / 12

13 1. Trusts Key Issue 3: If a charitable trust (in our example structure, the Social Services Trust) receives income derived from business activities, it is prohibited from making charitable distributions to claimant group members living overseas Iwi corporate structures and governance 19 OCTOBER 2012 / 13

14 1. Trusts Solution: Create a second charitable trust which will receive non-business income only ( Charitable Trust 2 ) this will allow it to make charitable distributions overseas Corporate Trustee 2 will also be the corporate trustee of Charitable Trust 2 Iwi corporate structures and governance 19 OCTOBER 2012 / 14

15 2. Incorporated societies: Key characteristics Legal personality: Is not expressly a separate legal entity, but does possess certain characteristics of a separate legal entity, including: Perpetual succession Able to sue and be sued An incorporated society can own property, but may only enter into contracts as permitted by its rules A contract that is ultra vires the rules of the society cannot be enforced by either party Governed by: Incorporated Societies Act 1908 Its rules, which are publicly available via the Companies Office website Iwi corporate structures and governance 19 OCTOBER 2012 / 15

16 2. Incorporated societies Key Issue 4: Lack of stability due to uncertainty around delegated authority Example: Waikato-Tainui Te Kauhanganui Incorporated Iwi corporate structures and governance 19 OCTOBER 2012 / 16

17 2. Incorporated societies: Instability? Mahuta v Porima (2000): The Queen s Representative challenged the decision of Te Kaumaarua to enter into an agreement to sell the Auckland Warriors Rugby League Club Ltd; challenge failed Porima v Te Kauhanganui o Waikato Inc (2000): Six elected members must have authority to make decisions, even without the requisite quorum as specified in the rules to do otherwise would leave a complete void in Tainui s affairs Mahuta v Porima (2000): Group opposing six elected members of Te Kaumaarua attempted to call a meeting to remove those members; Court ruled the meeting invalidly called Iwi corporate structures and governance 19 OCTOBER 2012 / 17

18 2. Incorporated societies: Instability? Porima v Waikato Raupatu Trustee Company Ltd (2010): Meeting of directors not validly held, and notice of meeting contained insufficient notice of resolution to remove directors and other employees of the company Solomon v Waikato Raupatu Trustee Company Ltd (2004): Notice of directors meeting contained insufficient notice of proposed disciplinary action against director; purported suspension of that director therefore invalid Roa v Morgan (2009): Matters of governance must be decided by Te Kauhanganui, including any decision relating to the structure of the Waikato-Tainui group Iwi corporate structures and governance 19 OCTOBER 2012 / 18

19 2. Incorporated societies: Instability? Martin v Morgan (2011): Application for injunction bought by T Martin to prevent her removal as Chair of Te Kauhanganui; application not granted as unnecessary Waikato-Tainui Te Kauhanganui Inc v Martin (2011): Application for injunction bought by Te Kauhanganui on the direction of Te Arataura, to prevent the Chair of Te Kauhanganui from proceeding with the half-yearly general meeting; application granted Morgan v Martin (2011): Application bought by T Morgan for declaration that resolution removing him as a member of Te Kauhanganui invalid; application granted Iwi corporate structures and governance 19 OCTOBER 2012 / 19

20 2. Incorporated societies: Instability? Waikato-Tainui Te Kauhanganui Inc v Martin (2012): Application for injunction bought on the direction of Te Arataura to prevent Chair of Te Kauhanganui from proceeding with induction meeting; application refused Waikato-Tainui Te Kauhanganui Inc v Martin (2012): Application for injunction bought on the direction of Te Arataura to prevent meeting, at which it was proposed that new members of Te Arataura be elected under the new rules; application refused Takerei v Roa (2012): Application for declaration as to validity of Hiiona Marae elections, bought by the Chair of Te Kauhanganui (and others); application granted Iwi corporate structures and governance 19 OCTOBER 2012 / 20

21 2. Incorporated societies Solution: Do not use an incorporated society within the PSGE structure. We recommend using a company as the corporate trustee of the PSGE trust Lack of legal authority and precedent relating to incorporated societies makes it an unstable structure Companies are more recognised Iwi corporate structures and governance 19 OCTOBER 2012 / 21

22 3. Companies: Key characteristics Legal personality: Separate legal entity can contract in its own name, and own property Perpetual succession Governed by: Companies Act 1993 Constitution (if it decides to adopt one), which is publicly available via the Companies Office website Iwi corporate structures and governance 19 OCTOBER 2012 / 22

23 3. Companies: Recommended corporate trustee Elected representatives are directors and shareholders Corporate Trustee Trustee PSGE Trustee Company Individuals elected by the claimant group ( elected representatives ) will be the directors and shareholders of the Trustee Company. These representatives will be responsible for the governance of the PSGE and the overall group. The PSGE trust deed may set out the procedure for electing representatives. The Trustee Company will not hold any assets. Having a Trustee Company will protect elected representatives against a degree of personal liability (because in most cases directors are not personally liable for the company s losses). The directors must still act in the best interests of the company, which for a corporate trustee (in our opinion) includes the PSGE trust. Iwi corporate structures and governance 19 OCTOBER 2012 / 23

24 4. Limited Partnerships An internationally recognised vehicle Since its introduction into New Zealand in 2008, the limited partnership structure has been readily adopted and utilised by the funds industry, with millions of dollars tied up in funds investments My colleague, Te Aopare Dewes, went through the key characteristics of a limited partnership, so I won t go through them again in short... Iwi corporate structures and governance 19 OCTOBER 2012 / 24

25 4. Limited Partnerships Key characteristics: General Partner: responsible for managing the day-to-day affairs of the limited partnership (we recommend using a company as the general partner to further limit liability) Limited Partners: contribute funds to the limited partnership, and receive partnership shares in return. Limited Partners are prohibited from taking part in the management of the limited partnership (we recommend that Limited Partners have the power to appoint directors to the board of the General Partner, effectively ensuring that the Limited Partners do have a say in the running of the limited partnership) Separate legal person, so able to contract in its own name and own property Governed by the Limited Partnerships Act 2008 and the limited partnership agreement, which is a private document Look-through for tax Iwi corporate structures and governance 19 OCTOBER 2012 / 25

26 4. Limited Partnerships Key Issue 5: The claimant group may lack the expertise to effectively govern and manage its commercial asset holding company Iwi corporate structures and governance 19 OCTOBER 2012 / 26

27 4. Limited Partnerships Solution: Use subsidiary limited partnerships to carry out any commercial operations The trust deed of the PSGE should provide that all board members must possess the particular skills required to effectively operate a commercial business Iwi corporate structures and governance 19 OCTOBER 2012 / 27

28 Final key issue Key Issue 6: Sudden changes of control, policy and direction Iwi corporate structures and governance 19 OCTOBER 2012 / 28

29 Final key issue Solution: Stagger the elections of board members, to ensure continuity from one election to the next Iwi corporate structures and governance 19 OCTOBER 2012 / 29

30 Putting it all together... Elected representatives are directors and shareholders; staggered election Distributions to members of the claimant group Trustee Company PSGE [Non-charitable] Directors Directors Asset Holding Company Trustee Company 2 Business Income Non-business Income Charitable Trust 1 [Tax charity] Charitable Trust 2 [Tax charity] General Partner Limited Partnership Subsidiaries Charitable purposes in Aotearoa Charitable purposes in Aotearoa and overseas Finally, we recommend obtaining a Binding Ruling from the IRD if implementing a restructure... Iwi corporate structures and governance 19 OCTOBER 2012 / 30

31 Questions Iwi corporate structures and governance 19 OCTOBER 2012 / 31

32 Contact Iwi corporate structures and governance 19 OCTOBER 2012 / 32