• Home
• Regulation
• Corporate Law and Governance
• Mutuals Law
• Credit Unions
• Review of FSCU Act 1982
• Cabinet Papers
• Cabinet Paper 2
• Annex A

• Corporate Law and Governance

• Mutuals Law

• Credit Unions

• Review of FSCU Act 1982

• Executive Summary
• Proposed Areas for Legislative Amendment
  • 1. Qualifications for Admission to Membership of a Credit Union
  • 2. Legal Personality and Validity of Action
  • 3. Capital
  • 4. Trust Deed Duplication
• Amendment Analysis
  • Qualifications for Admission to Membership of a Credit Union
    • Summary of Amendments
    • Proposal
    • Agreed Position
  • Legal Personality and Validity of Action
    • Summary of Amendments
    • Proposals
    • Agreed Position
  • Capital
    • Summary of Amendments
    • Proposals
    • Agreed Position
  • Trust Deed Duplication
    • Summary of Amendments
    • Proposals
    • Agreed Position

Prepared by the Association of Manchester Unity Credit Unions and the New Zealand Association of Credit Unions, December 2003.

Executive Summary

• The New Zealand Association of Credit Unions ("the NZACU") has proposed amending legislation for the Friendly Societies & Credit Unions Act 1982 ("the FSCU Act") in four key areas. The NZACU outlined the suggested amending legislation in a paper dated December 2001.
• The Ministry of Economic Development issued a Discussion Paper in December 2002 on Friendly Societies and Credit Unions Act 1982: Possible Options for Reform which incorporated questions for discussion based on the NZACU's proposals.
• The NZACU has, in conjunction with the Ministry of Economic Development, completed over the last four years, particularly in 2001, a full round of consultation, including with the Association of Manchester Unity Credit Unions ("AMUCU"), the Financial Services Federation, PSIS and the Inland Revenue Department, on these four key areas requiring legislative change.
• As a result of a meeting with the Minister the Honourable Lianne Dalziel, representatives from the Ministry of Economic Development and from AMUCU on 6 November 2003 agreement was largely reached on all of the points originally raised as comprising the four key areas requiring legislative change.
• At the suggestion of the Minister the AMUCU and the NZACU were invited to discuss points of common agreement in relation to the proposed changes. This paper outlines the agreed principles between the two Associations.
• The Associations have agreed on the principles applying to all legislative changes and similarly agree that their implementation should proceed at the earliest opportunity and that the changes as so agreed will not prejudice any other party given that all the changes, apart from allowing credit unions to enjoy perpetual succession and a common seal, are elective and enable credit unions to continue exactly as they operate now.

Proposed Areas for Legislative Amendment

1. Qualifications for Admission to Membership of a Credit Union

• To enable charities and incorporated societies affiliated with the common bond to become members of credit unions but to retain the restrictions on corporate membership.
• To clarify the State regulatory supervision of self-designated credit union mutual groupings.

2. Legal Personality and Validity of Action

• To clarify credit unions' legal status.
• To remove any unnecessary duplication between trustees and directors of credit unions.
• To clarify credit unions' ability to own property including land.
• To remove the necessity for Ministerial approval before Associations of credit unions can provide services to member credit unions.

3. Capital

• To remove limitations on credit unions being able to raise capital from within their membership to underpin their financial security and meet Securities Act trust deed financial ratios.

4. Trust Deed Duplication

• To amend the current legislative restrictions on borrowing, investment, and reserves to allow these matters to be governed to a no lesser standard by the Securities Act Trust deed.
• To remove the requirement to stipulate the actual amount of fees and charges in the rules of credit unions.

Amendment Analysis

Qualifications for Admission to Membership of a Credit Union

Summary of Amendments

• To clarify the State regulatory supervision of self-designated credit union mutual groupings.
• To enable charities and incorporated societies affiliated with the common bond to become members of credit unions but to retain the restrictions on corporate membership.

Proposal

• Amend Section 100(d) and Section 102 of the FSCU Act to remove the requirement for Registrar approval other than to only register credit union rules, which contain an objectively identifiable "common bond" within the ambit of the section.
• Amend Section 106 to enable charities and incorporated societies affiliated with the common bond to become members of a credit union.

Agreed Position

• The Associations agree that the common bond is important to the operation of credit unions and that it is appropriate to restrict membership of a credit union to those associated by an identifiable common bond.
• The Associations agree that the current legislation is subjective in nature and that the FSCU Act should be amended to require credit unions to have an objectively identifiable common bond but subject to the judgment as to whether such has been sufficiently identified in the rules of a credit union still resting with the Registrar.
• The Associations agree that charities and incorporated societies should be permitted under the rules of a credit union to become members of the credit union provided they share some affiliation with the common bond of the credit union.

Legal Personality and Validity of Action

Summary of Amendments

• To clarify credit unions' legal status.
• To remove any unnecessary duplication between trustees and directors of credit unions.
• To clarify credit unions' ability to own property including land.
• To remove the necessity for Ministerial approval before associations of credit unions can provide services to member credit unions.

Proposals

• The corporate status of charities, which preserves the distinct trust nature of the charity, is considered by the Associations to be suitable for credit unions. In other words, credit unions would remain, to protect their essential mutual status, as they are now under specific legislation, but with the trustees for the time having body corporate status in a similar manner to the Charitable Trusts Act. If properly understood in this context, to grant this type of corporate identity to the committee of management of a credit union is not inconsistent with credit unions remaining indistinct from and representative of the body of their members.
• Associations of credit unions should be able to provide services to credit unions without Ministerial approval.

Agreed Position

• The Associations agree that the FSCU Act should be amended to allow credit unions to have perpetual succession and a common seal with any necessary consequential changes in the FSCU Act relating to trustees but so that credit unions may still, if they choose, retain trustees.
• The Associations agree that the necessity for Ministerial approval before associations of credit unions can provide services to member credit unions should be removed so long as provision for such services is made in the Association's rules and the Association is restricted to providing services primarily to credit unions

Capital

Summary of Amendments

• To remove limitations on credit unions being able to raise capital from within their membership to underpin their financial security and meet Securities Act trust deed financial ratios.

Proposals

• Amend Section 107 of the FSCU Act to provide that:
  • Shares do not have to rank equally. This will allow for a distinction between equity capital and investment capital in a Credit Union.
  • Equity shares can be made non-withdrawable, that is, non-refundable on a member withdrawing from a Credit Union. This will provide a permanent capital base for a Credit Union.
  • Investment equity shares can be transferable and able to be evidenced by a certificate. This will meet normal investment expectations.
• Section 106(2) FSCU Act, which currently provides that equity capital is limited to $10 per member, should be amended to allow the members to set an appropriate limit.

Agreed Position

• The Associations agree that, if the members of a credit union decide, and make provision in the rules, a credit union should be entitled to issue capital instruments which are non-withdrawable (that is repayable at the option only of the credit union), transferable (but only to other members of the credit union) and otherwise issued on terms as agreed by the credit union members including, if they so choose, a preference in respect of those capital instruments over ordinary shares of the credit union on a winding up.
• The Associations agree that Section 106(2) of the FSCU Act should not have a specified limit but that such limit should be up to the members of each credit union to decide and shall be specified in the rules of each credit union

Trust Deed Duplication

Summary of Amendments

• To amend the current legislative restrictions on borrowing, investment, and reserves to allow these matters to be governed to a no lesser standard by the Securities Act Trust deed.
• To remove the requirement to stipulate the actual amount of fees and charges in the rules of credit unions

Proposals

• Amend Section 109 of the FSCU Act.
• Amend Sections 113 and 117 of the FSCU Act.
• Amend Section 119 of the FSCU Act.
• Amend Section 105(4) of the FSCU Act by removing the requirement for the amount of fees and charges to be stated in the Rules of a credit union.

Agreed Position

• The Associations agree that Section 119 of the FSCU Act should be amended to exclude its application if the limitations provided for in this Section is otherwise provided for to a no lesser standard in a credit union's Securities Act trust deed.
• The Associations agree that Sections 109, 113, and 117 should be amended to exclude their application only if the Securities Act Trust Deed contains provisions for borrowing and investment by the credit union.
• The Associations agree that Section 105(4) of the FSCU Act should be amended by removing the requirement for the amount of fees and charges to be stated in the Rules of a credit union but so long as the mechanism for levying fees and charges is still stated in the Rules of the credit union.