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XIII. DISSOLUTION, LIQUIDATION AND REORGANIZATION


The legislation reviewed generally provides for WUOs to be established for an indefinite period. Having said that, the sample governing document annexed to the Tunisian law proposes the establishment of a WUO that is to last for a defined period of 99 years. Nevertheless, there may be circumstances in which it is necessary to dissolve, liquidate or otherwise re-organise a WUO.

In some jurisdictions, such as Colombia and the State of Andhra Pradesh in India, the WUO legislation is silent on this matter. Elsewhere, as in the examples of Mexico, Costa Rica and El Salvador, the legislation simply requires each WUO to include provisions on dissolution in its governing document. This is presumably because such WUOs are established on the basis of other legislation that addresses this issue.

In many countries, however, the WUO legislation sets out both the circumstances under which WUOs may be dissolved or re-organised and the procedures to be followed. Usually this is in primary legislation, but sometimes, as in the case of Saskatchewan Province in Canada, the procedure is set out in regulations.

Under what circumstances is a WUO to be dissolved? In some cases legislation specifies the circumstances in which this must happen. For example, in Chile a WUO must be dissolved once the water rights of the participants have all been consolidated into the hands of a single land owner. A longer list of circumstances leading to mandatory WUO dissolution is specified in the Spanish legislation:

- On the expiry and non-renewal of the concession held by the WUO.

- On the caducity (caducidad) of the concession.

- On the unavoidable expropriation of the concession

- On the merger of the WUO with another WUO.

- On the basis of a decision of the river basin administration (the WUO regulator) as a result of a sanctioning procedure.

- When three-quarters or more of the WUO's former participants no longer qualify to participate in the WUO. In such cases the remaining participants may agree that the WUO should continue to operate, in which case they must modify the WUO's governing document and re-register it at the central register maintained by the WUO regulator.

- If three-quarters or more of the WUO's former participants cease to use water provided by the WUO. In such cases the remaining participants may agree that the WUO should continue to operate in which case they must modify the WUO's governing document and re-register it at the central register maintained by the WUO regulator.

Elsewhere the legislation confers a greater degree of discretion on the person or persons responsible for deciding whether or not a WUO is to be dissolved. For example, in Sri Lanka the WUO regulator may disestablish a WUO that has been inactive for a period of more than two years for reasons of 'public interest,' a term that is not further expanded upon.

This leads to the next question: who is to make such a decision? Apart from the case of Sri Lanka, the WUO regulator plays a leading role in a number of jurisdictions and can take a decision to dissolve a WUO.

In this context, arguably the most sweeping powers regarding WUO dissolution are to be found in the legislation of Punjab Province, Pakistan. This provides that the WUO regulator may dissolve a WUO if it fails to pay outstanding water charges. However, registration can be restored once these have been paid. Furthermore, the WUO regulator may, on its own initiative or following the application of an aggrieved person, start proceedings for the dissolution of a WUO on certain specified grounds which include: violations of relevant laws, 'patent misuse of power', gross neglect of duty, 'embezzlement of funds' and mismanagement or inefficiency as a result of which 'its continuance is not in the public interest.'[149] In such cases, the WUO regulator must call the management board for a hearing, and may suspend the operation of the WUO before a final decision is made.

Similarly in South Africa, the WUO regulator takes a leading role in WUO dissolution in accordance with a procedure specified in the legislation. The regulator must first publish notice in the official Gazette of his intention to disestablish a WUO, and having considered any comments received, may proceed to dissolve the WUO, again by notice in the Gazette. The grounds for dissolving a WUO, which are also set out in the law, can be classified as voluntary and involuntary.

Voluntary grounds include the transfer of the WUO's functions, by agreement, to another water management organization, or the occurrence of an event provided for in the governing document of the WUO. In this connection, the model governing document indicates that a special general meeting of all participants may pass a resolution approving the dissolution of the WUO with a two-thirds majority and a confirmation vote after four weeks.

Involuntary grounds appear to confer a considerable degree of discretion upon the WUO regulator to initiate the dissolution process, irrespective of the wishes of a WUO's participants. They include cases where:

1. disestablishment is in the 'best interest' of the WUO or of its members;

2. an investigation of the affairs or the financial position of the WUO shows that disestablishment is appropriate;

3. the WUO regulator has taken over a duty or power of the WUO as a result of dissension among the members of the management board;

4. the WUO is no longer active or effective.

As to the procedure to be followed, the legislation provides that the winding up of the affairs of a disestablished WUO should be provided for in each WUO's governing document. If it is not, however, the WUO regulator is required to appoint a liquidator to fulfil this task.

In other countries the legislation confers a greater role on WUO participants in determining whether or not their WUO is to be dissolved, although even in these cases, the WUO regulator usually still has a role to play.

For example, in Bulgaria the legislation does not specify any grounds for dissolution, but provides that a WUO can be dissolved by a vote of no less than two thirds of participants at a meeting of the general assembly. The same meeting must also appoint one or more liquidators, whose appointment must, however, be approved by the WUO regulator.

A similar approach is to be found in the German legislation, except that the grounds for dissolution are spelled out. The specified grounds are that: the WUO's tasks no longer exist, the WUO cannot expediently fulfil its tasks, or that the continued existence of the WUO is no longer required for some other reason. However, in Germany any decision to dissolve a WUO also requires the consent of the WUO regulator. In addition, the legislation empowers the WUO regulator to demand the dissolution of a WUO if its membership drops to just one person, or for reasons of the 'public interest' (a term that is not further expanded upon.) If the general assembly of a WUO fails to respond to such a demand within a specified deadline, then the WUO regulator may proceed to dissolve it.

After the decision has been taken to dissolve a WUO, the law requires that the organization's affairs are “wound up,” either by the management board or by liquidators appointed by decision of the general assembly. The WUO regulator has the power to dismiss the board and appoint one or more liquidators with the legal status of the board if required in the public interest. The law provides that until the winding up is concluded the, the regulations of the law and the provisions of the WUO's governing document continue to apply against the WUO's (former) participants as well as third parties, unless the winding-up process changes the circumstances. Finally, the legislation also specifies what should happen to the books and records of a liquidated WUO. Similar provisions regarding liquidation are to be found in other WUO legislation.

As regards WUO re-organization this invariably takes place through the modification of the governing document. Some of the legislation reviewed also provides for WUO re-organization in the form of a merger with another WUO or the splitting of an existing WUO into separate WUOs. The Bulgarian legislation provides a reasonably typical example. Any such decision requires the approval of the general assemblies of the affected WUOs as well as the approval of the WUO regulator.


[149] Rule 10(3), Punjab Irrigation and Drainage Authority (Pilot Farmers Organizations) Rules, 1999 - 1 January 1999.

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