Change coming for all Incorporated Societies

Incorporated Societies (and there are over 23,000 in New Zealand) must comply at present with legislation that is still a hangover from New Zealand’s transition on 26 September 1907 from a British Crown Colony to a self-governing state, the Dominion of New Zealand.  “Self-government” means being able to create your own laws, and that is what the first Parliament did, giving us a raft of legislation some of which is still current 111 years later – the Partnership Act 1908, the Incorporated Societies Act 1908 (IS Act), the Bills of Exchange Act 1908, the Agricultural and Pastoral Societies Act 1908, and the Trade Unions Act 1908 to name a few.

The Law Commission commenced a review of the Incorporated Societies Act 1908 in 2010 and published its findings in August three years later.  Largely adopted by the Government of the day, a draft Incorporated Societies Bill was released for public consultation in 2015.

There is a widely held belief that the IS Act is “seriously out-of-date and no longer provides an adequate or robust statutory framework for incorporated societies” (the Minister of Commerce’s response to the Law Commission report, 2013), a view confirmed by the Law Commission.  The likely remedy is a new Act for Incorporated Societies that will be much more prescriptive, require more active compliance, and will undoubtedly mean greater compliance costs for all societies.

The latest information we have is that work by officials continues quietly in the background, but that a Bill destined for passage through the three readings and select committee process (involving public consultation) is unlikely to be published before the general election next year.  The 2015 draft Bill described a transition period of four years, by which time all societies would need to comply with the new rules, and there is no reason to believe that this period will be significantly altered as part of the new Bill.

What can incorporated societies expect to see in the new legislation?  The 2015 draft Bill gives us some idea of the level of detail the Government may be looking for in a new Act, including:

• Specific rules about the distribution of society property if the society is dissolved;
• A requirement for a minimum number of members (10 is proposed, currently it is 15);
• An incorporated society will have the powers of a natural person (eg to enter into contracts);
• A prohibition on operating for financial gain of any member;
• Allowing a Court to recover any financial gain a member has made from the society;
• Specific rules regarding eligibility for becoming an officer or a committee member (probably along the same lines as currently listed in the Charities Act 2005);
• Every society will need to appoint a “Contact Officer” (although that title may change);
• Specific conflict of interest rules where an officer or committee member has personal interests that intersect with the interests of the society, and the ability of the society to exit from any contract where there has been such a conflict of interest;
• New members will need to consent to becoming a member – it cannot be automatic;
• Rules about the level of financial reporting, and audit or review, are likely to be considerably tightened (possibly a similar level of reporting and compliance as now with registered charities);
• Rules about how incorporated societies might amalgamate with other societies; and
• Defined dispute resolution procedures for when members have grievances.

Although there is no assurance that each of these (or any other) matters will be included in a new Bill, it is more than likely.

If you are a member of an incorporated society, and particularly if you are an officer or a committee member of a society, we suggest that you start planning for changes that will almost certainly be coming.  It is all but inevitable that nearly every society will need to agree and register a new Constitution (often called Rules) that will need to comply with the new Act.  We will be preparing standard-form constitutions to assist, and officials still talk about offering a ‘model constitution’, but each will likely need to be tailored to suit an individual society’s needs and its specific circumstances.

Any questions or concerns can be addressed to us in the meantime, and we will do our best to provide advice that is helpful and informative.

Business Law team

Gerard Dale, Claire Evans, Graeme Crombie, Evelyn Jones, Anna Ryan, Joelle Grace,  Peter Orpin, Ellen Sewell, Matt Tolan, Carlo Wan, Kristina Sutherland, Jacob Nutt, Whitney Moore, Alex Stone, Ben Cooper, Lisa Catto