Select Committee reports back on the Incorporated Societies Bill

Friday, November 5, 2021

The Select Committee has now reported back on the Incorporated Societies Bill (Bill).

This long-awaited Bill will replace the outdated Incorporated Societies Act 1908 to establish a modern framework of basic legal, governance, and accountability obligations for incorporated societies and those who run them.

For a reminder of the key changes introduced by the Bill, please see our earlier update.

The Bill was introduced on 17 March 2021, had its first reading on 6 April 2021 and was referred to the Economic Development, Science and Innovation Committee (Select Committee).

The Select Committee received 113 written submissions on the Bill and heard 34 oral submissions. The vast majority of submitters supported the Bill, but many made proposals for amendments.

As a result, the Select Committee has recommended that the Bill be passed with relatively minor amendments. These include:

  1. Allowing for independent members on a society’s governing body

Under the new law, every society will need to have a governing body/committee comprising at least 3 officers. One of the issues with the Bill, as introduced, was the requirement that members of that governing body must also be members of the society. This meant that societies would no longer be able to appoint independent members to its governing body.

In our view, having independent persons on committees promotes high-quality and effective governance of societies, which is precisely what this Bill aims to achieve. We made submissions on this particular issue, which the Select Committee has largely accepted. The Select Committee has recommended an amendment to instead require that a majority of the officers on a committee must be made up of members of the society (or representatives of bodies corporate that are members of the society).

  1. Clarifying the dispute resolution provisions

Under the new law, a society will need to have dispute resolution procedures in its constitution. The Bill does not specify which type of dispute resolution a society must use but any procedures must be consistent with the rules of natural justice.

The Select Committee has recommended changes to clarify that a society’s constitution can provide for disputes to be submitted to any type of dispute resolution, including mediation, arbitration, facilitation or tikanga-based practice. The Select Committee has also recommended changes to clarify what a complaint or dispute is and to expressly allow a society’s constitution to include how a decision made under the dispute resolution procedures can be appealed or reviewed.

  1. Clarifying the prohibition on financial gain

The Bill, as introduced, prohibits incorporated societies from being carried on for the financial gain of any members. After concerns were raised by a number of submitters, the Select Committee has recommended amendments to make it clear that this does not prevent payments such as hardship grants and education scholarships to members. It will also not prevent “umbrella societies” (which are made up of smaller incorporated societies) from disbursing funds to members that are not-for-profit entities.

Other recommended changes include:

  • simplifying the financial reporting regime for small societies;
  • allowing the thresholds triggering the requirement for financial statements to be audited to be set by regulations (the Select Committee formed the view that the thresholds for a “large” society in the Bill as introduced were too high);
  • allowing for voting by proxy, postal voting and voting by electronic means if permitted by a society’s constitution;
  • allowing societies to opt out of, or modify, the Bill’s conflict of interest requirements. Societies will still be required to maintain minimum standards, prescribed by regulations, but can tailor their conflict-of-interest provisions to best suit their society;
  • strengthening privacy protections to allow the Registrar to restrict public access to information on the new register of incorporated societies where there is a protection order or name-suppression order in place; and
  • allowing the Registrar more discretion to permit registration of societies with a similar name where the Registrar is satisfied that the society’s use of the name will not be contrary to the public interest.

A copy of the Select Committee’s report is available here.

Next steps:

The Bill will now proceed to its second reading where Parliament will consider the proposed changes. From there the Committee of the Whole House will debate each clause of the Bill, before it proceeds to its third reading and receives royal assent to become law

Once passed, the new legislation will allow time for existing incorporated societies to comply with, and re-register under the new regime. These timeframes depend on when the Bill is passed. The final date for reregistration will be 1 December 2025 (or two and a half years after the new the legislation comes into force, whichever is the later). If a society fails to reregister, it will cease to exist.

Most societies will need to amend their constitutions to comply with the new legislation prior to the date they reregister.

Please reach out to one of our specialist not-for-profit lawyers for specific advice on the impact of the new legislation on your society.

 

Disclaimer: The content of this article is general in nature and not intended as a substitute for specific professional advice on any matter and should not be relied upon for that purpose.

Share this publication