Ten key changes to note in the Incorporated Societies Bill 2021
The Incorporated Societies Bill passed its first reading on 6 April. It has now been referred to the Economic Development, Science and Innovation Committee and submissions are open until 28 May 2021. The Committee is due to report back to Parliament by 6 October 2021. It could be in force by the end of 2021.
The ten key changes to the existing framework in our view are as follows:
- Reregistration: Every incorporated society will need to reregister under the Bill in the same way companies were required to do under the Companies Act in 1993. 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. This is going to require most societies to amend their constitution to comply with the new legislation prior to the date they reregister. The following are additional provisions that constitutions will need to include:
- Provisions for the appointment of a contact person who the Registrar of Incorporated Societies can contact when necessary.
- Additional information relating to officers, including appointment processes, officer terms and grounds for removal.
- Additional information relating to committee members including the number of members on a committee, functions and powers of the committee and the quorum and procedure for committee meetings.
- A dispute settlement procedure as discussed further below.
- How amendments to your constitution can be made, noting that there are different requirements for ordinary and minor or technical amendments.
- Consent: Every person will need to consent to become a member of a society. This requirement is a codification of existing case law, however, in practice for some societies such as sports clubs and union membership bases, consent is not always clear. Issues are likely to arise where societies seek to enforce the terms of a constitution (including dispute resolution and discipline provisions) against a member where it is not clear whether the member has consented. Societies will need to review their membership application processes to ensure that consent is sought.
- Membership Minimum: The minimum number of members required to start a society will change from 15 to 10. Corporate members will continue to count as three members. The new minimum of 10 members will apply at the time of incorporation, as well as after incorporation and if the minimum drops below 10 the Registrar of Incorporated Societies may give notice to a society requiring it to increase its membership.
- Committees: Every society will need to have a governing body comprising at least 3 officers who are members of the society and are qualified to be appointed as an officer. There is currently no requirement for societies to have a governing body, only officers.
- Officer’s duties: Six existing common law duties that officers owe to a society will be codified. Officers will be defined as natural persons who are members of the committee or persons occupying a position that allows them to exercise significant influence over the management and administration of the society (such as a treasurer or a chief executive) or anyone else declared by regulations to be officers. The duties are modelled on the directors’ duties in the Companies Act 1993 and include, for example, a duty to act in good faith and in the best interests of the society, and a duty to exercise the care and diligence that a reasonable person would exercise in the circumstances. The new legislation will also clarify that these duties are owed to the society and not to the members. A member can however apply to the court to enforce those duties.
- Financial Reporting: Societies will need to prepare their financial statements in accordance with new accounting standards. The standards will depend on the size of the society. For example, a ‘specified not-for-profit’ entity will need to prepare its financial statements in accordance with generally accepted accounting practice. A ‘small society’ will need to prepare its financial statements in accordance with generally accepted accounting practice, an applicable non-GAAP standard, or the minimum requirements for financial statements of small societies as set out in the Bill. All societies must continue to file their financial statements and large societies will need to have their financial statements audited.
- Dispute Resolution: Societies will need to have procedures for resolving disputes and other grievances between members (in their capacity as members) and between members and the society set out in their constitutions. The procedures must be consistent with the rules of natural justice. While societies will be free to develop their own procedures, the new legislation will provide that if the procedures are consistent with Schedule 2 of the Bill, the procedures are presumed to be consistent with the rules of natural justice.
- Amalgamation: The new legislation will provide for an amalgamation regime that is a simplified version of the amalgamation process in the Companies Act 1993. This should empower societies to join together without having to be concerned with how members will transition, how assets will transfer and how to deal with ongoing contractual commitments.
- Enforcement: New civil law enforcement provisions will be introduced that will clearly state who may apply for Court orders and the type of orders a Court can make. These provide useful guidance for a society or its members when they consider there has been a breach of a constitution or officer duties.
- Offences: The new legislation will introduce seven criminal offences, including dishonestly using a position of officer for gain, make false or misleading statements, fraudulently taking, applying, or destroying or concealing society property, destroying or altering a register, record or document, knowingly operating the society fraudulently or dishonestly, and dishonestly operating under name ending in “Incorporated”, “Inc” or “Manatōpū” when that person or persons are not an incorporated body. The new legislation will also include a list of infringement offences for less serious matters. Some of these offences attract a fine or up to $200,000 and a term of imprisonment of up to 5 years.
Please feel free to 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.