The Incorporated Societies Act 1908 (‘the Act’) has played a critical role in New Zealand’s development for over a century. The Act enables groups and organisations to incorporate and establish themselves as separate legal entities.
Commonly referred to as the not-for-profit sector, incorporated societies operate alongside the private and public (state) sectors. New Zealand has over 23,000 incorporated societies, covering a diverse range of purposes, including: sports, social and recreational clubs, religious organisations and social service providers. It is vital that these societies are supported with legislation to provide guidance and support for their members to attain the purpose of the society.
Although pioneering at its time, the Act lacks adequate guidance on: the obligations of the members who run the society, how disputes are to be resolved, and ensuring that members do not profit or make a monetary gain through involvement in the society.
The Law Commission has recommended that the Act be repealed and replaced with a modernised version that provides greater accountability, transparency and prescribed governance structures; while also enabling each society to operate independently from the state.
Some of the key recommendations are as follows:
- Removing the ability for incorporated societies to be established under the Charitable Trusts Act 1957 and requiring all societies to be incorporated under a new incorporated societies Act,
- Prescribing minimum membership rules, where an incorporated society must have 10 members at all times, not just at the time of application,
- Requiring the establishment of a committee of officers and an appointed statutory officer for each society, and imposing duties on them similar to those duties imposed on company directors under the Companies Act 2004. Some of these duties include an obligation to disclose financial conflicts of interests and to be excluded from discussion or voting on a matter where the officer has a conflict of interest,
- Providing a minimum standard of rules for all constitutions dealing with matters such as meetings, quorums, procedures for committee member appointment, and how the society will enter into legal obligations,
- Mandatory dispute resolution procedures for members’ misconduct and grievances between members, the committee and the society itself,
- Requiring societies to provide detailed annual reporting to the Registrar of Incorporated Societies (‘the Registrar’), which includes: membership numbers and details, annual accounts and contact information for the statutory officer of the society,
- The introduction of sanctions against societies and their members. These include infringement offences for non-compliance with filing requirements or other obligations imposed under the Act, resulting in a $1,000 fine. A range of criminal offences are also included, such as using a position of responsibility within the society to obtain an advantage, punishable with a fine of up to $200,000 or five years imprisonment,
- Clarifying the prohibition on distributing surplus assets to members upon the eventual dissolution or liquidation of the Society, and
- Providing the Registrar powers to investigate and intervene in a society if it is in the public interest to do so.
It is clear that the recommendations set a minimum standard of good practice and governance while maintaining the private membership nature of a society. If the recommendations become law, many incorporated societies will need to update their constitutions while other societies will need to consider whether they should actually continue to exist.