Articles

The Incorporated Societies Act 2022

by | Jun 22, 2022 | Blog, Business Law, Cause related, Fresh Business Thinking | 0 comments

The Incorporated Societies Act 2022 (“new Act”) gained royal assent in April 2022.  The Act replaces the deficient Incorporated Societies Act 1908 (“1908 Act”), which was no longer fit for purpose.  In the century since the passing of the 1908 Act, incorporated societies have grown considerably in their complexity and many now hold considerable assets. 

The new Act now provides incorporated societies with much-needed guidance on operational matters, self-governance and aligns them with similar entities such as companies in respect to conflict-of-interest management and accountability from its leading members. 

We outline below the key changes and what steps currently incorporated societies should now take to ensure they are compliant with the new Act. 

 

Key Changes

 

1. Membership

Under the 1908 Act, 15 members were required for an incorporated society to exist. The new Act has now decreased this to 10 members. For smaller societies it is important to ensure membership remains at 10 or more, otherwise, the Registrar can apply to the High Court under section 75 to remove the society from the register if the society does not increase its membership within six months.

 

2. Committee Mandatory

It is now a requirement that an incorporated society must have a committee of at least three or more qualified officers.   Qualification is key. Committee members must meet the qualification requirements in section 47 of the new Act. For example, the committee member must not be disqualified from election or appointment by way of being an undischarged bankrupt or a person who has been convicted within the last seven years of a crime involving dishonesty.  

Section 47 sets out a substantive list of persons that would be disqualified from becoming committee members, but these reflect similar standards imposed on other entities such as companies. 

 

3. Officers’ Duties

Section 54 to 61 of the new Act is the codification of what are common law officers’ duties. They are,  

  • duty to act in good faith and in the society’s best interests;
  • duty to exercise powers for a proper purpose;
  • duty to comply with the new Act and the society’s constitution;
  • duty of care;
  • duty not to create a substantial risk of serious loss to creditors; and
  • duty not to agree to the society incurring obligations that it cannot perform. 

The last two duties raised concerns as they were thought to be more appropriate for commercial entities where directors are appropriately reimbursed and commercially versed. Many incorporated societies are for community groups running sporting hobbies and the like.  As these duties can create personal liabilities for officers, director and officer insurance is a legitimate consideration for incorporated societies.

 

4. Dispute Resolution

Societies must now include procedures in their constitution for dispute resolution (section 26(1) (j). Societies may develop their own procedures as long as they are consistent with natural justice. If in doubt, societies can opt to include the process set out in Schedule 2 of the new Act. If they do so, then it is presumed that their dispute resolution process is consistent with natural justice (section 41).

 

5. Financial Reporting

Depending on the size of a society, the financial reporting standards will vary. For example, a small society may only have to prepare its financial statement according to generally accepted account practice. A small society is defined as one with total payments of less than $50,000 in the past two accounting periods and total current assets for the past two accounting periods of less than $50,000 (section 103). Audits are mandatory for larger societies (section 105).

 

Re-registration

Existing societies will need to schedule re-registration. Existing societies will automatically be removed from the register if they do not re-register under the Act within the transitional period. The current timing for this is as follows: 

  1. April 2022 – the new Act was passed
  2. May 2022 to September 2023 – Regulations for the new Act are being developed  
  3. October 2023 to April 2026 – Re-registration Period 

During the re-registration period, societies will have the opportunity to re-register under the new Act. As part of the re-registration process, societies submit an updated constitution that complies with the requirements under the new Act (section 26).  

New societies do not need to wait until the re-registration period to register. New societies can register now with a constitution that complies with the new Act and re-register during the re-registration period.  

If you are a common-law officer of an incorporated society and the new legislation raises any questions or issues you would like to discuss. Please don’t hesitate to get in touch.

By Christine Cechova, Senior Associate

By <a href="https://www.alexanderdorrington.co.nz/author/christine-cechova/" target="_self">Christine Cechova</a>

By Christine Cechova

SENIOR ASSOCIATE