Review of Incorporated Societies legislation

Incorporated societies | Print Article

June 2016

Many New Zealanders belong to a club: from rugby clubs to model train clubs, swimming clubs to bridge clubs; there are clubs catering for a wide range of activities and interests.

Most clubs are incorporated legal entities established under the Incorporated Societies Act 1908. This legislation is over 100 years old and is currently being reviewed. The Law Commission produced a report in August 2013 recommending that the 1908 Act be repealed and replaced with entirely new legislation. Following that report, the Ministry of Business, Innovation and Employment (MBIE) has prepared draft legislation to give effect to the Law Commission’s recommendations: the Incorporated Societies Bill (Bill).

The Bill was released for public consultation in November 2015. It is intended to provide clear guidance to New Zealanders involved with organising a society, generally enhance the governance of societies and provide constructive options for resolving disputes between club members.

If the Bill becomes law, it will make a number of significant changes to how societies operate. Some examples of the proposed changes are:

Prohibition on financial gain:  The Bill confirms that societies cannot be established for the ‘financial gain’ of their members. In addition to providing clearer guidance about what constitutes ‘financial gain’, the Bill creates criminal penalties for officers of societies who operate a society for the financial gain of members.

Number of members:  The minimum number of members required to create a society will reduce from 15 to 10 (and an incorporated body, such as another society, can count as three members).

Officer duties:  The Bill specifies the duties of officers. At present, the legal duties and obligations of officers of societies are created by common law and can be difficult to find and apply without legal assistance. The Bill codifies the legal duties that all society officers will need to comply with. Those duties are similar to the duties imposed on Company Directors under the Companies Act 1993.

Dispute resolution rules:  The 1908 Act does not include any processes for resolving disputes that arise between society members. The Bill codifies dispute resolution processes that will apply to all societies, in an attempt to make it easier to resolve disputes between members.

Powers of societies:  The Bill clarifies that societies have all the powers of a natural person (such as the power to enter contracts) except that those powers:

  1. can be limited by the society’s constitution; and
  2. cannot be used to create financial gains for members.

Constitutional requirements:  The Bill specifies a number of matters which must be dealt with in a society’s constitutional documents. For example, constitutions will need to include acceptable dispute resolution procedures. Existing societies will need to review their constitutional documents to ensure that they meet the new requirements. Many existing societies will need to change their constitutional documents to meet the new standards.

Officer qualifications:  The Bill specifies who cannot be an officer of a society. For example, people under 16 years of age could not be officers of a society under the new law.

Contact officer:  The Bill creates a new role of ‘contact officer’. Every society will need to have a ‘contact officer’ who can be contacted by MBIE staff if they have questions or concerns about the society.

Member liability:  The Bill clarifies and confirms that members are not personally liable for their society’s debts and other obligations. Members are only liable to pay their membership fees.

Accounting standards:  The Bill requires societies to file annual returns with financial statements that comply with specified accounting standards. This will raise the standard of financial reporting required and could result in additional accounting costs for many societies.

If you are involved with the administration of a society, you should review the Incorporated Societies Bill and consider how the new law could affect you and your society. The Ministry of Business, Innovation and Employment will be running consultation seminars about the Bill throughout the country which you may want to attend to obtain more information about the proposed law reforms. Members of the public can make submissions on the Bill at any time before 30 June 2016. If you would like any assistance with reviewing the Bill and considering how it will affect your society or if you would like assistance with making submissions on the Bill, please contact your Lawlink lawyer.