Are you part of a local sports club, social club, or community group?
Groups from golf to pottery could be impacted under the updated incorporated societies bill currently before parliament. The bill seeks to modernise the Incorporated Societies Act 1908. The bill proposes to put a modern framework in place of basic legal, governance, and accountability obligations.
Incorporated societies and their members need to understand the proposed changes made under the new Act.
You can read more about the suggested changes as set out in the bill here. To make it easy, we’ve summarised the most important changes below:
Reduced minimum number of members – All societies will need to start with and maintain at least 10 members (currently the rule is a minimum of 15 members).
Not allowed to operate for the financial gain of any member - This includes general prohibition of any distribution of surplus assets to members on winding up, with any such surplus to be distributed to another not-for-profit entity or entities. The court can recover any financial gain a member has made from the society.
Every society will need to have a governing body (board/committee) of three or more individuals who are members. The legislation also sets out disqualification criteria for board/committee members and other officers, and will set out the core duties that they owe to their society, including:
to act in good faith and in the best interests of the society
to exercise reasonable care and diligence
not to create substantial risk of serious loss to the society’s creditors
not to agree to the society incurring obligations that it cannot perform
Every society will need to appoint a contact officer – there may be up to three contact persons and there must be at least one New Zealand resident contact person.
New rules regarding financial reporting, audit, review are likely to be tightened.
The new provision enables the amalgamation of two or more societies as one society.
Refined dispute resolution procedures for when members have grievances.
For societies to which updated financial reporting and assurance requirements do not already apply (e.g. under the Charities Act 2005 or Financial Markets Conduct Act 2013), the legislation prescribes new, tiered (size-based) requirements for financial statements that must be prepared and filed by all societies. Large societies will need to have their accounts audited.
The register will include more detailed society information and societies will need to file annual returns and notify changes (including officer/contact person changes) to keep their registry information up-to-date. The bill also includes changes to the powers of the Registrar to include, amongst other things, wider powers to inspect copy and take possession of documents and standing to initiate enforcement proceedings if the Registrar considers it is in the public interest to do so.
The Charitable Trusts Act 1957 will be amended to remove the option of incorporating charitable societies as boards under that Act. Societies already incorporated under that Act will not need to transition to the new regime unless they choose to do so.
The new legislation allows for existing incorporated societies to comply with the changes – allowing societies to agree to and register a new constitution and ensure that their officers are qualified to be appointed to ensure compliance with the new Act. This will mean that some societies will likely decide to restructure/reorganise, or to wind up.
The proposed final transition date will be 1 December 2025. The intent is to allow a transition period of at least four years for existing societies to comply and re-register.
If a society is not re-registered and has not applied to re-register by the final transition date, then that incorporated society will cease to exist and a restitution application would be required to reinstate the entity.
While this new bill is currently with the select committee before its second reading, you may be wondering how it could affect you or your society. As experts in the law, the iCLAW team is here to help you understand how these changes may affect you, so please get in touch today.