Introduction
A big change has finally arrived that will affect all 24,000 incorporated societies who have operated for generations under an antiquated Act. The Incorporated Societies Act 2022 (the “new Act”) finally received Royal Assent on 5 April 2022. The new Act replaces the Incorporated Societies Act 1908 (the “old Act”), which had been long overdue for an upgrade. Under section 2 of the new Act the provisions for making regulations came into force the day after the date of Royal Assent, but the remainder of the new Act comes into force in stages by no later than 5 October 2023.
One fundamental point that will impact on next steps is that a new constitution (the rules of the organisation) will need to be adopted and reregistration will be required. We have some detailed notes on the implications of this, which you can find on our page dedicated to incorporated societies.
However, in this article we have set out ten key changes in the new Act for incorporated societies to be aware of:
1. Committee required
The old Act does not require a society to have a committee, only officers. Under section 45 of the new Act a society must have a committee, which comprises of 3 or more qualified officers. The committee is responsible for managing the operation or affairs of the society and is defined in the Act as “the governing body of the society, however described (for example, a board)”.
An officer is defined as:
- a natural person who is a member of the committee; or
- a natural person occupying a position that allows them to exercise significant influence over the management or administration of the society (such as a treasurer or chief executive); or
- any other natural person who is declared to be an officer by regulation.
Section 47 sets out the qualifications of officers, including that:
- the officer is a natural person;
- has consented in writing to be an officer; and
- certifies they are not disqualified under section 47(3) of the new Act.
There is also a long list of disqualifications under section 47(3) of the new Act, but this list is largely similar to that in legislation regulating other legal entities.
2. Officers’ duties
The new Act codifies some existing common law officers’ duties. These duties are owed to the society, not its members, and are set out in sections 54-61 of the new Act. In short, these include:
- 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 substantial risk of serious loss to creditors; and
- duty not to agree to the society incurring obligations that it cannot perform.
These last two were subject to some criticism in the final reading of the Bill, with some MPs arguing that they are more appropriate for commercial contexts where directors are well compensated. However, they have now been adopted here.
As a result of these new officers’ duties and the wide definition of officer in the new Act, we suggest that incorporated societies have director and officer insurance.
3. Membership minimum changed
Under section 74 of the new Act, a society must have at least 10 members to register as a society. This is a decrease from the 15 members required under the old Act.
A body corporate is still treated as being 3 members for the purpose of determining the number of members, as per section 14 of the new Act.
There was no continuous minimum membership requirement under the old Act, but section 74 of the new Act dictates that a society must have at least 10 members at all times. This will be something that societies need to keep an eye on – especially smaller ones.
Under section 75 of the new Act, if a society has fewer than 10 members the Registrar may intervene and give the society six months to increase its membership. If the society fails to increase its membership, the Registrar may apply to the High Court to put the society into liquidation or remove the society from the register.
4. Consent
Under section 76 of the new Act, a person must consent to become a member of the society. To comply with this section, a society should review its membership application processes and constitution to ensure the person consents to becoming a member of the society.
5. Dispute resolution
Under section 26(1)(j) of the new Act, a society’s constitution must include procedures for resolving disputes. The society can develop its own procedures, so long as those procedures are consistent with natural justice. Clauses 2 to 8 of schedule 2 set out procedures a society may decide to include. Should a society include the schedule 2 procedures, its dispute resolution procedures will be presumed to be consistent with natural justice according to section 41 of the new Act.
6. Reregistration
Under schedule 1, a society will continue to be subject to the old Act until it reregisters as a society under the new Act. A society must reregister by the transition date, which is 5 April 2026 according to the Companies Office guidance. If a society fails to reregister in time, it may cease to exist on the transition date (the date where the old Act is repealed).
In order to reregister, the society’s constitution must meet the requirement of the new Act and include the information set out in section 26 of the new Act. We can help you ensure your constitution is up to scratch before reregistering under the new Act, including ensuring your constitution provides for the changes set out above.
7. Financial reporting
What will be the standards needed for financial reporting? Well, part 3, subpart 7 of the new Act sets out new accounting standards. The incorporated society will need to prepare their financial statements in accordance with the standard that suits the size of their society. For example, a small society may prepare their financial statement according to generally accepted accounting practice, a non-GAAP standard that applies for the purposes of section 102, or the requirements set out in section 104.
Within six months of the balance date (which is the date specified in the constitution, adopted by the committee or 31 March), the society must:
- complete the society’s financial statements for that balance date;
- date and sign those financial statements by or on behalf of the society by 2 members of the committee; and
- give copies of those financial statements to the Registrar for registration.
Under section 105 of the new Act, larger societies will need to have their financial statements audited.
MBIE and XRB have some useful guidance on the new financial reporting standards, which you can find here.
8. Amalgamation
The Law Commission noted in its report that the old Act had limited restructuring options, including no provision for amalgamation. In response to this, the new Act sets out a simplified version of the Companies Act 1993 amalgamation process in Part 5, subpart 2. This should allow societies to join together, either into one of the societies or a new society.
9. Enforcement
Part 4 of the new Act sets out civil law enforcement provisions that explicitly state the order a court may make and who may apply for a court order. This could help, for example, a member of a society to apply to the court where they believe the society’s constitution has been breached.
10. Offences
Subpart 6 of part 4 of the new Act sets out criminal offences. Infringement offences are less serious and include matters such as failing to notify the Registrar of amendments to the constitution. A society that commits an infringement procedure may be liable to a fine not exceeding $3,000.
The new Act also sets out several serious offences, such as: making false statements; fraudulent use or destruction of property; falsification of register, records, or documents; operating fraudulently or dishonestly incurring debt; improperly using “Incorporated”, “Inc”, or Manatōpū. These provisions supplement the dishonesty provisions in the Crimes Act 1961 and some of the offences could result in a fine of up to $200,000 and/or a term of imprisonment of up to 5 years.
Summary
With the new Act comes a lot of changes to the requirements for an entity to be an incorporated society. We have helped many incorporated societies over the years and would be happy to discuss your situation with you. You can contact us any time by email or phone.
The information contained in this outline is of a general nature, should only be used as a guide and does not amount to legal advice. It should not be used or relied upon as a substitute for detailed advice or as a basis for formulating decisions. Special considerations apply to individual fact situations. Before acting, clients should consult their Parry Field Lawyer.
Further helpful resources
Resources for the Incorporated Societies Act 2022
Charitable Trusts vs Incorporated Societies: Which is best?
How to Create an Impact Driven Organisation in New Zealand
Companies Office – Incorporated Societies
Institute of Directors – A new age of incorporated societies
Institute of Directors – What leaders of incorporated societies need to know about the new Bill
