The Incorporated Societies Act 2022 (“Act”) has created new requirements that all incorporated societies must meet in order to reregister under the Act. The most relevant requirements that may prevent your Residents Association from reregistering under the Act are discussed below.
Background
A Residents Association is a type of incorporated society that exists for the benefit of the community it serves. It might maintain community facilities or common areas, or simply serve as a forum for members to come together and organise community activities. Some Residents Associations will own common land as well.
Most Residents Associations will be registered under the Incorporated Societies Act 1908, which means that they will need to prepare for and reregister under the Incorporated Societies Act 2022. We have an Information Hub dedicated to the changes in the new Act and what organisations need to do in order to reregister – you can find it here.
There are some requirements under the new Act that may impact your Residents Association and your ability to reregister – here’s what you need to know.
Nominating a not-for-profit entity on wind up
Section 26 of the new Act sets out a list off requirements for what incorporated societies must include in their constitution. We have written a series of six articles on these requirements, which you can find on our Information Hub.
The key requirement for Residents Associations to be aware of is set out in section 26(1)(l). This explains that incorporated societies must nominate a not-for-profit entity (or a class or description of not-for-profit entities) to which any surplus assets are distributed to on liquidation or removal from the register. The definition of a not-for-profit entity is set out in section 5.
Generally, the members of Residents Associations are homeowners in the subdivision or community, so Residents Associations like this who hold land on behalf of members wouldn’t be able to distribute property to members under this provision on wind up.
This will cause issues for many Residents Associations who own common land, as the “winding up” provision will often say that any surplus assets should go to the members – that way the residents will each get a share in the land when the society winds up. If your Residents Association is in this situation just let us know – we are happy to support you in considering your options moving forward.
Purposes – can’t be for the financial gain of members
Under section 26(1)(b) of the new Act a society’s constitution must include its purpose. This makes a lot of sense and may not seem like an issue on the face of it, but the new Act also sets out that the Registrar may refuse to incorporate a society if its purposes are unlawful. An unlawful purpose includes where a society is carried on for the financial gain of any of its members. Section 23 of the new Act then explains that a society must be treated as having the purpose of being carried on for the financial gain of its members where:
- it distributes, or may distribute, any gain, profit, surplus, dividend, or other similar financial benefit to any of its members (whether in money or in kind); or
- it has, or may have, capital that is divided into shares or stock held by its members; or
- it holds, or may hold, property in which its members have a disposable interest (whether directly, or in the form of shares or stock in the capital of the society or otherwise).
The most relevant clause to Residents Associations is the third provision. If the Residents Association’s assets are set to go to members on wind up, then those members would have a “disposable interest” in property. A clause such as this or any other clause in the constitution that suggests members should get the Residents Association’s assets would then be in breach of the new Act.
Section 24 of the new Act provides a list of examples of when a society does not have a financial gain purpose. We think that although some of these could be stretched to apply to Residents Associations, section 23(1)(c) is so clear that it would not make sense to interpret the new Act in that way.
What now?
As some Residents Associations won’t be able to reregister under the new Act with their current land ownership and constitutional structure, it’s time for each of these Residents Associations to consider their options moving forward. This is something we are well placed to advise on, as we regularly come alongside both incorporated societies and property holding organisations to consider their structure options.
If you believe your Residents Association may be unable to reregister under the Act due to the reasons above, please feel free to contact Judith Bullin or Sophie Tremewan at Parry Field Lawyers. Our team are more than happy to assist you to make the changes needed to reregister under the Act.
We help with unincorporated and incorporated societies and answer questions all the time. If you would like to discuss further, please contact one of our team on judithbullin@parryfield.com or sophietremewan@parryfield.com at Parry Field Lawyers.
