Be Prepared – Incorporated Societies Law Reform

According to comic Tom Lehrer, “Be Prepared” is the Boy Scouts’ marching song.  That clarion call should now be resounding in the ears of all New Zealand lawyers as replacement of the Incorporated Societies Act 1908 looms.

All lawyers, whether or not in private practice and whatever their legal specialty, are fair game if they are associated with a not-for-profit organisation – lawyers are asked to join committees and people assume we know the law, including law we have never looked at.

According to the website of the Registrar of Incorporated Societies, at 30 June 2013 (the latest information I could locate when this article was written) there were 24,476 registered incorporated societies and 21,782 registered charities (both trusts and societies – the numbers of each are not known).

Given that there were, respectively, 802 and 747 new registrations in the previous 12 months, and allowing for some dissolutions, by now we may have around 25,000 registered incorporated societies and 22,250 registered charities (both trusts and societies).

Those charitable societies registered under the Charitable Trusts Act 1957 (perhaps around a quarter of registered charities registered under that Act) will be transferred to the new incorporated Societies Act regime.

Constitution review

This all means that we may now have over 30,000 incorporated societies whose constitutions will need to be reviewed in the proposed transitional period after the new Incorporated Societies Act is passed.

According to the “Snapshot of the Professional” (LawTalk 836, 28 February 2014) we have around 8,000 lawyers in private practice in New Zealand.

If you look only at law firm principals and sole practitioners (other then barristers) there may be potentially about four societies per principal and sole  practitioner seeking advice after the new Incorporated Societies Act is enacted.

However, if you assume that practitioners who spend over 50% of their time dealing with company and commercial practices are most likely to be asked for assistance in revising incorporated societies’ constitutions, then those people may have six to seven societies seeking such advice.

Are we, as a profession, adequately equipped to provide that advice?  Do we have the ability to rise to the challenge of helping societies review their constitutions in the transitional period after the new Act is passed?

Concerns

I have the following concerns:

  • New Zealand lawyers lack academic training in incorporated societies law (only once in the years I have addressed lawyers on the subject of incorporated societies has anyone volunteered that they heard of the Incorporated Societies Act 1908 during their studies, and, on further enquiry, the lawyer suggested that this was for about five minutes!);
  • there are very few lawyers specialising in advising incorporated societies;
  • most lawyers who are “honorary solicitors” for not-for-profit societies do not charge for their services, but the burden of coming up to speed with the changes and then reviewing and revising incorporated society constitutions for compliance with the new Act will be significant, so doing the work pro bono is unlikely to be realistic;
  • whether or not lawyers charge for their advice to incorporated societies, if they provide incorrect advice they can still be sued for negligence; and
  • the potential flood of incorporated societies that will seek advice could overwhelm many lawyers who will, as a result, be tempted to place that work at the back of the queue simply because they will not know where to start and what needs doing (compounding the professional indemnity risks).

In my opinion, legal firms should be proactive, and “be prepared” for this work:

  • every firm should have some lawyer or work group assigned to deal with enquiries about the new Incorporated Societies Act 1908; and
  • those who will do this work need to start up-skilling themselves now.

If this is not done I believe the profession will struggle to cope.

This is one of a series of articles on societies and charitable trusts (originally published in the LawTalk magazine) by Mark von Dadelszen, a Hastings lawyer and author of Law of Societies, 3rd Edition, 2013. If any reader has examples of issues that have arisen or questions about societies or charitable trusts that might be a suitable subject for one of these articles please contact Mark at mark.vondadelszen@bvond.co.nz.