Reforming the Incorporated Societies Act – Why are we still waiting?

New Zealand was among the first countries to legislate for the incorporation of many types of community organisations. However, we now lag behind other jurisdictions; notably the Australian States and Canadian Provinces. The archaic nature of the Incorporated Societies Act 1908, the Charitable Trusts Act 1957 and other statutes governing not-for-profit organisations has been discussed in previous articles in this series (in July and August 2011); namely Reforming the Not-For-Profit Statutes – Fundamental Questions, Reforming the Not-For-Profit Statutes – Constitutional Questions, Reforming the Not-For-Profit Statutes – Liquidation, Dissolution, Mergers and Transition, Reforming the Not-For-Profit Statutes – Legal Powers and Resolving Disputes, and Reforming the Not-For-Profit Statutes – Governance Questions (which are not going to be updated) , and those articles also discussed the Law Commission project into the adequacy of those Acts.  Now we are waiting for some legislative action!

 

The reform process

Like all legislation, the Incorporated Societies Act 1908 can only be changed by Parliament. Our Law Commission was established to provide Parliament, the Government and the public with independent, expert advice on what are, almost invariably, what lawyers describe as “black letter” law issues; that is, law which is seldom politically controversial but which enables people to get on with their everyday lives. Such “black letter” law includes statutes like the Property Law Act, Land Transfer Act, Companies Act, Burial and Cremation Act, and the Trustee Act.

The Minister of Justice’s 1 July 2010 reference to the Law Commission (seven years ago!) requested it to investigate the “uncomfortably old” Incorporated Societies Act 1908. About 12 months later, the Commission published an Issues Paper on reforming the Incorporated Societies Act 1908 and also other legislation including the Charitable Trusts Act 1957 and legislation dealing with the agricultural and pastoral societies and industrial and provident societies. Late in 2011 the Commission established a Reference Group of people from around the country with experience in governing, managing and advising incorporated societies, including the writer, to consider the reform proposals.

In early 2013 the Commission published Report No 129, A New Act for Incorporated Societies , and its Recommendations were broadly welcomed by the then Government, and have been the subject of the earlier articles referred to above.

 

Summary of the reform proposals in the 2015 Draft Bill

The Ministry of Business Innovation and Employment undertook a number of processes before producing an Exposure Draft Bill  in November 2015, including consulting further with a number of interested organisations. Following is a brief summary of the key proposed reforms contained in the Exposure Draft Bill (for more detailed information, see Overview of Proposed New Incorporated Societies Act):

  • Societies will continue to be prohibited from operating for the financial gain of members.
  • The minimum number of members will be 10 (corporate members counting as 3 individuals) on and after incorporation.
  • Members will not be liable for a society’s obligations.
  • Societies will be deemed to have full capacity to carry on or undertake any business or activity, do any act, or enter into any transaction.
  • The list of what must be included in society constitutions has been expanded and “standard” recommended provisions are likely to be provided.
  • Societies must have a committee of at least three “natural persons.”
  • Every incorporated society will have a Registrar’s “contact officer.”
  • Statutory duties will be imposed on society officers.
  • There will be detailed requirements about complaints and grievances and conflicts of interest.
  • There will be statutory powers to require compliance with society constitutions.
  • All societies will file annual financial reports with the Registrar.
  • Amalgamations and mergers of societies will be facilitated.

 

A model constitution for Incorporated Societies?

One issue the Ministry considered before producing an Exposure Draft Bill was the desirability of providing a model society constitution as recommended by the Law Commission. The writer was engaged to advise on this proposal, and, as a result of that work, the writer agrees that the proposal is not appropriate, and agrees with the Ministry’s explanation for not proposing to legislate for a model society constitution, with those reasons being set out in the Request for Submissions on the Exposure Draft Bill :

 

Clause 33 – Standard provisions for constitutions …

50     LCR 51 states that the new Act should enable a model constitution to be made in regulations. LCRs 52-54 describe how to give effect to LCR 51. LCRs 55-56 envisage that the proposed model constitution will contribute to the process of reregistering existing societies under the new Act.

51 Clauses 33 to 35 of the Bill are broadly consistent with the intent of LCRs 51-56. However the following modifications have been made:

  1. They are called “standard provisions for a constitution”, not “a model constitution”.
  2. The Bill provides for the use of the standard provisions matter-by-matter, rather than as a package.
  3. The standard provisions will be issued by the responsible Minister on the recommendation of the Registrar, not through regulations.

Difference A: “standard provisions”, not “model constitution”

52     There are two reasons for using “standard provisions” rather than “model constitution”.

53     First, “model constitution” promises more than we think can be delivered. It implies that it is possible to produce a one-size-fits-all best practice constitution that fits well with every society’s needs. Our view is that this goal is unachievable because the sector is so diverse. We consider that the best that can be hoped for are basic provisions that address matters which are common to all societies and are satisfactory enough for any society to get by with.

54     Second, it cannot be a complete constitution. The society’s purposes, the number of officers and the titles given to each position, and the rules relating to disposal of surplus assets are inevitably specific to the individual society.

55     We consider that the standard provisions should be supported with practical guidance material on the Registrar’s website. We also consider that there is a role for umbrella organisations in the not-for-profit sector to assist individual societies. Many already do so. For example, Bowls New Zealand Inc. has a model club constitution template on its website, along with model club disciplinary regulations.

 

Reform – what’s happening now?

The Bill now needs to be introduced into Parliament. There is no party-political motivation to make this happen quickly, but when it is introduced the reform is unlikely to politically controversial. After the Bill’s introduction it should be referred to a Select Committee which will seek and consider submissions and then report the Bill back to Parliament where it will, eventually, be passed. This should (?) happen in 2019 or 2020, and then there will be a transitional period for incorporated societies to bring their constitutions into compliance with the new statute.