A Revolution for Incorporated Societies

Sowing seeds for a revolution

Four years ago the then Minister of Justice asked the Law Commission to undertake a “first principles” review of the Incorporated Societies Act 1908, commenting that it was “uncomfortably old.”  In August last year the Commission produced its Report 129, “A New Act for Incorporated Societies,” with 102 recommendations for new legislation.  The Government in February this year accepted all but one of the recommendations either in full or in principle.

There is, of course, a General Election this year, so the present Government may not exist, either in its present manifestation or at all.  However, no Government is likely to deny the need for reform (i.e. replacement) of the Incorporated Societies Act 1908, but the shape of its replacement may differ depending on the nature of the Government proposing the Bill.

What sort of revolution?

What generations of lawyers, society members, and society committees have become used to will disappear, replaced by a statute that will bring societies’ law into the 21st century.  When its Report was tabled in Parliament the Commission issued a media release commenting that “As incorporated societies have evolved, so too must the legislation governing them.  Modern incorporated societies can be complex, often have substantial assets and may run significant businesses.”  That media release conveniently summarises what the revolution will look like:

  • “Societies need to know what the minimum standards are for running and governing societies.”
  • “Committee members need to know what they can, must – and must not do.” The new Act should set out “a set of basic duties for committee members and any other officers of societies. For example, they will be expected to act in good faith, in the best interests of the society and to only use powers for a proper purpose.”
  • Committee members “need to know whether they may have a conflict of interest – and what to do if they do.” Therefore the new Act should provide “a procedure for dealing with financial conflicts of interest, so that a committee member must, as soon as is practical, disclose any financial interest they have in a matter under consideration or affecting the society; and step aside from decisions on that matter.”
  • Society “Members need to know what information they can expect from their committee.”
  • Society members also “need to know what happens if they are involved in a dispute with the society or another member,” which means the new Act should require “every society to include disputes procedures in their constitution. Societies can develop their own procedures, so long as they satisfy the minimum standards for natural justice, which will be defined in the new Act.”
  • The new Act should provide “for a model constitution in regulations made under the Act, which a society may adopt instead of drafting its own constitution.”

The Report also recommends that:

  • The “statute should make it clear that members can have no ownership interest in the society or its assets, and cannot receive any share in profits that the society may make,”
  • The “minimum number of members of a society should be reduced from 15 to 10 members, but societies should be required to maintain that number or risk being de-registered,”
  • The provisions in the 1920 Amendment Act “allowing parent societies to incorporate a number of branches should be repealed – but existing branches should retain key features derived from that Amendment Act, unless they and their parent society decide to change that,”
  • “Societies should be required to have a statutory officer and a committee of at least three members, but otherwise how the committee operates can be largely determined by the society,”
  • “Societies should be required to prepare and file at least simple annual financial reports;
  • “The statute should provide mechanisms under which a member may apply to the court to enforce the constitution or for leave to enforce the statutory duties of officers,”
  • “Any criminal offences should be generally limited to dishonest conduct, and consistent with that approach there should be a new offence of using a position of responsibility within a society to obtain an advantage or cause loss to another person,” and
  • There should be transitional provisions for existing societies.

The Report also recommends that “Charitable societies should no longer be able to incorporate under the Charitable Trusts Act 1957.  Those that are currently incorporated under that statute should transition to become societies incorporated under the new incorporated societies statute.”

When will the revolution occur?

The Government has indicated that it will be seeking public comment on an exposure draft of the Bill and a model constitution in 2015.

What should societies and their advisers be doing to prepare for the revolution?

Benjamin Franklin warned that “By failing to prepare you are preparing to fail.” To avoid failing to prepare there are opportunities to anticipate what is likely to be required under a new statute; for instance, in new society constitutions, when existing societies consider other amendments to their constitutions, and for all societies to prepare now, proactively, for the revolution (in all fairness, I should point out that paragraph 1.11 of the Law Commission Report is at pains to point out that “The case for reform of the Incorporated Societies Act is, therefore, not revolutionary, but incremental and evolutionary”).

This is one of a series of articles on societies and charitable trusts 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.