Be Prepared – Incorporated Societies Law Reform

January 2015 Article, updated June 2018 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 societies and New Zealand lawyers as replacement of the Incorporated Societies Act 1908 looms (possibly 2020). 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 originally written) there were 24,476 registered incorporated societies and 21,782 registered charities (charities which are either trusts or societies registered under the Charitable Trusts Act 1957 – the numbers of each are not known). Given that there were, respectively, 802 and 747 new registrations in the 20123-2013 period, and allowing for some dissolutions, by now we may have around 28,000 registered incorporated societies and 25,500 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 34,000 incorporated societies whose constitutions will need to be reviewed in the proposed 4 year transitional period after the new Incorporated Societies Act is passed. According to “Snapshot of the Profession” at 1 February 2018 (28 February 2014) we have around 7,690 lawyers in private practice...

Overview of Proposed New Incorporated Societies Act

2015 Article, updated June 2018 NOTE: These notes, prepared by Mark von Dadelszen QSM, provide an overview of the more significant elements of the proposals to replace the Incorporated Societies Act 1908. The Exposure Draft of the Incorporated Societies Bill released in November 2015 (see http://www.mbie.govt.nz/info-services/business/business-law/incorporated-societies), largely followed the recommendations in the 2013 Law Commission Report 129 (see www.lawcom.govt.nz/project/review-incorporated-societies-act-1908/report). This overview is a much abbreviated summary of the main proposals. We recommend that new and existing societies be proactive in anticipating the reforms when adopting or revising constitutions. The most recent advice w Bill may be introduced in 2019, and enacted in 2020. 1. The Incorporated Societies Act 1908 is badly out-of-date Our companies’ legislation has been totally re-enacted six times in the last 152 years (1868, 1882, 1901, 1903, 1933 and 1993) since the Joint Stock Companies Act 1860, all with regular amending Acts. In contrast, the Incorporated Societies Act 1908, the Agricultural and Pastoral Societies legislation, and the Industrial and Provident Societies Act 1908 have been changed little in over a hundred years, and: Do not reflect current good governance practices, Have been overtaken by technological advances, Are all well past their respective “use-by” dates, and Do not reflect modern legislative drafting. 2. A new Incorporated Societies Act The Government in early 2015 accepted most of the Law Commission’s Recommendations, and the Exposure Draft of the Bill proposed to: Completely replace the Incorporated Societies Act 1908, Provide a clearer statutory framework for society governance, Require better processes for how societies deal with member grievances and complaints, Provide standard constitutional provisions for use by incorporated societies, Transfer charitable societies...

Third Party Approval to Change Constitutions

May 2012 Article, updated June 2018 In 2011, a reader raised an issue for consideration in this series of articles, saying: Over the years I have had cause to read many constitutional documents, perhaps more carefully than some of the officers or members of the societies concerned. Frequently there is a clause relating to changes to the objectives of the society that requires the approval of the Inland Revenue Dept to any such changes. … Such clauses have less relevance since the establishment of the Charities Commission in 2005 … Past practice with the IRD The correspondent is correct in referring to such clauses in constitutions (commonly, also covering the winding-up clause), but I suspect that the provisions in the IRD clauses were, in the past, more honoured in the breach than the observance. Following enactment of the Charities Act, the Department at http://www.ird.govt.nz/charitable-organisations/chart-orgs-intro/ now graciously states “Some organisations may have rules that prevent additions or alterations to the charitable objects, personal benefit and winding up clauses without first getting Inland Revenue approval. For charitable organisations that are registering with the Charities Commission, we will no longer give approval for changes to rules and recommends that any such requirement be removed from your rules. To enable this to happen, we give general consent to any amendment removing such rule.” Entrenching a constitution The idea of entrenching a constitution may come from an entity’s founders, parent bodies, or third parties (such as, previously, the IRD). Whether such entrenchment (requiring third party approval for change) is lawful is a partly statutory and partly philosophical question. In 2000 when I first wrote...

What should supplement a constitution

June 2012 Article, updated June 2018 In my article, “Responsibilities of those in Governance” I mentioned the need for those governing a community organisation to be aware of what is in the organisation’s “constitutional documentation, including any policy, strategic and regulatory documents.”  Many trust deeds and society rules are cluttered with material that need not be there, but should be in supplementary documents which can be changed more readily than the constitution. What should a charitable trust’s deed or a society’s rules contain? The Incorporated Societies Act 1908 (section 6) sets out certain minimum requirement of a society’s rules for registration, but the Charitable Trusts Act 1957 fails to specify any basic essentials.  I suggest that the following basic, core requirements should be specified (the Incorporated Societies Act sections are shown in brackets): The name and purposes of the organisation (section 6(1)(a)-(b)) – but preferably not in unduly restrictive terms which leaves the entity with little room to develop its mission with experience, Given the theme of this article, provision for the making of policies, regulations or bylaws, How the organisation is to be governed, with any powers and limitations on governance powers clearly set out, How people join, resign from and can be removed from membership (section 6(1)(c)-(d)), and details concerning any subscriptions, membership rights and obligations, and complaint procedures, How meetings of the entity are called, held and chaired (section 6(1)(e)), what specific things must be done at annual meetings, and how deadlocks are resolved, How those in governance are elected or appointed (section 6(1)(g)), including any powers of co-option, How meetings of the governing body are...