This Article is based on what was proposed in the 2015 Exposure Draft Incorporated Societies Bill, but also having regard to some modifications signalled in the Minister’s June 2019 Cabinet Paper. The article will need to be revised after the new statute has been enacted, hopefully later in 2020.
In the meantime, existing societies and new societies need to be aware of what was proposed in the 2015 Exposure Draft Incorporated Societies Bill and the Minister’s June 2019 Cabinet Paper, and may wish to take the proposals into account when considering their constitutions and other issues that may arise before the new statute comes into force. While the new Act will not be exactly the same as what was proposed in 2015, we do not expect the eventual statute to differ significantly from the extracts from the 2015 Exposure Draft Bill set out in this Article).
1. Transitioning to comply with the new Act
- Important note: If a society does not re-register under the new Act, it will cease to exist on the transition date, but may later be restored to the Register, but if it is not restored its surplus assets must be distributed as prescribed in the new Act. However:
- Every society continues to be subject to the 1908 Act until the later of the date it re-registers as a society under the new Act or the transition date (currently proposed to be 30 months after the new Act comes into effect), and
- Prior to the transition date, a society can amend its rules and make other arrangements to facilitate its transition to becoming a society under the new Act. Such actions include ensuring that its constitution will comply with the requirements of the new Act, and that the society’s officers are qualified under the new Act.
- Key things societies registered under the Incorporated Societies Act 1908 (or the Charitable Trusts Act 1957) are likely to be required to do during the transition period (these issues are covered in the balance of this article) include:
- Reviewing and revising their existing constitutions (probably replace them, as piecemeal changes will be messy),
- Re-registering under the new Act (otherwise the society will cease to exist),
- Ensuring that their committee members are qualified in terms of the new Act to serve on the society’s committee,
- Ensuring that it has a register of its members,
- Establishing a register of conflicts of interests for committee members and procedures to allow members to inspect that register,
- Appointing a “contact officer” as required under the new Act,
- Establishing the grievances and complaints procedures that will be required by the new Act, and
- Establishing procedures so they can respond promptly to member requests for information.
The proposed new Act will require that incorporated society constitutions be far more detailed than was the case under the 1908 Act. Clause 24 of the 2015 Exposure Draft Incorporated Societies Bill reads as follows:
24 What constitution must contain
- The constitution must contain rules regarding the following:
(a) the name of the society; and
(b) the purposes of the society; and
(c) how a person becomes a member of the society, including a requirement that a person must consent to be a member; and
(d) how a person ceases to be a member of the society; and
(e) arrangements for keeping the society’s register of members up to date; and
(f) whether, and if so how, the society will provide access for members to the register of members; and
(g) the composition, roles, and functions of the committee of the society, including—
(i) the number of members that must or may be on the committee; and
(ii) the election or appointment of committee members; and
(iii) the terms of office of the committee members; and
(iv) the functions and powers of the committee; and
(v) grounds for removal from office of committee members; and
(vi) how the contact officer will be elected or appointed; and
(h) how the society will control and manage its finances; and
(i) the control and use of the society’s common seal (if it has one); and
(j) procedures for resolving disputes between members (in their capacity as members) and between members and the society, including procedures for investigating and dealing with—
(i) the grievances of members relating to their rights and interests as members; and
(ii) complaints concerning the misconduct or discipline of members;
(ii) the information that must be presented at general meetings; and
(iii) when minutes are required to be kept; and
(iv) the manner of calling meetings; and
(v) the time within which, and manner in which, notices of general meetings and notices of motion must be notified; and
(vi) the quorum and procedure, including voting procedures, for general meetings; and
(l) the method by which the constitution may be amended; and
(m) the nomination of a not-for-profit entity, or a class or description of not-for-profit entities, to which any surplus assets of the society should be distributed on a liquidation of the society or the removal of the society from the register (see subsection (4) and subpart 5 of Part 5).
- The constitution must not purport to confer on any member any right, title, or interest (legal or equitable) in the property of the society
- The arrangements and requirements under subsection (1)(l) must include arrangements
and requirements for special general meetings under section 58(3).
- In this Act, not-for-profit entity means any of the following:
(a) a society incorporated under this Act:
(b) a charitable entity within the meaning of the Charities Act 2005:
(c) a society, institution, association, organisation, or trust that is not carried on for the private benefit of an individual, and whose funds are applied entirely or mainly for benevolent, philanthropic, cultural, or public purposes in New Zealand.
In future, it is proposed that society names must end with the word “Incorporated” or the word “Manatōpū” (or both) as the last word or words of the name.
4. Society purposes
A society’s purposes must be set out in its constitution. Those purposes must not include “financial gain,” but a society will not have a purpose of financial gain or be carried on for the financial gain of any of its members, merely because it will or may:
- Engage in trade,
- Pays a not-for-profit member for matters that are incidental to the purposes of the society,
- Reimburses a member for reasonable expenses legitimately incurred on behalf of the society or while pursuing the society’s purposes,
- Provides benefits to members of the public or of a class of the public and those persons include members of the society or their families,
- Pays a member a salary or wages or other payments for services on arm’s length terms,
- Enters into any other transaction with a member on arm’s length terms, or
- Provides a member with incidental benefits (for example, trophies, prizes, or discounts on products or services) in accordance with the purposes of the society.
5. Society membership
Section 6 of the 1908 Incorporated Societies Act required that the rules of a society should specify the “modes in which persons become members of the society” and the “modes in which persons cease to be members of the society.” As indicated above, Clause 24 in the 2015 Exposure Draft Bill proposes that far more information about membership be set out, including:
- Specifying how a person becomes a member of the society,
- Requiring that a person must consent to become a member (to prove compliance with that requirement we recommend that this be in writing and that the written consent be retained by the society), and
- Specifying how a person ceases to be a member of the society, and
- Setting out arrangements for keeping the society’s register of members up to date (see section 9 below), and
- Specifying whether, and if so how, the society will provide access for members to its register of members (see section 9 below).
6. Society committees
Whether they have known this or not (because this is not explicit in the 1908 Act), members of society committees have always had obligations to govern and manage their societies competently. The new Act will almost certainly set the duties of committee members explicitly, including obligations:
- To act in good faith and in best interests of the society,
- To exercise his/her powers for proper purposes,
- To comply with the Incorporated Societies Act and the society’s constitution,
- To exercise the care and diligence that a reasonable person with the same responsibilities would exercise in the same circumstances,
- Not to approve activities that would create substantial risk of serious loss to the society’s creditors, and
- Not agree to the society incurring an obligation unless the officer believes at that time on reasonable grounds that the society will be able to perform the obligation when it is required to do so.
7. Society “contact officer”
It is proposed that:
- Every society have a contact person/officer (who is at least 18 years old and resident in New Zealand) whom the Registrar can contact when needed,
- The contact person/officer must be a committee member (and may hold some other committee position), and
- Changes in the contact person/officer must be promptly notified to the Registrar.
8. Conflicts of interest
Conflicts of interest of society committee members:
- Will have to be promptly disclosed to the committee and recorded in a conflicts register (all failures must be promptly notified to all society members),
- The conflicts register must be available for inspection by society members,
- Particulars of all conflicts of interest must also be reported to Annual General Meeting, and
- Conflicted committee members cannot participate in decision-making on such matters, or sign society documents relating to them, but:
- May “take part in any discussion of the committee relating to the matter and be present at the time of the decision of the committee (unless the committee decides otherwise),” and
- May still be counted in the committee quorum.
These requirements relating to conflicts of interest should come as no surprise to those who have experience in good governance practice. However, the majority of our incorporated societies are probably governed and managed by people who may find hard to understand what a “conflict of interest” is, let-alone know when to declare such a conflict of interest.
Failures to declare conflicts of interest will have to be notified to a society’s members. Where a conflict of interest has not been declared the society may try to have a transaction avoided if it has not received fair value from the transaction. Committee members failing to declare conflicts of interest may face potential personal liability for that failure.
9. Society record-keeping and rights of inspection
It is proposed that specific records need to be kept, including:
- A register of its members, containing the name and contact details of each member, the date when each person became a member, and any other prescribed information,
- Accounting records that correctly record the transactions of the society, allow the society to produce financial statements that comply with the requirements of the Act, would enable the financial statements to be readily and properly audited (if required under any enactment),
- A society committee must establish and maintain a satisfactory system of control of the society’s accounting records,
- The accounting records must be kept in written form in English or in a form or manner that is easily accessible and convertible into written form in English, and the society committee must ensure that, within 6 months after the end of the society’s accounting period of the society, the society’s financial statements are completed for that accounting period, and dated and signed by 2 members of the committee.
- The financial statements must be prepared in accordance with applicable legal requirements.
- Copies of the society’s financial statements must, within 6 months after its balance date, be registered with the Registrar.
10. Access to society records
It is proposed that that society members will have rights to access society information held by a society, and it is proposed that:
- Society members may make a written request for information held by their society
- The society must, within a reasonable time after receiving a request:
- Provide the information, or agree to provide the information, or
- Agree to provide the information within a specified period (possibly requiring the member to pay the reasonable costs of providing the information), or
- Refuse to provide the information, specifying the reasons for the refusal.
11. Member grievances and complaints about members
- Society constitutions will be required to specify procedures for resolving disputes between members (in their capacity as members) and between members and the society, including procedures for investigating and dealing with:
- Grievances of members relating to their rights and interests as society members, and
- Complaints concerning the misconduct or discipline of society members.
- The procedures for dealing with grievances and complaints must be consistent with the rules of natural justice – primarily:
- Everyone involved must be given proper and fair notice of the issues arising from the grievance or complaint,
- Those who are the subject of the grievance or complaint must be given a reasonable opportunity to be heard, and
- Decision-making must be Impartial and avoid any predetermination
12. Distribution of assets on winding up
The new Act is likely to provide that on winding up a society’s surplus net assets are to be disposed of to one or more not-for-profit entities in accordance with the rules specified in the new Act.
13. Governing a society in compliance with the new Act
- Societies must hold Annual General Meetings not later than 6 months after the balance date of the society, and not later than 15 months after the previous AGM
- Societies must comply with statutory time limits to:
- File annual return and financial statements with the Registrar,
- File amendments to the Constitution with the Registrar (not legally effective until registered), and
- Advise Registrar of changes of committee members and of the contact officer.
- Every society will be required to ensure that its Committee presents to members at Annual General Meetings:
- An annual report on the operations and affairs of the society during the most recently completed accounting period
- The financial statements of the society for that period, and
- Notice of the committee interests’ disclosures, or types of disclosures made, during that period (including a brief summary of the matters, or types of matters, to which those disclosures related)
- To facilitate compliance with the Anti-Money Laundering and Countering Financing of Terrorism Act 2009, after every Annual General Meeting every society will need to obtain up-to-date details (from all committee members and any senior managers) to enable the society to meet to the obligations of its banks and professional advisers – i.e. certified copies of:
- Acceptable identification (name and photograph) – usually a current driver’s licence or passport
- Acceptable recent proof of residential address – usually a local authority, bank or utility provider document addressed to that residential address.
14. Key things incorporated societies registered under the Charitable Trusts Act 1957 will need to do – these may change during the legislative process
- Once the new Incorporated Societies Act comes into effect new charitable societies will no longer be able to register under the Charitable Trusts Act 1957.
- Existing charitable societies registered under the Charitable Trusts Act 1957 are likely to have the option to re-register under the new Incorporated Societies Act or to remain registered under the Charitable Trusts Act 1957.
- Existing charitable societies registered under Charitable Trusts Act 1957 electing to re-register under the new Incorporated Societies Act will need comply with everything required of other societies re-registering under new Act.