The Incorporated Societies Act 2022 ("2022 Act") – The next phase of the Incorporated Societies Act ("1908 Act")
It is no surprise that after 110 years, a piece of legislation undergoing a much-needed update would result in numerous changes. The 2022 Act was introduced with the primary goal of empowering societies to govern themselves more effectively by clarifying important details about what they do, who they are, and how they operate.
The WHEN – when are the deadlines?
1. New society — a new society will need to register under the 1908 Act until October 2023. From then on, all new societies will be required to register under the 2022 Act. To avoid the inconvenience of having to rework the rules in the near future, it would be prudent to ensure that the rules are in compliance with the 2022 Act from the outset.
2. Existing societies — Existing societies will have some time to re-register. There is a grace period for re-registration. Between October 2023 and April 2026 (a period of 2 ½ years), existing societies must re-register, failing which they will be dissolved.
The HOW – how it is done.
The upcoming transition to the 2022 Act is not a simple automatic process. Societies will need to take proactive measures and apply for re-registration, which requires them to provide a refreshed set of rules or constitution that complies with the updated Act. This presents an ideal opportunity for societies to review their current rules or constitution and ensure it aligns with the 2022 Act.
It is important to stress that failure to comply with these requirements and being unable to register under the new Act will result in the society ceasing to exist. Therefore, it is crucial for societies to act now and make the necessary changes to avoid any potential issues in the future.
The WHAT — what are these changes that societies will need to have?
While this list is not comprehensive, it highlights the significant overhauls that demand careful consideration:
1. Contact person — Under the 2022 Act, societies must appoint a New Zealand resident as a contact person, who will be responsible for liaising with the Registrar of Incorporated Societies (“Registrar”). Societies must also notify the Registrar of any changes to the contact person.
2. No financial gain — The 2022 Act reinforces the long-standing principle that societies should not operate for the financial gain of their members. The 2022 Act provides additional guidance on when a society may be considered to be in breach of this principle, including a prohibition on distributing surplus assets to members when winding up. Instead, surplus assets must be distributed to another not-for-profit entity.
3. Annual returns — Societies are required to keep their information on the registry up-to-date and submit annual returns. Failure to file an annual return is considered an infringement offence under the 2022 Act.
4. Financial reporting obligations — Societies must comply with new accounting standards for their financial statements, which will vary depending on the society's size. Large societies are required to have their accounts audited. Societies should consult with their accountant to determine which standard applies to their society.
5. Consent — To become a member of a society, every person must give their express consent. Societies should consider the most appropriate method for obtaining consent from potential members.
6. Membership minimum reduced but is now an ongoing requirement — The minimum number of members required to establish a society has been reduced from 15 to 10. However, this number is now the minimum for the life of the society, and if the number falls below this, the Registrar may require the society to increase its membership. Corporations are still counted as three members.
7. Officers — The 2022 Act sets out specific qualifications that a person must meet before being appointed as an officer. Additionally, the 2022 Act provides for a term of service and grounds for removal of officers.
8. Committee — To ensure effective management of the society, the 2022 Act requires a committee consisting of at least 3 officers who are members of the society. The committee has the power to manage all affairs of the society.
9. Officer duties — What used to be common law duties are now to be set in stone. The 2022 Act outlines officer duties, which are similar to those of directors under the Companies Act 1993. These duties include acting in good faith and in the best interests of the society, and exercising reasonable diligence and care. Societies may want to consider obtaining officer insurance to protect against potential liability.
10. Dispute resolution — It is important for societies to have a clear procedure for resolving disputes and grievances among members and between members and the society. While societies can create their own procedures as long as they align with natural justice, the 2022 Act does provide a set of procedures that can be adopted. Adopting these procedures can be beneficial because it is assumed that they are consistent with natural justice.
11. Amalgamation — Societies now have the option of amalgamation, and there are provisions in place to help facilitate the process. These provisions can be useful for societies looking to transition or merge with others.
Other key changes.
1. Offences — The 2022 Act introduces several criminal offences aimed at addressing issues of officers abusing their position or acting dishonestly. Some of these offences may result in a fine of up to $200,000.00 and a prison term of up to 5 years. In addition, there are infringement offences for failing to comply with the administrative requirements of the 2022 Act, which may result in a fine of up to $3,000.00.
2. Enforcement powers — The 2022 Act provides a range of provisions dealing with Court orders to enforce a society's constitution or bylaws, officers' duties, and operations or affairs that are oppressive, unfairly discriminatory, or unfairly prejudicial to a member. The 2022 Act also allows for the recovery of financial gain from members who have gained and includes provisions for addressing offences.
If you feel you could use some specialist advice, don’t hesitate to contact the Commercial Team.
