On 26 June, MBIE announced that legislation to update the Incorporated Societies Act 1908 (Act) is expected to be introduced to Parliament later this year. Cabinet has approved changes to the Draft Bill following feedback received since it was circulated in 2015.
The road to modernising the Act has been long and winding. In 2013 the Law Commission called for change to bring the Act (which is so archaic it demands payment of fines in shillings) into the 21st Century. In early 2015, the National Government largely accepted the Law Commission’s recommendations and provided a Draft Bill for consultation.
The overarching goal of the Draft Bill was to provide a clear statutory framework for society governance, implement a clear enforcement process to deal with member grievances and complaints and other clarifications and regulatory amendments. As a reminder, the key aims of the Draft Bill were to:
- set out basic duties for a societies’ officers (similar to company directors’ duties, modified where necessary) and provide for criminal offences and penalties for breaches of these duties;
- provide a procedure for dealing with conflicts of interest;
- provide for a standard constitution (in replacement of the old societies’ “Rules”) which a society may adopt instead of drafting its own constitution;
- require each society to include standard disputes procedures in its constitution;
- require all societies to prepare financial statements in accordance with the accounting standards issued by the External Reporting Board (as is already required for those registered under the Charities Act 2005); and
- provide a transition period of no less than four years.
MBIE’s latest announcement was accompanied by a Cabinet paper, setting out Minister Kris Faafoi’s reasons for further amendments to the Draft Bill. The most important of these changes are:
- a narrowing of the previously broad definition of “officer” to simply be members of the board/committee, plus those exercising significant influence (such as chief executives);
- following strong opposition to “standard provisions” for constitutional provisions, these have now been dropped, giving societies freedom to draft their constitutions as they wish to reflect the current law. The standard dispute resolution provisions remain;
- officers may now vote matters on which they are conflicted, provided that the remainder of their board/committee consents;
- External Reporting Board standards are mandatory now only for societies of a certain size (being those with annual payments of $10,000 or more assets of at least $30,000, or otherwise holding “donee” status under the Income Tax Act 2007);
- the transition period has been reduced to 30 months, on the basis this will give societies time, over two governance cycles, to make any necessary amendments to their constitutions, and re-register under the new Act; and
- failure to actively re-register will now result in an society being deregistered, however a restoration process will be available.
Where to next?
Once the Draft Bill has been amended, it will be tabled in Parliament and proceed through first, second and third readings and select committee review, before receiving royal asset. We hope that the time taken to reinvigorate the Draft Bill (and the uncontroversial nature of the changes) will lead to a speedy passage into law.
In the meantime, the Minister has noted the need for public education sessions on the new Act, and society officers are well advised to attend such sessions and seek legal advice if clarification is required. We also suggest that it is now safe to donate your shilling collections to your local garage sale.
Anthony Harper is advising a number of incorporated societies on the implications of the new Act, If you have any questions on how the new Act may impact your society, please feel free to get in touch.
- Slashing planning red tape to enable recoveryMay 22, 2020Common to the post-earthquake recovery strategies in Christchurch and Kaikoura was the development of bespoke legislation substantially modifying the application of the Resource Management Act...
- 5 Key learnings from the Covid-19 lockdownThe aftermath of the COVID-19 lockdown will likely see a significant litigation spike, as there will inevitably be disputes about parties’ contractual obligations and who...
- Urgent changes to the Overseas Investment Act in the wake of...The Government is pushing through urgent changes to the Overseas Investment Act, in the hopes of preventing 'fire sales' of distressed businesses to foreigners contrary...