Modern Statute for Incorporated Societies Recommended
21 August 2013
Commission Recommends a Modern Statute for Incorporated
The Law Commission is recommending that Parliament enact a modern statute for incorporated societies to replace the current statute, which is more than 100 years old.
The Incorporated Societies Act 1908 has played a critical role in community life by enabling organisations to incorporate. This means members of a community group can apply to establish the group as a separate legal entity, a society. Once registered, the society is a legal person in its own right, with rights and obligations that are separate from its members.
There are over 23,000 incorporated societies, covering a huge range of purposes. Societies play a vital role in the social fabric and economic success of New Zealand. They include very large organisations, such as the New Zealand Rugby Union Incorporated; providers of community services such as Plunket; and thousands of local sports, recreational and cultural clubs. At various times in their lives a great number of New Zealanders will join societies, become involved in their activities or benefit from what societies do.
Given the important roles that societies play, it is important that societies are supported by clear, modern legislation that assists them and their members to attain their goals. Law Commissioner Geoff McLay said that while the present Act has generally served societies well, the passage of time has inevitably thrown up the need for improvements. 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. 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. They need to know whether they may have a conflict of interest – and what to do if they do. Members need to know what information they can expect from their committee; and what happens if they are involved in a dispute with the society or another member. None of these topics are covered in the current Act.
To meet these gaps the Commission is recommending that a new Act should provide needed guidance to societies and members by:
• setting 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;
• providing 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;
• requiring 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;
• providing for a model constitution in regulations made under the Act, which a society may adopt instead of drafting its own constitution.
Commissioner McLay comments:
“Our recommendations represent the evolution of incorporated societies for the 21st Century, rather than revolution. The Commission believes that the fundamentals of incorporated societies must remain unchanged, in particular that societies are organisations run by their own members; they should not distribute profits or financial benefits to members; and they are private and should be self-governing and free from unnecessary state interference.”
Alongside the broader recommendations, the Law Commission makes a number of more specific recommendations to clarify, modernise and improve the legislation, for example:
• 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 Incorporated Societies Amendment Act 1920 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.
• The Registrar of Incorporated Societies should continue to play a light-handed role in the sector, but he or she should have clear but limited powers of investigation and intervention for the very rare circumstances where it is in the public interest for the Registrar to step in.
• Societies should be prohibited from distributing assets to members when a society winds up. Any surplus assets should be distributed to another incorporated society, another not-for-profit entity or charitable trust. Any society that currently provides in its constitution for distributing assets to members should have a transition period within which it must make arrangements to comply with the new requirements, or change to a different corporate form (for instance, a company).
The recommendations are contained in the Law Commission’s latest Report, A New Act for Incorporated Societies (NZLC R129, 2013) which was tabled in the House of Representatives today.
The full Report, including a summary, can be found on the Commission’s website at http://www.lawcom.govt.nz/project/ review-incorporated-societies-act-1908/report.