Incorporated Societies Bill – Exposure Draft

The Minister of Commerce and Consumer Affairs, Hon Paul Goldsmith, has announced the release of an Exposure Draft of the Incorporated Societies Bill (Draft Bill), along with a Request for Submissions.

Information and background documents relating to the Bill and making submissions can be found on the MBIE website.

The closing date for submissions is Thursday, 30 June 2016. All submissions or queries should be sent to societies@mbie.govt.nz.

The proposals include providing sufficient time (i.e. until 2020) for existing societies to transition from the Incorporated Societies Act 1908 (1908 Act) to the new legislation (new Act).

Key Features

The Request for Submissions sets out in some detail the key features of the Draft Bill. We recommend that you read this, but briefly note some matters which may be of particular interest or concern:

Constitution

The Rules of a society are referred to in the Draft Bill as its “constitution”. Clause 24 of the Draft Bill, sets out what the society’s constitution must contain. In addition to similiar requirements under the 1908 Act these include:

  • provisions for the composition, roles and functions of the committee of the society, including number of committee members; election or appointment of committee members; terms of office of committee members; functions and powers of the committee; grounds for removal;
  • procedures for resolving disputes between members and between members and the society; and
  • 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 the liquidation or deregistration of the society.

The Annex to the Request for Submissions contains some draft standard provisions dealing with most of the matters required to be covered by the constitution.

Officers’ duties

Clause 36 defines an Officer as a natural person who is a member of the committee or who holds any other office provided for in the society’s constitution. It also makes provision for other persons who for particular purposes are deemed to be officers.

The duties of officers are set out in clauses 48 to 53 and are similar to those provided for directors of companies under the Companies Act 1993. This is in line with existing court decisions.

Conflicts of interest

Clauses 56 to 65 deal with this matter. An officer who has a conflict of interest must disclose it to the committee and in an interests register kept by the committee. The interested officer must not vote on the relevant matter but may take part in discussions and be counted in the quorum. If 50% or more of the members of the committee are prevented from voting, a special general meeting of the society must be called to consider and determine the matter.

Financial gain

Clause 21 states that a society must not be carried on for the financial gain of any of its members. Clause 22 sets out certain matters which are not for financial gain including:

  • the society engaging in trade; and
  • the society paying a member a salary or wages or other payments for services on arms length terms.

This provision is similar to that under the 1908 Act, however, unlike under the 1908 Act, the Draft Bill does not exempt from financial gain the distribution of property of a society to its members on its dissolution.

Qualification of Officers

Clause 39 lists persons who are disqualified from being appointed or holding office as an officer including a person who is under 16 years of age, or an undischarged bankrupt or otherwise disqualified as set out in that clause.

Contact Officer

Clauses 42 and 43 provide that every society must at all times have a contact officer whom the Registrar can contact when needed. The contract officer must be a member of the society’s committee, at least 18 years of age, and ordinarily resident in New Zealand.

Request for information

Clause 71 provides that a member may make a written request to a society for information held by the society.

Annual General Meeting

Clauses 73 to 76 impose requirements in respect of the annual general meeting of members.

Indemnity and insurance

Clauses 77 to 80 provide for indemnities and insurance for officers, members and employees.

Financial reporting

Clause 83 sets out financial reporting requirements including the manner in which the annual financial statements must be prepared and registered. This clause does not apply to a society which is a charitable entity under the Charities Act 2005 as that Act imposes its own reporting requirements.

Annual return

Clause 85 provides for registration each year of an annual return. This provision does not apply to a charitable entity required to make an annual return under the Charities Act 2005.

Some other provisions

The Draft Bill contains provisions for enforcement, offences, amalgamation, liquidation and removal from the register. Clauses 166 to 169 set out the procedure for resolutions in relation to removal from the register, liquidation and distribution of a society’s surplus assets.

Charitable Trusts Act 1957

Societies will no longer be permitted to register under the Charitable Trusts Act and societies currently so registered will be required to become a society under the new Act.

Transitional arrangements

Schedule 1 to the Bill sets out the transitional arrangements. Briefly, these are as follows:

  • new societies will need to register under the new Act when the 1908 Act has been repealed, which is expected to be within 6 months of the new Act coming into force;
  • first transition date: it is expected that within 2 years of the new Act coming into force, all societies registered under the 1908 Act will be deemed to be registered under the new Act. During this 2 year window, an existing society can choose to amend its rules/constitution in preperation for the transition to the new Act. At the end of the 2 year period, the new Act would start applying to all existing societies, but with a small number of exceptions such as clause 24 which relates to the requirements for the contents of constitutions, and clause 39 which relates to the qualifications of officers;
  • second transition date: on a date that is not less than 2 years after the first transition date, all remaining provisions will come into effect so that the new Act will apply in full to all societies. Where a society has not by then lodged a constitution which complies with the new Act, the Registrar may declare that the society is deemed to have adopted one or more of the standard constitutional provisions. Alternatively the Registrar could apply to a court to liquidate the non-compliant society.

Assistance from our team

If you have any questions relating to the Draft Bill and how it may impact your Society or, if you would like assistance with your submissions, please contact one of our team members.