The Incorporated Societies Act 1908 ("the Act") has played an important role in the development of New Zealand society over the last century. The Act has enabled groups and organisations to establish themselves as separate legal entities, which has enabled them to operate in a more efficient manner. This efficiency is being threatened by the Law Commission’s proposals to repeal and replace the Act.
New Zealand has over 23,000 incorporated societies, covering a diverse range of purposes, including: sports, social and recreational clubs, religious organisations, common property ownership and social service providers.
Although the Act was a pioneering piece of legislation when it was passed into law over a century ago, it needs an overhaul. The Act lacks adequate guidance on things such as the obligations of the members who run the society, how disputes are to be resolved, and ensuring that members do not profit from their involvement in the society.
The Law Commission has recommended that the Act be repealed and replaced with an act that provides greater accountability, transparency and prescribed governance structures.
Some of the Law Commission’s key recommendations are:
Reducing the minimum number of members of a society from 15 to 10 and clearing up the uncertainty around societies with insufficient members;
To allow societies to indemnify members/employees in certain circumstances;
To mirror the Companies Act 1993 in relation to legal powers and responsibilities;
Requiring the establishment of a committee of members and a “statutory officer” for each society, and imposing duties on them similar to those imposed on company directors under the Companies Act 1993;
Clarifying how matters involving conflicts of interest are dealt with;
Requiring societies to provide detailed annual reporting;
Providing a default constitution (set of rules) for societies;
Placing more emphasis on complaints and grievances procedures;
The introduction of new civil and criminal sanctions against societies and their members. These include infringement offences for non-compliance with filing requirements or other administrative obligations imposed under the Act.
While the Act is certainly in need of reform, it looks like the Law Commission has gone too far. There is a real risk the more stringent requirements will overwhelm many volunteer organisations. For so long, societies have relied upon the volunteers to carry out the activities on behalf of societies. This goodwill may disappear when a society’s officers are subject to greater personal liability while they are carrying out their functions. If these reforms are passed, directors and officers insurance will change from a “nice to have” to a “must have” for societies.
The Government is currently considering the Law Commission’s recommendations. It is possible that the Law Commission’s recommendations will be watered down.