A Closer Look at the Incorporated Societies Bill

22 April 2021

This article is the first in a series which aims to look a little closer at the Incorporated Societies Bill, highlighting areas of interest and potential change that clubs and committees need to be aware of.

This week will focus on Parts 1 - 3 which are the Preliminary Provisions, Incorporation of Societies and Administration of Societies.

Note: Clubs New Zealand is preparing a submission on behalf of member clubs.  We encourage management and committee to review the Bill independently, and we welcome your feedback on anything that you believe should be addressed within the Clubs New Zealand submission.

Part 1 Preliminary Provisions

Part 1 is a standard preliminary provisions part that covers the purpose of the Bill, sets out the overview of the Bill, defines the terms (interpretations), provides for transitional, savings and provides for the Bill to bind the crown.

The purposes of the Bill, are to:

• provide for the incorporation of societies that are not carried on for the financial gain of their members; and
• promote high-quality governance of societies; and
  • make the law of societies more accessible; and
  • recognise the principles that—
  • members have the primary responsibility for holding a society to account; and
  • a society should promote the trust and confidence of its members; and
  • a society should be self-governing; and
  • a society should not distribute profits to its members.

Clause 6 provides for transitional, savings, and related provisions in Schedule 1.  Schedule 1 will set out the provisions for an existing society to become registered under the new act.  We will take a closer look at Schedule 1 in a future article.

Part 2 Incorporation of Societies

Eligibility

Clause 8 provides that to be eligible for incorporation a society must have 10 or members and it must have a lawful purpose other than being carried on for the financial gain of its members.

This is a slight change from the current 1908 Act which requires a society to have 15 or more members.

Application for Incorporation

Clauses 9 - 14 provide for:

• an application for incorporation of a society,
• gives the Registrar a discretion about the nature and extent of the consideration that the Registrar gives to an application,
• sets out requirements for a society's name
• provides the grounds on which incorporation must be refused
• and provides that if a company or other body corporate is a member of a society, it counts as 3 members for the purposes of the rule that a society must have at least 10 members.

Incorporation

Clauses 15 to 17 provide for a society to be incorporated as a body corporate (that is, it has separate legal personality from its members).

Part 2 is relatively low impact for clubs that are already incorporated.

Part 3 Administration of Societies

Subpart 1 - Capacity, Powers and Validity of Actions

Clause 18 provides a society with full legal capacity to carry out its activities together with full rights, powers, and privileges for that purpose. However, this is subject to the Bill and the general law and to any restrictions in its constitution.

Clause 19 provides that an action is not invalid merely because the society does not have the capacity, right, or power to do the act.

Clause 20 provides that a society may not assert certain matters against a third party who enters into a transaction or otherwise deals with the society. For example, that the society has not complied with the Bill or its constitution or that an officer does not have a power that an officer would ordinarily have authority to exercise. However, a matter may be asserted if the third party knew, or should have known, of the matter.

Clause 21 states that a person does not have knowledge of the constitution merely because it is registered on the register of incorporated societies.

Subpart 2 - Financial Gain

This subpart confirms the basic principal that a society must not be carried on for financial gain of any of its members.

Clause 22 provides that an officer of a society commits an offence if the society breaches this rule with the officer’s authority, permission, or consent. The offence has a maximum fine of $50,000.

Clauses 23 and 24 set out criteria for determining when the rule is breached.

This subpart confirms that a society must not be carried on for the financial gain of members, but clarifies what would constitute a breach and what doesn't.

Subpart 3 - Constitution

This subpart requires every society is required to have a constitution.

Clauses 26 - 28 set out the matters that a constitution must contain and may contain.

Clauses 30 - 37 cover how amendments are made.  Clause 31 is a new clause that will allow a society to amend its constitution if the amendment has no more than a minor effect or corrects errors or mistakes.

Clauses 38 - 39 cover matters relating to dealing with complaints and grievances. These clauses confirm that disciplinary procedures must be consistent with the laws of natural justice.

We consider this subpart to be of high impact to clubs.  The matters to be contained within the constitution are more in-depth than the 1908 Act and all clubs will need to undertake a constitution review.  Clubs New Zealand will be undertaking a review of the Clubs New Zealand constitution and the Model Constitution to ensure they are fit for purpose and compliant with the new Act when it comes into force.

Click here to download the matters that must be contained within the constitution

The new clause which allows for minor or technical amendments to the constitution, where the amendment has no more than a minor effect or to correct mistakes is a positive addition.

Clubs New Zealand expects that smaller clubs are likely to struggle with the transition.  Often they are run by volunteers and many of them would not be aware of their current constitution or obligations.  On the flip side of that, the Bill will force clubs who have not reviewed their constitutions in decades to do so.

Subpart 4 - Committee and Officers

Committee

Clauses 40 – 44 require a society to have a committee manage the operation and affairs of the society. The committee must comprise 3 or more members who are officers.

To be an officer, a person must be a member of the society and a natural person (that is, not a body corporate) and must not be disqualified under the following grounds:

(a) a person who is under 16 years of age:
(b) a person who is an undischarged bankrupt:
(c) a person who is prohibited from being a director or promoter of, or being concerned or taking part in the management of, an incorporated or unincorporated body under the Companies Act 1993, the Financial Markets Conduct Act 2013, or the Takeovers Act 1993:
(d) a person who is disqualified from being an officer of a charitable entity under section 31(4)(b) of the Charities Act 2005:
(e) a person who has been convicted of any of the following, and has been sentenced for the offence, within the last 7 years:

(i) an offence under subpart 6 of Part 4:
(ii) a crime involving dishonesty (within the meaning of section 2(1) of the Crimes Act 1961):
(iii) an offence under section 143B of the Tax Administration Act 1994:
(iv) an offence under section 22(2):
(v) an offence, in a country other than New Zealand, that is substantially similar to an offence specified in subparagraphs (i) to (iv):
(vi) a money laundering offence or an offence relating to the financing of terrorism, whether in New Zealand or elsewhere:

(f) a person who is subject to any of the following orders:

(i) a banning order under subpart 7 of Part 4:
(ii) an order under section 108 of the Credit Contracts and Consumer Finance Act 2003:
(iii) a forfeiture order under the Criminal Proceeds (Recovery) Act 2009:
(iv) a property order made under the Protection of Personal and Property Rights Act 1988, or whose property is managed by a trustee corporation under section 32 of that Act:

(g) in relation to any particular society, a person who does not comply with any qualifications for officers contained in the society’s constitution.

Officer ceasing to hold office

Clause 45 provides for when an officer ceases to hold office (including by resignation, by being removed under the constitution, and by becoming disqualified).

Clause 46 provides for an officer to remain liable for past acts, omissions, or decisions when the officer vacates office.

Notice of appointment and of other changes

Clause 47 requires a society to notify the Registrar when an officer is appointed.

Validity of Acts

Clause 48 provides for an officer’s acts to be valid even though the officer’s appointment was defective.

Officer's Duties

Clauses 49 to 54 set out the officers’ duties. These are similar to the duties of a director under the Companies Act 1993. These duties are owed to the society (rather than the members) under clause 56. The duties include—

• acting in good faith and in the best interests of the society:
• exercising powers for a proper purpose:
• not acting, nor agreeing to the society acting, in a manner that contravenes the Bill or the constitution:
• acting with reasonable care and diligence. The Companies Act 1993 sets a higher standard of also requiring reasonable skill:
• avoiding creating substantial risk of serious loss to creditors:
• not agreeing to the society incurring an obligation unless the officer believes on reasonable grounds that the society will be able to perform the obligation

Clause 55 provides for an officer to use and rely on certain information.

Conflict of Interest Disclosure rules

Clauses 57 to 67 provide for—

• a duty for officers to disclose if they have a personal interest in a matter relating to the society (for example, if the officer or a close relative may obtain a financial benefit from a transaction entered into by the society):
• the consequences of being interested in a matter (in particular, the officer may not vote on the matter):
• the committee to notify the members if an officer has failed to disclose an interest or has voted on the matter despite being interested. The society may then avoid a transaction (unless the society receives fair value under the transaction):
• innocent third parties (without knowledge of a breach) to be protected if a transaction is avoided:
• a register of disclosures to be maintained.

We consider this subpart to again be of high impact to clubs.  Clubs New Zealand is supportive of this subpart and has always advocated for the expectations on officers to be clearer.  The downside of this is that committee members are already hard to come by, particularly for small clubs and the perceived increase in duties and liabilities might put people off.

Despite the above comment Clubs New Zealand would like to see the Bill go further and place a requirement on officers to complete induction training on being elected to a committee.  This training should be able to be offered by industry associations and would be aimed at ensuring officers are aware of their duties and liabilities.

This subpart does impose administration requirements to notify the registrar of appointments and of other changes relating to officers.

Subpart 5 - Members

Clause 68 requires a society to have at least 10 members.

Clause 69 allows the Registrar to require a society to increase its membership if it has fewer than 10 members. If the membership is not increased, the society may be removed from the register or put into liquidation.

Clause 70 requires a person to consent to being a member.

Clause 71 confirms that membership gives a person no legal rights to a society’s property.

Clause 72 confirms that membership does not make a person liable for a society’s debts.

Clause 73 requires a society to keep a register of its members.

Access to information for members

Clauses 74 to 77 give members a right to request information from the society. The society may refuse a request if, for example, withholding the information is necessary to protect a person’s privacy, disclosure would prejudice the commercial position of the society or another person, or the request is frivolous or vexatious.

General Meetings

Clauses 78 to 82—

• require every society to call an annual general meeting:
• require an annual report and financial statements to be presented at the annual general meeting:
• provide for how general meetings are held:
• require members’ rights of access to financial statements and the minutes of general meetings.

Resolutions in lieu of meeting

Clauses 83 to 86 allow a society to pass a resolution in lieu of holding a general meeting. To be effective, the resolution must be signed by no less than 75% of the members who are entitled to vote.

We consider this subpart to be of high impact to clubs.  There are some new requirements in regards to members.  Clubs will need to review their membership joining process to ensure that consent is sought when joining.

The Bill outlines what the register of members must contain and provides that the society must update the register as soon as it is aware of changes.  There may also be regulations that require further information to be kept, or specify how the information must be kept.

We will need to watch for regulations if any in regards to further requirements for annual reports.

Clubs will also need to be aware that the notice of disclosures must be presented at the annual meeting.

Clauses 83 - 86 provide for resolutions in lieu of a meeting.  This will most likely be of benefit to smaller clubs, the requirement to have the notice signed by 75% of the membership would be almost impossible to achieve for a large club.

Subpart 6 - Indemnities or insurance for officers, members, or employees of society

This subpart allows a society to indemnify or effect insurance for an officer, a member, or an employee only in accordance with the subpart. An indemnity includes relieving, exempting, or excusing a person from liability. Generally speaking, a society cannot give an indemnity for criminal liability or where a person acts in bad faith. It cannot effect insurance for criminal liability.

Clause 89 provides for permitted indemnities for certain liabilities or costs

Clause 90 provides for permitted insurance for certain liabilities or costs

Clause 91 Indemnity or insurance for breach of officers’ duties, etc, must be expressly authorised by society’s constitution

Subpart 7 - Accounting records, financial reporting and annual returns

Clauses 92 - 93 specify the balance date for charitable entities and other societies

Clause 94 requires accounting records to be kept. The records must correctly record transactions and allow the society to prepare financial statements.

Clause 95 requires financial statements to be prepared for each accounting period

Clause 96 provides definitions relating to financial reporting

Clause 97 outlines the minimum requirements for small societies

Clauses 98 – 100 provide for a large societies accounts to be audited

Clause 101 states If a society is required to prepare financial statements under the Charities Act 2005 or the Financial Markets Conduct Act 2013, it must comply with that other Act rather than this Bill.

Clause 102 requires an annual return to be registered. This does not apply to a charitable entity, which instead must prepare an annual return under the Charities Act 2005.

Again we consider this subpart to be of high impact to clubs.  We do not expect that any clubs that are members of Clubs New Zealand would meet the definition of small clubs, and therefore all clubs would be required to be audited under sections 98-100.  

Obviously clubs that operate class 4 gaming are required to be audited, however, for our approx. 140 clubs that do not operate gaming machines this requirement may be new.  For what we consider a small club, the requirement to be audited is cost prohibitive, but also finding an auditor to perform the audit is almost impossible.  We will be submitting that the requirement for all large societies to be audited is unreasonable.

Subpart 8 - Other Administration Matters

Registered Office

Clauses 103 and 104 require every society to have a registered office in New Zealand and to notify the Registrar of any change.

Contact Person

Clauses 105 to 109 require a society to have at least 1 person whom the Registrar may contact about matters relating to the society.

Name of Society

Clause 110 – 111 allows a society to change its name (subject to the name complying with clause 11).  The Registrar may refuse if the proposed name is contrary to clause 11

Clause 112 allows the Registrar to require a society to change its name if the Registrar considers that the name does not comply with clause 11.

Clause 113 provides that a change in name does not effect a society’s rights or duties.

Clause 114 requires a society to ensure that its name is clearly stated in written communications and in contracts and other documents that create legal obligations.

Clause 115 allows a society to use an abbreviation in its name.

Authority to bind society

Clause 116 provide for how a society may enter into contracts and other binding obligations.

Clause 117 provides for how a society may appoint an attorney to act on its behalf. The acts of the attorney bind the society if the attorney acts in accordance with the document that appointed the attorney.

Service of Documents on Society

Clause 118 provides for how documents may be served on a society.

The notable part here is the new requirement to have a contact person.  Each society must have at least 1 contact person (and may have up to three).  The position of contact person may be held separately or in conjunction with any office in the society and the constitution will cover how a person is appointed as contact person.  For a club the contact person will likely be an officer of the club.  The Society must give notice to the Registrar if the contact person changes.

Behind the Scenes

Clubs New Zealand's priority at this stage is preparing the submission on behalf of members. 

From there we will look to begin reviewing the Clubs New Zealand constitution and the model constitution.  We will also look to fully understand the day to day administration requirements that this Bill looks to impose.

As we get closer to the Bill being passed into law we will need to understand the time frames and requirements for clubs to register under the new act.

Clubs New Zealand will then need to update our resources, guidance and training to cover the new Act.

We would love your input

The Clubs New Zealand submission is on behalf of our members and so we would love to hear your input, your feedback or your concerns so that we can ensure they are covered within the submission.

If you would like to provide input, feedback or you have concerns please get in touch with lucy@clubsnz.com