A Closer Look at the Incorporated Societies Bill - Part 2

29 April 2021

This article is the second 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 4 and 5 which cover Enforcement and Removal from register, amalgamation, liquidation and other processes.

Click here two view last weeks article covering parts 1-3

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 4 Enforcement

Part 4 allows a court to make certain orders to support the purposes of the Bill.  Allows for a society to recover financial gain obtained in contravention of the Bill and provides for offences.

Subpart 1 - Court orders enforcing societies constitution or bylaws

This subpart allows a court to make various orders to enforce a society’s constitution or bylaws (for example, directing a person to comply with the constitution or stopping a society from acting contrary to the constitution). The subpart also allows the court to intervene in relation to complaints and grievances that are being dealt with under the constitution (for example, where there has been a breach of natural justice).

An application for an order may be made by the society, a member, a former member, or the Registrar.

Subpart 2 - Court orders enforcing officers' duties

This subpart allows a court to make various orders to enforce the officer’s duties. The orders include restraining an officer from acting in a manner contrary to their duties or an order to compensate the society.

An application may be made by the society or the Registrar. The subpart also allows the court to grant leave to allow a member or an officer to apply or intervene in a proceeding on behalf of the society.

Subpart 3 - Prejudiced members

This subpart allows the court to make various orders where a society has been carried on in a manner that is oppressive, unfairly discriminatory, or unfairly prejudicial to a member or former member. The orders include an order to compensate the member or former member or an order to regulate the future conduct of the society.

Subpart 4 - Financial gain

This subpart allows a society to recover a financial gain that has been obtained by a member or former member in breach of subpart 2 of Part 3.

The subpart allows a member or an officer to apply or intervene in a proceeding on behalf of the society.

Subpart 5 - Miscellaneous provisions relating to applications

This subpart provides for the Registrar to apply only if the Registrar considers that it is in the public interest to do so. In considering this, the Registrar must have regard to certain matters, including—

• the principles that members have the primary responsibility for holding societies to account and societies are private bodies that should be self-governing; and
• whether making the application is an efficient and effective use of the Registrar’s resources; and
• the extent to which the matter involves matters of general significance or importance in terms of promoting high-quality governance of societies; and
• whether the society receives public funding or there is otherwise a significant public interest in the governance of the society.
• The subpart also gives the court the power to refuse to consider applications for orders (for example, where the application is frivolous or vexatious or otherwise not in the public interest).

Subpart 6 - Offences

This subpart provides for various offences relating to, for example,—

• an officer dishonestly using that position for personal gain:
• false statements:
• fraudulently using or destroying a society’s property:
• falsifying a register, records, or documents:
• knowingly being a party to a society operating with intent to defraud the creditors of the society or any other person or for a fraudulent purpose:
• improperly using the words “Incorporated”, “Inc”, or “Manatōpu”:
• breaching a banning order.

The maximum fines for the above offences range from a fine of $10,000 through to $200,000 and/or a jail term between 1 -5 years.

The subpart also provides for infringement offences for more minor matters. The infringement fee for these offences is an amount not exceeding $1,000 or a fine not exceeding $3,000.

Subpart 7 - Banning order

This subpart allows a court to ban a person from being an officer or from being involved in the management of a society. An order can be made if, for example, the person has—

• been convicted of a serious offence; or
• persistently failed to comply with the Bill; or
• been guilty of fraud in relation to the society or of a breach of duty to the society; or
• acted in a reckless or an incompetent manner.

Clubs New Zealand is supportive of this section of the Act.  For a long time, we have argued that clubs and members need provisions to cover circumstances where the club is being run contrary to its constitution or officers' are acting in a manner contrary to their duties.

Part 5 - Removal from register, amalgamation, liquidation, and other processes

Subpart 1 - Removal from register

This subpart provides for a society to be removed from the register. A society ceases to exist once it is removed.

Clause 168 sets out the grounds for removal. These include the following:

• the society requests removal under clause 169:
• the society is no longer operating and there is no proper reason for it to continue to exist:
• the society’s constitution does not comply with the Bill in a material way:
• the society or its officers have failed in a persistent or serious way to comply with duties under the Bill:
• the society has been liquidated.

Procedural requirements before removal

Clauses 170 to 175 provide for procedural matters relating to a removal. These include—

• the Registrar giving notice of a removal:
• the Registrar giving the public an opportunity to object to a removal and providing for how the Registrar must deal with objections:
• allowing a court to order that a society must not be removed.

Clause 176 provides that an officer’s or a member’s liability continues after the removal.

Restoration to register

Clauses 177 to 183 provide for a society to be restored to the register. In summary,—

• the Registrar may restore the society if certain grounds exist. These include that the grounds for the removal did not exist or the society was operating at the time of its removal and there is a proper reason for it to continue to exist:
• the Registrar must give notice of an intention to restore a society and give an opportunity to object:
• the court may also restore a society to the register. The court’s powers to restore include where, for any reason, it is just and equitable that the society be restored to the register:
• the court may give directions or make orders to help place the society in as nearly as possible in the same position as if it had not been removed from the register.

Subpart 2 - Amalgamations

Clauses 185 and 186 provide for an amalgamation proposal to be sent to members and creditors and for the proposal to be publicly notified.

Clauses 187 to 189 provide for the committee of each amalgamating society to approve the proposal. The proposal may be approved only if it is in the best interests of each society and the amalgamated society will be solvent.

Clauses 190 to 195 provide for the Registrar to register the amalgamation. The Registrar can refuse to proceed on various grounds, for example, where the purposes or the constitution of the amalgamated society will not comply with the Bill.

Clause 196 provides for the effect of amalgamation. In particular, the amalgamated society succeeds to all the property, liabilities, rights, and powers of the amalgamating societies.

Clauses 197 and 198 provide for changes to registers relating to the amalgamation.

Clause 199 allows a court to make certain orders to stop or modify an amalgamation if a creditor or other person may be unfairly prejudiced by a proposed amalgamation.

Clubs New Zealand is supportive of this section of the bill.  It formalises the amalgamation process and provides clubs a clear process to follow.

Subpart 3 - Compromises with creditors

Clause 200 allows a society to enter into a compromise with its creditors in accordance with Part 14 of the Companies Act 1993. A compromise approved by creditors under that Part is binding on the society and on the creditors to whom notice of the proposed compromise is given.

Subpart 4 - Liquidation

Members may resolve to put society into liquidation

Clause 201 provides for the members to put a society into liquidation by passing a resolution under subpart 6. Under clause 202, Part 16 of the Companies Act 1993 applies to the liquidation.

High Court may put society into liquidation

Clauses 203 to 206 provide for the High Court to put a society into liquidation. These provisions—

• set out the grounds for putting a society into liquidation. These include, for example, where the society suspends its operations for 1 year or more, the society is unable to pay its debts, or it is otherwise just and equitable that the society should be put into liquidation:
• allow the society itself, a member, a creditor, or the Registrar to apply to the High Court to appoint a liquidator:
• apply Part 16 of the Companies Act 1993 to the liquidation.

Subpart 5 - Other matters relating to removal or liquidation of society

Clause 208 sets out who can act under this subpart. This includes a liquidator or, in the case of a removal, a person authorised by the Registrar. The society itself may act if the society is distributing its surplus assets to enable the society to request to be removed from the register.

Clause 209 sets out the rules for distributing the surplus assets of the society after the payment of all of its costs, debts, and liabilities. The surplus assets may only be distributed to not-for-profit entities. The rules provide for distribution—

• to 1 or more not-for-profit entities identified in the society’s constitution; or
• in the manner specified in a resolution approved by members under subpart 6; or
• as the Registrar directs.

Clause 210 allows a resolution to be passed to provide for the distribution of surplus assets even though the society has ceased to exist (because it has been removed from the register).

Clause 211 sets out when a distribution must not be made under the constitution.

Clause 212 provides that a person acting under the subpart is only required to make reasonable inquiries for the purpose of identifying not-for-profit entities to which a distribution may be made.

Clause 213 gives a person who is authorised by the Registrar to act an immunity for good faith actions.

Clause 214 gives the Registrar broad powers to give directions to facilitate the removal or liquidation.

Clause 215 provides for how distributions are made if further assets are discovered sometime after the surplus assets are distributed.

Clause 216 provides for directions relating to land.

Clause 217 provides that a decision of the Registrar under this subpart may not be appealed.

Clubs New Zealand is supportive of this subpart and it clarifies how any remaining assets must be distributed.  Clubs New Zealand's model constitution has always included a clear procedures for dealing with dissolutions for our clubs.

Subpart 6 - Procedure for resolutions

This subpart provides for how a society may pass any of the following:

• a resolution authorising a member to request that the society be removed from the register:
• a resolution providing for the distribution of a society’s surplus assets (on its removal or liquidation):
• a resolution to appoint a liquidator of a society.

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