Time to get ready for the Incorporated Societies Act 2022

The law relating to incorporated societies has been significantly reformed, with the Incorporated Societies Act 2022 (‘New Act’) almost in full force. The New Act received Royal Assent on 5 April 2022 and the vast majority of its provisions will be operative from 5 October 2023.

The New Act modernises the outdated Incorporated Societies Act 1908 (‘Previous Act’) and introduces a number of changes for incorporated societies. Incorporated societies need to be alert to the changes under the New Act to ensure a seamless transition and to avoid the consequences of not complying.

Most importantly (and as further noted below), incorporated societies will need to adopt a new constitution that meets the requirements of the New Act, and then re-register under the New Act. This will need to be completed within a specific timeframe set out in the New Act. If they don’t do so on time, their registration completed under the Previous Act will become ineffective and they will cease to exist.

What does the New Act do?

In brief, the New Act draws upon modern governance and management best practice principles, bringing the administration of incorporated societies more in line with the framework for companies under the Companies Act 1993. In many respects the New Act introduces significant changes to the law. For example:

the minimum number of members will decrease from 15 to 10;
incorporated societies will be required to adopt a dispute resolution process;
incorporated societies will need to have a governing committee of at least three officers;
the concept of officers and their duties will be clearly set out;
specific requirements in relation to AGMs, financial statements and annual returns will apply;
specific criminal offences relating to the management and administration of incorporated societies will apply.

What do incorporated societies need to do?

Incorporated societies will need to re-register on the Incorporated Societies Register under the New Act. However, although incorporated societies should be thinking about what needs to be done to comply with the New Act, they should not change their constitutions just yet because:

we are currently in a transitional period, being the period between 5 April 2022 and October 2023, during which the Previous Act still applies. Therefore, any new constitutions adopted during this period would still need to comply with the Previous Act;
key regulations addressing how the re-registration process will work, what fees there will be (if any), and what needs to be included in the new constitution (especially in relation to the rules regarding the make-up of committees) are still being developed. Once these are published in September 2023 it will be clear what information needs to be included in new constitutions; and
the re-registration period, starting from October 2023, has not commenced yet. Once it does, incorporated societies can re-register on the Incorporated Societies Register. The re-registration period will then run until April 2026, being the ‘transition date’, at which point all incorporated societies must have re-registered (or will cease to exist).

What action can incorporated societies take now?

Notwithstanding the above, there are several things incorporated societies can do now, during the ‘transitional period’, to ensure a timely and smooth transition to the New Act. These include:

confirming that current (or potential) officers meet the appointment conditions under section 47 of the New Act. For example, checking that officers have not been convicted of any of the offences listed under section 47(3)(e) in the last 7 years;
ensuring that officers are aware of and ready to comply with the express officers’ duties listed in sections 54 to section 59 of the New Act, and have a good, working-level understanding of the new framework under the New Act. This mitigates the risk of personal liability by reducing the risk of a breach;
preparing to meet the requirements to file annual returns and to have financial statements prepared in accordance with the requirements imposed by the New Act (incorporated societies must now apply XRB accounting standards unless they are a ‘small society’ not registered as a charity, which are exempt) (see section 102 and section 109); and
reviewing their constitution in light of the New Act and the current needs of their society, identifying any gaps and shortcomings. For example, as noted above incorporated societies will need to specify adequate dispute resolution procedures in their constitutions. Accordingly, incorporated societies will need to develop an appropriate dispute resolution process or adopt the procedures set out in Schedule 2 of the New Act.

In September 2023, once the regulations are published, incorporated societies can begin drafting new constitutions and preparing the other requisite documentation to go alongside it. From October 2023 and up until April 2026, incorporated societies can submit all relevant documentation to be re-registered.

What are the consequences of not complying?

There are significant consequences for not complying with the New Act that incorporated societies need to keep in mind.

If an incorporated society has not re-registered before April 2026, then it will cease to exist. Its only recourse will be to apply to be restored to the Incorporated Societies Register in accordance with the New Act, but this is an easily avoidable and unnecessary time and cost expense (see section 2(2)(d)).

In circumstances where an incorporated society is carried on for the financial gain of its members (which was and still is prohibited), an officer may be liable for a fine not exceeding NZ$50,000 if it occurred with the officer’s authority, permission or consent.

Further, an officer, member, or employee of an incorporated society will commit an offence and may become liable to imprisonment for a term not exceeding five years, a fine not exceeding NZ$200,000, or both, if he or she fraudulently uses incorporated society property, falsifies records, or operates dishonestly in relation to incurring a debt (see sections 155, 156 and 157).

Most of what the New Act prohibits is also prohibited under the Previous Act. However, the New Act significantly increases the penalties applicable to breaches of these prohibitions.

How can we assist?

We can assist with any of the matters mentioned above.

In relation to the requirements relating to the appointment of officers, we can provide advice on whether or not a person is eligible, in the event of uncertainty.

With regards to officers’ duties, we can provide training to current or prospective officers through workshops or prepare resources for officers to rely on.

Later in September, once the regulations are published, we can draft new constitutions in accordance with the New Act and any other documents that are required by the regulations for incorporated societies, so that they are ready to re-register by the start of the ‘re-registration period’ in October. In the meantime, we can start reviewing existing constitutions in light of the New Act.

Incorporated societies have a reasonable amount of time to re-register and ensure that they comply with the New Act. However, to avoid the consequences above, and so that re-registration is trouble-free, we strongly recommend that incorporated societies are proactive.

This article by Denton’s Kensington Swan contains very helpful analysis and guidance following changes to the Incorporated Societies law, an outline of the implementation process and timeframes, and identifies what action Incorporated Societies can take now.

They note that draft regulations are underway, and will be finalised by September 2023. The IoD made submissions on the exposure drafts of the regulations released by the Ministry of Business, Innovation & Employment, on two issues.

Officers/directors residential address details

The IoD strongly supported the scheme whereby an “officer’s physical address” is not made public on the register. This responds to the concerns many submitters had about privacy, security and digital inclusivity – including the IoD’s submission on the initial draft regulations in December 2022.

We took the opportunity to strongly advocate for similar change for company directors’ – that would ensure private residential address details are not made public on the Companies Register – noting that legislative reform announced in March 2022 to achieve this, has not progressed at all.

Disqualification of officers: prescribed countries, States or territories.

The IoD agrees with the proposed regulation that will clarify the definition of prescribed countries to include all overseas countries.

This draft regulation accords with the IoD’s original submission on the Incorporated Societies Bill in May 2021, as well as our further submission on the initial draft regulations in December 2022.