DAWN HANDFORTH

As one of more than 23,000 incorporated societies operating in New Zealand, NZALPA is pleased to finally see progress on efforts to reform the Incorporated Societies Act 1908.

At the end of June we received the Government report-back on the draft bill that was released by the Ministry of Business Innovation and Employment (MBIE) back in 2015. 

One of the major benefits of reforming the Act will be clarification of the legal, governance and accountability obligations involved in not for profit societies, while maintaining the flexibility of societies to conduct their affairs to suit their objectives and goals. 

The draft Incorporated Societies Bill was the result of a New Zealand Law Society review, commissioned by the Minister of Justice in 2010. The review was to address concerns that the Act is no longer relevant, as it does not reflect the current environment in which incorporated societies operate. 

As the Law Society said in its final report: “While the 1908 Act was innovative and world leading when it was enacted, the passage of time and developments in the New Zealand community have left it significantly deficient in a number of respects.”

In particular, the current Act does not give sufficient guidance about the obligations of volunteers who run incorporated societies, or about how disputes should be dealt with. Furthermore, the Act does not expressly set out much of what is legally necessary for the running of societies. 

In its final report, released in 2013, the Law Commission recognised the strong need to provide a more modern statute which is usable, sensible and self-explanatory in order to guide the not for profit sector into the future.

In 2014, the Government responded to the Law Commission report, agreeing to 101 of its 102 recommendations. Then in 2015 MBIE released the draft bill for public consultation. Work was then put on hold until 2018 due to resourcing issues.

Keeping the best of what we had

The draft bill retains the best of the 1908 Act, codifies what is useful from case law and fills other legislative gaps where the law is unclear. In the report-back on the draft bill, the Minister of Commerce and Consumer Affairs, Kris Faafoi, has also recommended some amendments to the bill, which should be introduced to Parliament later this year. 

Significant changes proposed for the current law include: modern governance provisions, including duties of officers that are modelled on director’s duties under the Companies Act, as well as conflict of interest disclosure rules; a requirement for rules to include dispute resolution procedures; coherent civil law enforcement provisions; criminal sanctions aimed at egregious conduct; the extension of external reporting board standards to larger societies not registered as charities; and the introduction of audit thresholds. 

When the new legislation comes into effect, all societies will need to check that their constitutions comply with the new requirements.

Impact on NZALPA

Based on the current proposed changes, it is likely that NZALPA’s rules will need little amendment. The governance work that the oard and I have done over the past four years included codifying board members’ duties based on director’s duties under the Companies Act, creating a conflicts of interest policy and an interests register, so in this regard it will largely be business as usual. 

Where there will be some impact, if enacted, is the proposed requirement to use external reporting board standards in annual financial statements. However, the NZALPA Finance Manager is across this issue.

Problems for some

One area that has the potential to cause problems for some organisations is the transition period from the old regime to the new. The draft bill proposes a two-stage, four year transition, with existing societies automatically re-registered on the new register.

The Minister, however, wants that shortened to a two and a half year transition, and societies will only be moved to the new register if they actively re-register and they have achieved compliance with the requirements of the new statute. A failure to do so within the timeframe would see them de-registered. 

Next steps

It will be interesting to see how the Minister’s changes will be received by stakeholders once the finalised bill is introduced later this year. 

NZALPA will make supportive submissions on the bill.