The incorporated societies act is changing - a few reasons we need to care

Jon Batt. 27 September 2022, 2:45 pm

Jon is a Wellington technology and strategy consultant who works with the public sector and start-ups. He is an associate member of ITP and a member of the Institute of Directors. Learn more at his website: www.jonbatt.com

Why read this blog?

ITP is an incorporated society. If that doesn’t mean anything to you, it’s a type of legal entity - like a company or a trust. Recently, the law that governs incorporated societies has changed, bringing the most significant updates since the legislation was first enacted in 1908.

The background

Back in 2010, the Justice Minister asked the Law Commission to review the law around incorporated societies and three years later the Commission produced an imaginatively titled report: A New Act for Incorporated Societies.

After a lot more report writing and some bill drafting and passing, we got the new law. On the 5th of April 2022, the Incorporated Societies Act, 2022 officially replaced the 1908 version.

Before the new act, lots of the rules around running incorporated societies were based on case law. This means it wasn’t written into a specific legislative act, but had been determined by the Courts through different parties bringing cases before a judge across the last century.

If you are responsible for an incorporated society, that can make it really difficult to know what to do and what not to do, or even where to look to find out. This refresh makes it easier and simpler for people running places like ITP.

For ITP, most of the change will happen through the constitution and our governance committee - a group fresh out of elections that Vic posted about a few weeks ago. Here’s a run down on some of the key changes of the new legislation and why those changes were made.

You gotta ask (section 76)

Odd as this may seem, but the changes specifically note that a member of an incorporated society must give their consent of membership. I don’t know how many incorporated societies were out there getting members all signed up without asking them, but I suspect there’s a good story or two in there somewhere. In practical terms, consent could be deemed from an action like paying your fees.

Who gets all our stuff? (section 216)

Incorporated societies now have to have a will for after they close up shop. And what’s more, the recipients must be not-for-profit organisations.

In the event that an incorporated society winds up, assets get sold to pay any outstanding debts, and then the rest of the family silver goes to either a named not-for-profit, or a class of not-for-profits (depending on what we say in our constitution). Previously, any surplus assets could be distributed to the membership.

Them’s fighting rules! (section 26)

The constitution must now contain “procedures for resolving disputes, including providing for how a complaint may be made”. Complaints policies are incredibly important tools for understanding your membership and what matters to them, as well as your own performance. Having clear rules and processes help everyone understand how to engage when things aren’t going as you planned.

And as someone who has done this before, I’d encourage any complaints policy to include a section for frequent flyers or “vexatious litigants” - those who like complaining more than resolving.

An officer and a.. list of duties (sections 5 and 54-61)

Previously, the specifics of who was an officer of an organisation and what their jobs actually were could remain unclear. Happily, this has all been tidied up. Officer’s include people like the Chief Executive and Treasurer, or anyone occupying a position in the society that allows the person to exercise significant influence over the management or administration of the society.

Officer’s duties include things like:

Operating in the good faith and in the best interests of the society
Not operating in a way that creates a risk of loss to the society’s creditors
Not agreeing to obligations unless they think they can actually complete those obligations

The act also makes clear that these duties are to the society, not the members of the society.

Updating for the modern world (section 158)

The new Act adds Manatōpū to the list of restricted words, alongside Incorporated and Inc. Any organisation identifying itself using one of these words improperly is liable for a fine of up to $10,000. That is a pretty steep rise from the 1953 version of the Act, which could only fine you £1 a day (decimal currency didn’t come to New Zealand until 1967, in case you were wondering).

This covers a few of the changes, but if you’re looking for a more fulsome account, the Incorporated Societies Register blog has more information on the changes, and MBIE has more details on the process undertaken to change the law.