The Incorporated Societies Act 2022: changes you need to know about

Commercial Law
In the Community
Aug 17 2022

If you are involved with sports clubs, religious groups, other community or social associations, or even certain iwi organisations – the new Incorporated Societies Act 2022 (the Act) may affect you and your organisation.

At over 100 years old, the Incorporated Societies Act 1908 was no longer able to keep up with the needs of New Zealand’s 24,000 incorporated societies. The new Act came into force on 6 April 2022 and puts in place a more modern governance framework for societies and the volunteers who administer them. It aims to give more guidance to these self-governing groups and provides new dispute resolution options that did not exist previously.

Now that it is enacted, societies need to understand how they are affected by the Act and what needs to be done to transition to the new regime. This is particularly important because failing to comply (and failing to re-register) will result in the de-registration of the society. Fortunately, the provisions do not come into force all at once, but over a staggered transitional period of around three and a half years.

Key changes

The Act makes a number of key changes to the current framework including:

Registration:  All incorporated societies will be required to re-register under the Act by 1 December 2025. Failure to re-register by this date will mean that a society ceases to exist. To re-register societies must satisfy the new requirements under the Act.

Constitution:  The Act will require all societies to have a constitution which provides specific detail of the composition, roles, powers, functions and procedures of the committee. This is more substantial than what is required under the former Act. The Act also expressly acknowledges the ability for a society to incorporate and express tikanga practices within its constitution.

Minimum membership requirements:  The minimum number of members has reduced from 15 to 10. All societies will be required to start with and maintain a membership of at least 10 members. Bodies corporate will continue to count as 3 members.

Consent:  Every person must consent to becoming a member of a society. With groups like sports clubs, it may not be clear that signing up means joining as a member of the incorporated society.

Committees:  All societies must have a committee (a governing body) which is comprised of at least three members of the society who are appointed as officers. This is a new requirement which was not provided for in the 1908 Act. The Act outlines the core duties of the committee such as managing or directly supervising the affairs of the society. It also outlines the qualification criteria for members and other officers.

Officers:  The Act codifies existing common law duties owed by officers. These align with those under the Companies Act 1993 and include:

  • The duty to act in good faith and in the best interests of the society.
  • The duty to exercise powers as an officer for a proper purpose.
  • The duty not to act, or agree to the society acting, in a manner that contravenes the Act or the constitution of the society.
  • The duty to exercise the care and diligence that a reasonable person with the same responsibilities would in the same circumstances.
  • The duty not to permit the activities of the society to be carried out in a manner that is likely to create a substantial risk of serious loss to creditors.
  • The duty not to permit the society to incur an obligation unless the officer believes at that time on reasonable grounds that the society will be able to perform the obligation when it is required to do so.

These duties are owed to the society rather than to members. However, a member can apply to the Court to enforce those duties.

Dispute Resolution:  Societies must have procedures in place to resolve disputes and grievances. These can be personal to a society but must meet minimum procedural requirements including natural justice requirements.

Reporting:  Societies will be required to prepare financial statements and accounting records that comply with generally accepted accounting practice. Requirements for this are size-based, with larger societies being required to have their accounts audited.

Offences:  The Act outlines various offences including making false or misleading statements, fraudulent use or destruction of property, falsification of register, records, or documents, operating fraudulently or dishonestly incurring debt, improper use of “Incorporated”, “Inc.”, or “Manatōpū”.

Financial Gain:  The Act tightens provisions relating to a society not being for financial gain and provides guidance as to when a society will be considered to be operating for the financial gain of its members. Following this it introduces a fine not exceeding $50,000 for failure to comply with this rule.

Amalgamation:  The Act allows two or more societies to amalgamate. This is essentially a simplified version of the amalgamation process contained in the Companies Act 1993.

Enforcement:  Enforcement provisions will be introduced which outline who is able to apply for Court orders and the type of order a Court can make. This is important to ensure accountability where there may be a breach of constitution or officer duties.

Registrar:  The registrar of Incorporated Societies will have reinstated functions and powers, with the addition of wider powers to inspect, copy and take possession of documents and standing to initiate enforcement proceedings if it is in the public interest to do so.

What do you need to do?

If you are an officer, or otherwise involved with a society’s governance, you will need to consider how the above changes impact your organisation. You should:

  • Review your membership application process to ensure that you are clearly seeking and obtaining consent to become a member of your club or organisation.
  • Review your constitution to ensure it is compliant with the regulations in the Act and if not, make necessary changes.
  • Review your members’ register to ensure it is up to date and that you meet minimum membership requirements.
  • Consider whether your current officers meet the new criteria to continue as officers.
  • Prepare your application for re-registration and ensure it complies with regulations in the Act (including s 5(3) of Schedule 1).
  • Apply for re-registration of your society before 1 December 2025.

It is not yet possible to register under the new Act. But it is important that societies are prepared and ready to step into the new regime when the time comes. Well governed societies may benefit from beginning the transition, consulting members on updates to their rules or constitution, and being ready for registration, which will be looked upon favourably by members, sponsors and funders.

Holland Beckett Law is passionate about assisting local not-for-profit and community organisations. Please reach out if you would like to discuss how the above changes are going to affect your society. We would be happy to assist you through the re-registration process, or review your rules/constitution to ensure compliance.

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