The well overdue overhaul of the Incorporated Societies Act received Royal Assent on 5 April 2022. Incorporated Societies Act 2022 replaces the 1908 Act. Some significant changes in the requirements around membership, governance, general meetings, dispute resolution, winding up, financial reporting and auditing have been made.
Requirement to re-register
Every incorporated society must re-register under the new Act and has 2½ years (between 5 October 2023 to 5 April 2026) to complete this process. An incorporated society will continue to be subject to the old Act until it re-registers as an incorporated society under the new Act. Any incorporated society that does not re-register by 5 April 2026 will cease to exist.
To re-register, an incorporated society will need to ensure that it’s constitution includes certain information now required by the Act. It may therefore become necessary for many organisations to amend their constitutions to comply with the new requirements. For many organisations, this is an ideal opportunity to review your rules. Any review however will still need to be passed in accordance with the existing constitution. This may pose difficulties for some organisations whose Rules require a special majority to amend.
The new Act sets out a number of details that must be included in a Society’s constitution. These include:
- the name and purpose of the society;
- the process for becoming a member and how membership ends;
- procedures for amending the society’s constitution, noting the different requirements between ordinary amendments and minor or technical ones.
- information about committee members, the number of members on a committee, the functions and powers of the committee and the procedures for committee meetings (such as voting and quorum requirements);
- information about each ‘officer’ position in the society, including appointment process, terms of office and grounds for removal;
- a procedure detailing how the society can enter into contracts;
- processes for managing and controlling the society’s finances;
- a provision nominating a not-for-profit entity to which the society’s assets may be distributed on wind-up/liquidation;
- arrangements to keep the society’s register of members updated;
- appointment and replacement of the society’s contact person;
- dispute resolution process; and
- process for members to make complaints.
A Society is also required to now file financial statements and meet audit requirements with a qualified auditor as defined by s36 of the Financial Reporting Act 2013 and file Annual Returns annually.
Existing societies will need to consider the following matters to ensure they meet re-registration requirements. These include:
- having a compliant constitution/rules;
- establishing a committee;
- developing and recording a dispute resolution process;
- complying with new financial reporting standards; and
- maintaining the minimum number of members required under the new Act.
The minimum number of members is 15 under the new Act. It used to be 10. A Society has to continue to maintain the minimum membership at all times or the Registrar may issue a notice to the society requiring it to comply.
The new Act creates several new criminal offences relating to dishonest and fraudulent behaviour in relation to an incorporated society. Liability for the most serious of these offences include imprisonment of up to 5 years and/or a fine of up to $200,000. These offences include:
- knowingly making false or misleading statements in relation a society;
- fraudulently taking and applying a society’s property for personal use or benefit;
- destroying or concealing property belonging to a society;
- falsifying or destroying any register, record or document required by the new Act or a society’s constitution;
- dishonestly using the position of officer for financial gain;
- knowingly operating the society fraudulently or dishonestly incurring a debt; and
- dishonestly operating under a name ending in “Incorporated”, “Inc” or “Manatōpū”.
The new Act also includes infringement offences which, if breached, may require the society or officer to pay a regulated fee or a fine of up to $3,000 imposed by the Court.
Officers make up the committee that is tasked with the role of managing, directing, and supervising the operation of the affairs of the society. Officers must:
- act in good faith and in the best interests of the society;
- exercise powers for proper purposes only;
- comply with the Act and the Constitution;
- exercise reasonable care and diligence;
- not create a substantial risk of serious loss to creditors; and
- not incur an obligation the officer does not reasonably believe the society can perform.
Every Incorporated Society must now start preparing to comply with the new requirements. This includes preparing for re-registration. It is vital that all constitutions are updated to comply with the new Act before re-registration.