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The Government has recently proposed the Incorporated Societies Bill 2021 to replace the Incorporated Societies Act of 1908.
Time to read: 4 mins
This article from Pirmin Patel, of our Auckland Business Advisory team.
As you may tell from the name of the old Act, it is slightly out of date. A prime example is that under the 1908 Act, the fine for late filing of financial reports is one Shilling a Day!
The official purpose of the new bill “is to put in place a modern framework of basic legal, governance, and accountability obligations for incorporated societies and those who run them.” Given there are now over 24,000 incorporated societies in New Zealand, this will have a wide-reaching impact.
We have summarised the key features of the bill below.
Officers’ official duties would be set as per the Bill, rather than their previous duties which were established by case law.
The official duties proposed include acting as a reasonable person, in good faith and in the best interest for the society. Officers would also need to ensure that they comply with all legal and constitutional requirements and that any obligations incurred can be reasonably assumed to be satisfied by the society when required.
Financially their duties would be more in line with Company Directors, in that they must ensure the activities of the society are not likely to create substantial risk of loss to the creditors of the society.
The new bill defines how an officer can have a conflict of interest and outlines the steps an officer must take in those circumstances. This includes informing the committee being the governing members of the society, and the conflict being recorded in a register to be kept by the committee. The officer in question would also have to distance themselves from the matter. Any breaches of the conflict of interest process must be reported to the members of the society as soon as practically possible.
There is also a clause outlining what a Society’s constitution must contain. The main change is the requirement to now include a procedure to resolve disputes between members or between members and the society.
The new bill sets out a schedule regarding the handling of disputes, with the key principles being consistent with natural justice and a member’s right to be heard.
Members may also make a written request for any information held by a society. The society is permitted to charge a fee for the information and may refuse on several grounds such as privacy of natural persons, commercial sensitivity or irrelevance.
The new bill also codifies the definition of small societies and their reporting requirements. While there have been no major changes, the previous requirements were only found in other acts. The current requirements are for each society to have signed financial statements, prepared in accordance with generally accepted accounting practice within six months of balance date. Audited Accounts are required for defined large societies, that being societies that have either over $60 Million in assets or $30 Million in revenue in each of the two preceding accounting periods. While reduced reporting requirements are available to non-charitable societies that have expenses less than $10,000 and assets under $30,000 in each of the preceding two accounting periods.
The new bill details the process for societies to undertake should they wish to amalgamate. This includes preparing a proposal to send to the members and creditors of the society, as well as giving Public notice about the proposed amalgamate. All amalgamating committees must then resolve approval of the amalgamation and have reasonable grounds that the combined society will satisfy a solvency test.
The new bill proposes to modernise the punishment for offences committed by officers or the society in general. In addition, the courts can now disqualify people from holding officer positions or being involved in the management of a society.
In summary the new bill proposes to codify all the duties and responsibilities of Societies and their Officers that have been established by case law over the last hundred plus years. It would also bring procedures into the legal framework, to apply to common administrative issues’ that may affect societies.
The new bill is currently at the select committee stage and could be in force by the end of 2021.
If you have queries about the impact of the proposed bill, please contact your Baker Tilly Staples Rodway Advisor.
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