Coming, Ready or Not
If you are registered as an Incorporated Society (and about 24,000 non-profits in this country are), the earth may be about to move beneath your feet. The Incorporated Societies Act has been totally re-written and passed into law with the Governor General signing off Royal Assent on 5 April.
Back in July 2010, over a decade ago, the (then) Minister for Justice, Simon Power, just before he was replaced by a (then) up and coming Judith Collins, asked the Law Commission to the review the century old Incorporated Societies Act (1908).
While we may not have agreed with everything it proposed, the Law Commission did a good job in both widely consulting across the sector and producing prompt recommendations for change. They even went so far as to draft a Bill, so the politicians only needed to give it a tick and pass it through Parliament. It has languished in someone's backroom for so long not because it was highly controversial, but the exact opposite. It never made it high enough up anyone agenda to get parliamentary time until the last 12 months – a telling indicator of just how lowly our sector is regarded in practice by governments across the political spectrum.
Full details of the process and the final version of the new Act are available here Incorporated Societies Act 1908 | Law Commission and here Incorporated Societies Bill - New Zealand Parliament. It is a complex and extensive Act with 261 clauses and four schedules. It is much more prescriptive than the Act it replaces – which can be a good thing, as much of the legal duties of board or committee members was not in written legislation, but drawn by inference from the duties of company directors and from dozens of separate court decisions under what is known as case law. In addition the old Act was silent on a number of significant governance issues. This gave organisations both greater flexibility, but also greater responsibility to know what they had to cover in their own constitution or policies.
However, that also means that organisations need to be careful they are complying with the requirements of the new laws when they come into effect. The Ministry of Business , Innovation & Employment (MBIE) warned in cautious bureaucratic language in their impact assessment of the changes, “With the move to a requirement for active re-registration, MBIE anticipates that a number of societies will not rtty to re-register because they decide that incorporation is no longer worth the administrative burden” (either leading to these organisations winding up with the associated losses to the commuities served, or continue to operate in the riskier environment of not having the protection of limited personal liability of board or committee members), and “There is also a level of risk for officers of asociety that might be unaware that the society has been de-registered, and continue to enter into transactions in the belief they still enjoy limited liability.” (Reform of the Incorporated Societies Act 1908: Annex 2 (Impact assessment).)
Originally it was proposed that all existing Incorporated Societies will need to actively re-register (including hold general meetings of members to make any necessary constitutional changes) within just 24 months. In response to submissions from LEAD and others this was increased to three years and eight months in the final legislation (it seems it was intended to be four years, but delays in passing the Act chewed up some of this time). But it is still important that organisations start to plan now to ensure their re-registration is able to be completed in time. This time will go quicker than you think, given that you may need to organise more than one general meeting of members and carefully consider a wide range of constitutional changes. This may sound mind-numbingly boring and technical, but what is at risk is the limited liability protection for your board or committee and other officers, your organisations ability to purchase, sell and accumulate assets.
The new Act also involves increased and more specific reporting requirements, especially if you are not also a registered charity. While the External Reporting Board (XRB), which sets financial reporting, accounting, and audit standards supported this extension of minimum standards, MBIE acknowledged risks, “...since some of the incorporated societies captured... would continue to fail to meet the new standards (due for example to a lack of accounting expertise) and others may decide to dis-incorporate (in order to avoid having to apply the new standards.)”
The new Act also includes a range of new and increased penalties for certain offences, ranging from infringement fees of $1,000 to penalties of imprisonment for up to 5 years and a fine of up to $200,000. This itself should be enough reason to make sure we pay attention.
To help the sector understand what is involved, LEAD is offering a free webinar providing an overview of what is involved in the new Act, at 4:00pm on Thursday 12 May.
This is not legal advice, but will provide a helpful overview of the new requirements for Incorporated Societies. We are also available to help organisations go through the process of up-dating their constitutions in line with these requirements and best practice for modern non-profits. If you’re interested in learning more please contact garth@lead.org.nz.