Beware the changes to the Incorporated Societies Act

The Incorporated Societies Act 2022 sets out a new modern framework for incorporated societies and those who run them. However, some of the new changes could have very negative effects.

There are around 24,000 incorporated societies in New Zealand. If you belong to a club, it’s likely that it will have been established as an incorporated society to look after the general interests of the club’s members, with a constitution that governs how the club is run, by whom (the club’s officers, executives and committee) and how finances, assets and property are managed.

There is no doubt the old 1908 act required an overhaul. One of the new improvements is that it requires a society to have an internal dispute resolution process written into its constitution – an issue where I have often been asked by club members for guidance.

However, one of the new changes could have serious implications. Clauses 53 and 54 of the Incorporated Societies Act are modelled on sections 135 and 136 of the Companies Act, which require directors not to incur obligations if they do not have reasonable grounds to believe that the company will be able to honour them – known as reckless trading.

Giving duties akin to company directors to officers of an incorporated society is fraught with issues. Clauses 53 and 54 of the act are designed for corporate structures, where there is a limited liability status for directors. Incorporated societies, on the other hand, are unlimited structures, which raises the issue of unlimited personal liability of officers.

People who become chairs, treasurers and secretaries of incorporated societies are typically well-meaning volunteers who would struggle to balance the requirements of full-time work, family and the pressure of a society running into financial strife. This could cause people to reconsider taking on the duties of an officer, leaving the club without the ability to function.

Imagine the effect on a community if the local boat club, or community hall, or RSA had to close because it couldn’t find people willing to serve as officers on the committee.

The bill already provided adequate protection in clause 49, requiring society officers to act in good faith and in the best interests of an incorporated society when exercising powers or performing duties as an officer. The addition of clauses 53 and 54 could have chilling effects.

If you’re an officer of an incorporated society, now’s the time to make yourself familiar with the new legislation. All existing incorporated societies will have to re-register, as well as review and update their constitution so that it complies with the requirements set out in the new act, especially including procedures for resolving disputes.

This in itself is a big undertaking for any incorporated society, large or small. However, there is no immediate rush as there is a transition period of several years to allow societies to prepare. Information will be available soon on the Incorporated Societies Register website.