The Incorporated Societies Act 2022 replaces the Incorporated Societies Act 1908 which, at 114 years old, was outdated and failed to address modern governance and management best practice. The Act marks the end of an extensive law reform process which began with a Law Commission review in 2010.
The Incorporated Societies Bill was introduced into Parliament on 17 March 2021. Its genesis was the Law Commission’s August 2013 report A New Act for Incorporated Societies which followed the 2010 review.
The Act received royal assent on 5 April 2022. It will come into force in stages, with all provisions in force by no later than 5 October 2023 (other than some provisions relating to the repeal of certain legislation, which come into effect at a later date)
According to the explanatory note to the bill, its purpose “is to put in place a modern framework of basic legal, governance, and accountability obligations for incorporated societies and those who run them”.
The Act confirms that incorporated societies are bodies corporate, having perpetual succession and the capacity, rights, powers and privileges set out in the Act. This changes the minimum number of incorporated society members from 10 to 15. A body corporate will be treated as three members for the purposes of this rule. Incorporated societies must be governed by committees comprising at least three natural person members.
The Act specifies six duties of officers, aligned with those applying to directors under the Companies Act 1993:
- to act in good faith and in what the officer believes to be the best interests of the incorporated society;
- to exercise a power as an officer for a proper purpose;
- not to act, or agree to the incorporated society acting, in a manner that contravenes the Act or the constitution of the incorporated society;
- when exercising powers or performing duties as an officer, to exercise the care and diligence that a reasonable person with the same responsibilities would exercise in the same circumstances, taking into account several specified factors;
- not to agree to or cause or allow the activities of the incorporated society to be carried on in a manner likely to create a substantial risk of serious loss to the incorporated society’s creditors; and
- not to agree to the society incurring an obligation unless the officer believes at that time on reasonable grounds that the incorporated society will be able to perform the obligation when it is required to do so.
The Act also requires members to meet certain requirements before being appointed as officers. Subpart 3 introduces more prescriptive requirements for constitutions for incorporated societies. Section 26 lists the matters that a constitution must cover. These include:
- the purposes of the incorporated society;
- the membership process; and
- details of the committee of the incorporated society.
Under s 13 of the Act, the Registrar of Incorporated Societies has the power to refuse to incorporate an incorporated society where the proposed constitution does not comply with the Act. The Act prohibits an incorporated society from being carried on for the financial gain of its members. It introduces a fine not exceeding $50,000 for an officer if a failure to comply with this rule took place with the officer’s authority, permission or consent. The Act provides guidance as to when an incorporated society will and will not be considered to be carrying on for the financial gain of its members.
It imposes a requirement for incorporated societies to prepare and file financial statements. The requirements for the financial statements depend on the size of the relevant incorporated society. Certain larger incorporated societies must have their financial statements audited.
The registrar will be required to maintain more detailed information and incorporated societies will be required to update the registrar in relation to any changes. Incorporated societies will be required to file annual returns with the registrar.
The Act also introduces provisions dealing with the amalgamation of incorporated societies, allowing two or more incorporated societies to amalgamate, either into one of the existing incorporated societies or a new incorporated society. It introduces a range of offences relating to incorporated societies for which specified penalties, some of which are significant, apply. The Act introduces a fine of up to $10,000 for the improper use of the words “incorporated”, “inc” or “manatōpū”.
An incorporated society will continue to be subject to the Incorporated Societies Act 1908 until it re-registers under the Act or until the transition date, being the later of:
- 1 December 2025; and
- the date that is two years and six months after the commencement of certain transitional provisions.
Incorporated societies may re-register before the transition date. To re-register, the entities will need to meet the requirements for registration under the Act. If an incorporated society has not re-registered before the transition date, then it will cease to exist, but it can be restored to the register in accordance with the Act. Incorporated societies will have from October 2023 to April 2026 to re-register.
Prior to October 2023, the Governor-General will, by Order in Council, issue regulations under the Act. These are expected to outline the process and format for re-registering an incorporated society, fees associated with re-registration (if any) and the make-up of committees, amongst other matters. Once these regulations have been issued, societies should re-register under the Act as soon as practicable.
Prior to re-registration, societies will need to:
- review their constitutions to ensure that they comply with the Act;
- confirm that their officers meet the appointment conditions under the Act;
- ensure that their officers are aware of and ready to comply with the officers’ duties listed in the Act;
- be prepared to meet the requirements to file annual returns; and
- have financial statements prepared in accordance with the necessary requirements.
There is a considerable grace period for re-registration under the Act. However, we recommend that incorporated societies are proactive in making any necessary changes to ensure applications for re-registration are submitted in time and successful. ■
Daniel McLaughlin is a senior associate at Dentons Kensington Swan. Faye McIntosh, a law graduate at the firm, also contributed to this article ■