News Alert – November 2022
INCORPORATED SOCIETIES: INCORPORATED SOCIETIES – LAW CHANGES
The Incorporated Societies Act 2022 (the New Act) received Royal Assent on 5 April 2022 and all incorporated societies, if they wish to retain their status, will need to comply with the New Act by April 2026. Incorporated Societies currently registered under the Incorporated Societies Act 1908, (the Old Act) do not need to do anything until they become registered under the New Act, so possibly on or after October 2023. The extended transitional period will run from October 2023 to April 2026, which will provide enough time for Incorporated Societies to become familiar with the provisions of the New Act. The changes between the Old Act and the New Act are quite significant and may result in constitutional changes to the Society. It is therefore recommended that if you are an Incorporated Society or you act for one, that you engage in discussions with your legal representative as some of these changes will necessitate legal advice and drafting necessary amendments.
Some of these changes include:
Member’s consent
- Members will need to give consent to become a member of a society.
Committee and Officers
- Each incorporated society will be required to have a governing body, for example, a committee.
- The New Act stipulates who can and cannot be a member of the committee.
- The New Act specifies defined duties that Officers will have, which will be similar to those of directors such as exercising reasonable care & diligence, exercise power for proper purpose, etc.
Financial Reporting
- The New Act imposes a requirement to file Financial Statements within 6 months of Financial Year End.
- From October 2023, some Incorporated Societies will need to prepare Financial Statements using External Reporting Board (XRB) accounting standards unless they qualify as a “small society”. Small society: Operating revenue < $ 50,000, assets < $ 50,000, and not a donee organisation
- New annual spending thresholds will determine whether or not Financial Statements will need to be audited. Expected if operating payments > $ 2,000,000.
Dispute Resolutions:
- All incorporated Societies will need to have a documented process for disputes resolution, which needs to be set out in the constitution. To make things simpler, sch 2 of the New Act contains a set of dispute resolution procedures which the Incorporated Society can chose to adopt.
Distribution of surplus assets upon winding up:
- The Old Act allows for distribution of surplus assets upon winding up to any party including a member. The New Act imposes a requirement for the surplus assets to be distributed to one or more non-profit bodies only. Any such distribution will also need to be properly documented.
MBIE is currently seeking feedback on the design of the regulations under the new act. To access further information and/or make submission, please see the link below. Due date is 22 November 2022.
BRIEF SUMMARY OF AMENDMENTS
| 1908 ACT | 2022 ACT | |
| Minimum No of members | 15 | 10 |
| Internal disputes | No requirement to have internal dispute resolution procedures | A society must have adequate dispute resolution procedures, and these must be specified in its constitution |
| Independent members of committee | N/A | Unless regulations prescribe otherwise, majority of committee must be society members |
| Concept of an officer | Not explicitly defined | Includes all committee members, as well as others, for example, treasurer, CEO |
| Officers Duties | Not clearly articulated | Six broadly expressed duties modelled on directors’ duties in the Companies Act 1993 to: 1. Act in good faith and in the best interests of the society 2. Exercise powers for proper purposes only 3. Comply with the act and the constitution 4. Exercise reasonable care & diligence 5. Not create a substantial risk of loss to creditors. 6. Not incur an obligation the officer doesn’t reasonably believe the society can perform |
| Annual General Meeting (AGM) | No Guidance | Must be held within 6 months of the society’s financial year end |
| Financial statements filed with Registrar | Must be filed annually | Must be filed within 6 months of the society’s financial year end |
| Annual return | No requirement | Must be filed annually. |
| Manner of preparing financial statements | A society is not required to apply XRB accounting standards, unless it’s also a registered charity | Only a ‘small society’ not registered as a charity is exempt from using XRB accounting standards |
| Distribution of surplus assets after winding up | Surplus assets can be given to any party | Surplus assets must be given to a not-for-profit organisation |
| Amalgamation | No Legislative framework for 2 or more societies | Amalgamations can take place as outlined in the Companies Act 1993, but follow a more simplified process |
| Criminal Offences | Generic Offences set out in the Crimes Act 1961 | Specific offences are targeted such as making false statements, fraudulent use or detsruction of property, defrauding creditors, etc. |
If you have any questions or would like to know more, please do not hesitate to ask any of us.
Your Team at Roberts & Associates Ltd
Phone: 09-9661370
