Executives, who are working in for associations or within the non-profit sector full-time, will be aware of the shortcomings of the Incorporated Societies 1908 Act. While it can be argued that it has stood the test of time quite remarkably, it fails in many respects to deal with the complexities of current administrative and governance practice.
Trustees of NZARC are pleased to see several provisions in the Law Commission’s draft document that reflect their submissions. Foremost among them are the abolition of the office of Secretary to be replaced with a Compliance Officer. Other substantial changes are a reduction in the membership requirements from 15 to 10 to allow the establishment of small societies in a narrow field of interest.
Another substantial change is the abolition of the ultra vires provision on the grounds that it disadvantages third parties relying on the ability of the society to contract without the possibility of later resorting to a previous agreement. The draft covers the possibility of conflicts of interest arising in major decisions and sets out provisions to require disclosure by, and restraints on, affected committee members.
There is an intention to align the new Act with provisions in the Financial Reporting Bill presently before Parliament, which excludes incorporated societies that are not registered charities. With simplification in other areas of enactment we see a need for organisations to ensure their constitutions meet present day requirements.
We are pleased to see the introduction of measures to deal with complaints and grievances, which are sometimes inevitable in voluntary associations, but can be costly to resolve in the absence of such in the old Act. This also entails a pathway to civil enforcement of members’ rights under the constitution. It also introduces a new offence of using a position for personal benefit, abuse of office and illegal conduct with provision for criminal prosecution. There is an intention to give the Registrar enforcement powers in exceptional circumstances where it is in the public interest to take such action.
There is a recommendation to apply the provisions in the Companies Act relating to compromises with creditors and voluntary administration. While there is a general assumption that a distribution to members on dissolution is prohibited under any circumstance, this is a voluntary provision in most constitutions. The new Act will prevent this happening. Other provisions of less importance deal with branches and liability with indemnity for acts in good faith.
In our experience the new Act will not require major changes in the conduct of many associations, with the exception of a need for some to review their constitution and where necessary widen its provisions. On the assumption that what is proposed will pass in the House of Representatives, pre-emptive action in preference to remedies under urgency would be our preferred option. The New Zealand Association Resource Centre is able to provide societies with advice and assistance with ensuring their constitutions are in line with their current requirements.