Governance NZ

The New Incorporated Societies Act – Officer Duties

The Canterbury Branch of Governance New Zealand hosted a virtual presentation and Q&A session by Robert Clarke, Acting Principal Policy Advisor, MBIE on the new Incorporated Societies Act.

The aim of the event was to not only increase knowledge of the new Act but also stimulate questions around governance of incorporated societies by focusing on why changes have been made, what the key changes affecting governance of societies are, understanding the impact of the new Act on incorporated societies that are also registered charities, and gain insight into the impact of the new changes on the governance of incorporated societies.

Officer’s duties to the society are now articulated in legislation

Clark said, “Officer's duties to the society are now articulated in legislation, effectively have always existed, they've just been codified.

“Same thing with offences, criminal offences. Many of you may not realise, but there are offences related to abusive positions of trust and falsifying documents in the Crimes Act that could very well apply to someone who's an officer in a society who for example, falsifies a financial statement or an annual return, which is sent to the company office.

“But because they're in the Crimes Act, they're expressed in a much broader sense than if you are an officer in an incorporated society. So, nobody knows that they are subject to those offences.

“What we've done is essentially in a sense, duplicated them, used more appropriate language for incorporated societies so that people who are considering becoming an officer of society know exactly what behaviour is unacceptable for them.

What's the impact on officers of the reforms?

Clark said the definition of officer has been extended.

“Initially back in 2015, when we put out our first draft of the bill, I believe the definition was restricted to anyone who's on the committee.

“After a bit of inter-ministerial and interdepartmental lobbying, there was a change, which means that not just the people who are on the committee deemed to be officers, but also anyone who has a position in the society.

“So, they are the society members whose position affords them significant influence over the management of the society. So, the act gives the example of, for example, a treasurer who may not be on the committee or a CEO if you're a very large, incorporated society like Rugby New Zealand. You might be the CEO, but not on the committee, but you'll still be treated as an officer for the purposes of this.

“These long duties as I said, these duties, which owe it to the society. They're enforced by the society suing an office, they've already always existed. They've just been written down.

“There was a lot of pushbacks on the criminal offences.

“The general point we've tried to make is that the government, when you create your incorporated society, the government's giving members of that society limited legal liability, so no one can come after your house for the debts of the society.

What should societies and their members have to do in return for that?

Clark said, “The obligations that you'll see in the 2022 Act, Parliament has decided that's a better balance for that deal between the society and the government than the balance that struck in the existing act.

“We've had some concerns expressed about impact on volunteering.

“Some submitters claim that the bill is drafted was unduly strict, and as a result would discourage people from participating in the life of their local incorporated society.

“For example, the New Zealand Amateur Sport Association submitted that the current settings in the bill, as it was at the time, would impair the recruitment of volunteers to govern and administer community sport organisations, that's your local sports clubs, thereby reduce the ability of those local sports clubs to deliver the physical and social benefits of organised amateur sport.

“Not just sports clubs, though, but where the Kenepuru and Central Sounds Resident Association, they lamented that volunteering to be the officer of a voluntary, but worthy community group with a very modest operating revenue may no longer be a straightforward assessment of the time commitment required but may also require personal liability risk assessment together with some careful legal advice.

“So, we told the select committee and they accepted our advice that the bill broadly strikes the right balance.

“When a society becomes incorporated, it benefits from legal personality and its members benefit from limited liability, which you may not think about it every day, but if you were ever being sued, you'd be very grateful it was there.

“But with these advantages come responsibilities, those responsibilities include maintaining certain governance standards that protect third parties. That's why we have financial reporting.

“So, people thinking of doing business with the entity can make sure that that's a good idea and standards that protect society members who aren't on the committee - and that's why we have Office of Duties.”