A New Incorporated p Societies Act Geoff McLay
Rich tapestry of organisations • 24000 INCs and 20000 (registered) Charitable Trusts . • 45 % are cultural, sporting, recreational bodies. , p g, • Remaining 55% –broad range of community activities (social service providers religion development and (social service providers, religion, development and housing, educational and environmental interest groups, business and professional groups) business and professional groups).
Inc Soc statute not alone ; • Charitable Trusts Act 1957, incorporation of a board • Industrial and Provident Society 1908 • Industrial and Provident Society 1908 • Agricultural and Pastoral Societies 1908 • Private statutes, sometimes deemed to be Inc Socs P i t t t t ti d d t b I S • Friendly Societies (not body corps)
Wh t i What is wrong with the Act? ith th A t? • Lack of guidance for those managing/ governing societies. • Problems with corporate constitution. – No or inappropriate rules to deal with current No or inappropriate rules to deal with current problems; – Other incorporation vehicles, relationship with Oth i ti hi l l ti hi ith incorporation under the Charitable Trusts Act. • Need to make mechanisms for dispute resolution clear.
Principles for reform : • be established for a public purpose or for the (non financial) • be established for a public purpose or for the (non- financial) benefit of their members; • be private and independent; and • be private and independent; and • be self-governing, members decide how to govern themselves; and and • their income and profits should not be channelled to members, trustees or anybody else except as reasonable compensation for y y p p services rendered. • but – meet some minimum standards – e.g. good government, fairness – some public interest
A New Act • We recommend new provisions for: p – corporate governance, and defining office holder duties and responsibilities; – managing conflicts of interest; and – development of disputes resolution procedures • Despite the need for a new Act, emphasis is on evolution, not revolution 8 November 2013
A model constitution • Pomulgated in Regulations. • Cover all mandatory requirements for registration, so a new society can choose to adopt the model constitution when it applies to incorporate incorporate. • Quite basic, with simple provisions that may not suit particular societies. • Societies should be encouraged to spend time and effort on developing their own constitution, with provisions that meet their needs. 8 November 2013
Dispute resolution • No provisions currently in the Act. • Resort to Judicial Review also contract theory Resort to Judicial Review, also contract theory. • We propose a new statutory power for members to apply to the Court for orders to enforce the constitution. the Court for orders to enforce the constitution. • Rules about internal dispute resolution and discipline: – Unlikely to be one size fits all – societies will have to develop y p procedures that suit them; – Report recommends basic natural justice requirements that society procedures must be consistent with procedures must be consistent with.
Members, profits and assets • 1908 Act – is clear that societies cannot have a purpose of providing pecuniary (monetary) gain to members but – not pecuniary gain if “merely” have a rule that enables distriubution on dissolution . • Our report: – affirm the “not for monetary gain of members” principle; – co, make it clear that distribution of assets to members is prohibited; – allow a transition period for any societies that have inconsistent rules.
Reporting Requirements p g q • Societies must produce annual financial reports, provide p p , p these to members and file with Registrar (slightly different from defaults under the Financial Reporting regime). • Each society must have a statutory officer (as contact point with Registrar), and a committee of at least 3 members, i including SO l di SO 8 November 2013
Other recommendations • Minimum membership Mi i b hi – to be reduced to 10 (from 15); – corporate members continue to count as 3; b i – annual returns to Registrar to check compliance (hopefully a tick box ). (h f ll ti k b ) • Remove provisions for incorporating branches – – new branches can be set up as societies b h b t i ti – grandparenting existing branches. 8 November 2013
Other recommendations (2) ( ) • Continued light-handed role for Registrar, but : – limited investigation and intervention role limited investigation and intervention role, – based on a “public interest” test. • Enabling provisions: • Enabling provisions: – simple process for amalgamation or merger of societies; – simple de-registration process where a society wishing simple de registration process where a society wishing to terminate has disposed of any assets or liabilities . 8 November 2013
Facing financial difficulties • Current Act does allow a society to reach a compromise with creditors. • Creditors may agree on reduced or delayed payment, because they risk getting less or nothing, in a liquidation. • But almost never used; Court must approve and supervise. • We recommend societies be able to use Companies Act compromises provision: no Court involvement needed. i i i C t i l t d d • Probably still rare – one creditor can derail by applying for liquidation when notified of a proposed compromise liquidation when notified of a proposed compromise. 8 November 2013
Voluntary administration • Another option from Companies Act. • Would allow society committee to decide to enter y voluntary administration instead of straight to liquidation. • Freezes everything for 4 weeks, so that an administrator y g can assess potential for entity to be saved. • Creditors still must agree to a compromise – “watershed meeting” called by the administrator after 4 weeks. • Even if impossible to save the entity, this option may allow a more orderly liquidation, with better results. d l li id i i h b l 8 November 2013
Next steps • Report available at www.lawcom.govt.nz • Government has up to six months to consider and respond to the Law Commission Report. • Government responsibility lies with Minister of Commerce (Hon Craig Foss) advised by MBIE Foss), advised by MBIE. • we encourage as many groups and individuals as possible in the voluntary, community, recreational and sports sectors to GET INVOLVED. 8 November 2013
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