Standing on the sideline on a Saturday morning, watching a family member or friend play sport, is a Kiwi institution and unsurprisingly many Kiwis are members of a club or society of some sort. Clubs and societies can cover a range of activities and interests. These include sports, social, cultural, religious, educational, and special interest groups.

Many clubs own significant assets including land and buildings and there are significant financial responsibilities for those members that are in charge of managing them. An incorporated society is the legal structure under which clubs and non-profit groups are run and managed in New Zealand. Until recently the legislation which governed incorporated societies was over a century old. In April this year, the Incorporated Societies Act 2022 (the Act) came into force and replaced the previous legislation. The Act makes various changes to the law which will have a significant impact on those involved in the management of incorporated societies.

Duties for Officers

One key change to the law is that the duties of officers have been codified. Officers are the people that manage the club or society, similar to a director who manages a company. The duties that have been codified in the Act are like those imposed on directors of commercial companies. The duties include duties to:

• act in good faith; 
• exercise powers for proper purposes; 
• exercise the care and diligence that a reasonable person with the same responsibilities would exercise; 
• not agree to activities of the society which are likely to create a substantial risk of serious loss to creditors; and
• not agree to the society incurring an obligation unless the officer believes at that time on reasonable grounds that the society will be able to perform the obligation.

In many cases, officers of clubs and societies are willing volunteers and not necessarily experienced businesspeople who understand the extent of their duties. Under the new legislation there may be an increased risk of personal liability if there have been any serious breaches committed and appropriate legal and accounting advice should be sought.

The Act also introduces specific criminal offences for officers and members of incorporated societies. The offences have penalties ranging up to a 5-year prison term and $200,000 fine. The offences include:

• making false statements;
• fraudulent use of property / using property for their own benefit;
• falsification of documents;
• defrauding creditors and knowingly incurring a debt that the society cannot pay;
• Dishonestly operating under any name with the word “Incorporated”, “Inc”, “Manatōpū” as the last word; and
• Breaching a banning order. The Court is separately given discretion to issue banning orders against people being officers. 

Transitional requirements

All societies will be required to re-register under the Act and file a new constitution which complies with the Act. At that point, the society will become subject to the rules in the Act (rather than the previous law). The re-registration period will run from October 2023 to April 2026. Further regulations are expected to be published over the next year which will assist societies with what is required. 

Other compliance changes

The Act introduces further requirements on incorporated societies to:

• Have a committee consisting of at least 3 members and the majority of the committee must also be members;
• Hold an annual general meeting of members within 6 months of the society’s financial year end;
• File financial statements which comply with the legislation;
• Have financial statements audited (not applicable for all societies);
• Have a constitution with some mandatory provisions including a procedure for resolving disputes;
• File annual returns;

The law changes bring added compliance which may increase the costs of managing clubs. The increased responsibilities may also deter people from taking on roles as officers, particularly if they are not adequately compensated which is often the case with voluntary positions. 

Given the transitional requirements on societies to re-register, we suggest that now is a good time for societies to consider a new constitution that is compliant with the Act. 

If you, or your local club, requires advice or assistance we have a team of solicitors at Urlich Milne Lawyers who are able to assist.

Oscar Ward

Associate