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New Zealand Law Commission - Government Responses |
Last Updated: 18 September 2016
OFFICE OF THE MINISTER OF COMMERCE
The Chair
Cabinet Economic Growth and Infrastructure Committee
A New Act for Incorporated Societies - Government response to the Law
Commission's report
Proposal
1 This paper seeks agreement to table the attached government response to the Law Commission’s report A New Act for Incorporated Societies. The Government is required to respond by 4 March 2014 under Cabinet Officer Circular CO (09) 01, which prescribes a 120 working day limit.
Executive Summary
2 The Incorporated Societies Act 1908 (IS Act 1908) provides for incorporation of not-for- profit entities. The benefits of incorporation include separate legal personality and limited liability. About 23,600 entities are registered under the IS Act 1908. Although regarded as high quality at the time of enactment, the IS Act 1908 is now seriously out-of-date and no longer provides an adequate or robust statutory framework for incorporated societies. It falls significantly short of the required standard when questions are raised about governance, rights, obligations and dispute resolution. Consequently, many people who are elected onto committees do not have a clear understanding of what they have to do to comply with the law.
3 The Law Commission has produced a top rate report which systematically analyses the major problems and proposes a comprehensive and coherent set of solutions. With one exception (a recommendation relating to agricultural and pastoral societies – see the discussion in paragraphs 23-26 below) the draft government response proposes accepting the recommendations in full or in principle as a basis for drafting a new IS Act and a model constitution.
4 The Commission’s report addresses a small number of significant issues and a large number of smaller issues. I am satisfied that enacting new legislation based on the Commission’s recommendations will improve society governance and performance by providing greater legal clarity, codifying best practice for operating an incorporated society and providing a cost-effective means for resolving internal disputes.
5 There will, as a consequence, be new compliance costs for societies. The gaps in the current law mean that many societies will need to review their constitutions. They will also need to become familiar with the simple format not-for-profit accounting standards that will replace the current inadequate financial reporting system, which has no recognition and measurement rules.
6 There are substantial risks that many societies will not be able to
cope with the proposed changes unless there is support
from the
government and key not-for-profit sector umbrella organisations.
Consequently, the draft government response
proposes extensive education
measures to assist the sector with the transition, along with a model
constitution that will be sufficient
to comply with the statutory requirements
of the new Incorporated Societies Act.
7 Many of the Commission’s 102 recommendations are very detailed, and much of it is yet to be fully tested. In addition, some of the detail may not be fully consistent with other enactments and/or modern drafting practices, or may be incomplete. The draft government response states that the draft Bill and model constitution will be exposed for public comment before a Bill is introduced. This approach will provide the opportunity for the detail to be improved on before the Bill is introduced and free up select committee time to focus on the major issues.
Background
8 Incorporated societies make a major contribution to civil society in such areas as culture, sport, recreation, education, health, social services, philanthropy, emergency relief, environmental protection, animal protection and religion. Civic and advocacy organisations such as trade unions, business and professional associations, political parties and local interest groups also incorporate under the 1908 Act.
9 There is a broad consensus in the sector that the law of incorporated
societies should be consistent with the following principles:
a. Societies are organisations run by their members. This means that
members have primary responsibility for holding societies to
account, and that a
group without members to hold it to account should consider an alternative form
of incorporation.
b. Societies should not distribute profits or financial benefits directly to
members. This is one of the key features that sets
incorporated societies apart
from other forms of incorporation. People join societies to achieve a shared
purpose, not to personally
profit financially from the activities of the
society.
c. Societies are private bodies that should be self-governing
and free from unnecessary state interference. Societies
value the
flexibility that the current regime gives them to adapt their operating
environment to suit their purposes and their culture.
That flexibility should be
retained as much as possible.
10 The Law Commission commenced its review in 2010 and released an issues paper in
2011. The Commission’s final report, A New Act for Incorporated Societies, was tabled in
Parliament in August 2013. The Government has until 4 March 2014 to respond under a
120 working day rule in Cabinet Office Circular CO (09) 01.
11 The Commission identified numerous problems with the 1908 Act, which
can be broadly categorised as follows:
a. The law is incomplete, inaccessible and unclear.
b. The law is inconsistent with incorporated society and governance principles. c. The law is difficult to enforce.
d. There are issues with other statutes under which societies
operate.
12 These problems with the 1908 Act mean that many of the 23,500 or so
incorporated societies are poorly governed without
adequate accountability
to members for the effective and efficient use of the resources under the
governing body’s control.
A new Act based on the Law Commission’s
recommendations will help codify best practice for operating an incorporated
society
and provide greater clarity and protection for members.
The law is incomplete, inaccessible and unclear
13 The main problems identified by the Commission in this regard are as
follows:
a. Society officers have duties that are akin to directors’ duties
under the Companies Act. These duties are in case law,
not in the 1908 Act.
Consequently, there is little understanding in the sector that they exist, let
alone what they are and who
they are owed to.
b. The 1908 Act is silent on a number of important governance issues
such as dealing with conflicts of interest, personal liability,
and the
consequences for third parties who deal in good faith with societies which act
outside their rules. Again, this means that
there is considerable uncertainty
about the law in these and other areas.
c. The restructuring options are limited. Unlike the Companies Act, the
IS Act 1908 makes no provision for amalgamations or
voluntary
administration.
14 The Commission has made several recommendations to the effect that the new Act should include explicit provisions about these matters and, where relevant, the provisions should be modelled on or cross-refer to the equivalent provisions in the Companies Act. The main benefits will be to increase legal certainty and compliance with the law, improve society governance and performance and widen societies’ restructuring options.
The law is inconsistent with incorporated society and governance principles
15 The Commission has identified several inconsistencies with
incorporated society and governance principles. In particular:
a. The IS Act 1908 permits societies to distribute the surplus assets to
their current members on dissolution. This provision
is inconsistent with the
no financial benefits principle outlined in paragraph 9b above. The Commission
has recommended that incorporated
societies be required to nominate a particular
not-for-profit entity or class of not-for-profit entity to which any surplus
assets
would be distributed.
b. Many constitutions do not serve society members well because they are
incomplete or poorly drafted. The Commission has recommended
that a model
constitution be prepared which would mean that societies can be sure that their
rules fully comply with the new Act.
c. Financial reporting is often poor because the basis for preparation
is often not disclosed, and there is no consistency in
what financial
information is disclosed and how transactions are recognised and measured.
The Commission has recommended that
incorporated societies be required to report
in accordance with the same accounting standards that the External Reporting
Board has
issued for use by registered charities.
The law is difficult to enforce
16 There are several problems with monitoring compliance and
enforcing incorporated society law, including the following:
a. Case law obliges societies to resolve or participate in the
resolution of disputes or grievances that arise within their society.
Silence
about internal dispute resolution in the IS 1908 means that it can be necessary
to go to court, usually the High Court,
to try and resolve the matter. This can
be expensive and time consuming because none of the civil law routes available
suit the
incorporated society context. Thus, a lot of time can be spent arguing
which cause of action is appropriate and whether a remedy
should be granted.
The adversarial nature of the court system also means that the process can be
divisive or even destructive within
a society. The Commission has recommended
that:
ii. clear and targeted civil enforcement remedies be included in the new
Act.
b. The Registrar of Incorporated Societies needs to contact individual
societies for several reasons including investigating
alleged serious
breaches of the law, checking whether registrations remain up-to-date,
sending reminders to lodge financial
statements and in relation to the possible
dissolution of societies that appear to no longer be operating. However, a lot
of time
can be wasted because Registries staff can find it difficult to readily
identify a society officer. The Commission has recommended
that every
incorporated society should be required to appoint a statutory officer.
17 The Commission has also made a number of enforcement-related
recommendations proposing:
a. criminal sanctions for serious contraventions
b. a power for the courts to ban individuals from governance and
management in certain circumstances
c. an infringement offence regime for minor offences
d. a power for the Registrar to exercise some statutory
management-related powers that appear in the Corporations (Investigation
and
Management) Act 1989.
18 These recommendations are conceptually consistent with
modern liability and enforcement frameworks used in
other recent
legislation, such as the Financial Markets Conduct Act 2013 but have been
modified to reflect the different circumstances
in the not- for-profit
sector.
There are issues with other statutes under which societies operate
19 There are issues relating to societies that operate under other Acts.
The two most significant relate to charitable societies,
and agricultural and
pastoral societies.
Charitable societies
20 One of the two forms of incorporation provided for under the
Charitable Trusts Act 1957 (CT Act) is to incorporate as a charitable
society.
A few hundred of the 22,000 entities registered under the CT Act are charitable
societies.
21 This incorporation option means that some groups may choose to incorporate under the CT Act rather than the IS Act 1908 for administrative convenience reasons (e.g. not having financial reporting obligations) rather than because the CT Act provides the most appropriate governance framework. The Commission notes that the CT Act option does not provide a suitable governance framework for charitable societies. Societies are member-driven institutions. Incorporated societies law is designed to protect membership involvement and a degree of democratic decision-making. Trusts are not about either of these things. They are a way of holding and distributing property.
22 The Commission has recommended that societies should no longer be able
to register under the CT Act and that existing societies
registered under the CT
Act should be given a substantial transition period to re-register under the new
IS Act.
Agricultural and pastoral societies
23 The Commission’s discussion paper of June 2011 asked whether agricultural and pastoral societies (A&P societies) should be incorporated under the new statute. Several submissions from A&P societies stated in reasonably strong terms that there should be no change. The Commission’s final report recommends that the new IS Act should have a provision that would provide an easy and efficient mechanism for A&P societies to voluntarily transfer their incorporation from the Agricultural and Pastoral Societies Act
1908 (A&P Act) to the new IS Act.
24 Officials have concluded that this recommendation may not go sufficiently far because voluntary reregistration will not address the problems with A&P legislation for societies that choose to not reregister. Those problems include:
b. Barriers to mergers and joint ventures
c. Tight restrictions on the sale, mortgage, acquisition and use of
land
e. A requirement to select the auditors from among the society’s ordinary members.
This provision is contrary to the most important principle of auditing: the
auditor must be, and be seen to be independent.
25 This inflexibility is evidenced by the significant number of non-public Acts in this sector that provide relief from A&P Act restrictions. Two Private Acts have been enacted to facilitate joint ventures involving A&P societies. Eight other Acts allow A&P societies to sell land or use land in ways that are not permitted by the A&P Act. The inflexibility of the A&P Act is further evidenced by the fact that 21 A&P societies are incorporated under the IS Act 1908, including 16 that have migrated in the last 20 years.
26 The draft government response proposes that the Government defers
decisions on this matter until after the draft Bill and regulations
have been
exposed for public comment. This approach will overcome the situation faced by
the sector, when making submissions in response
to the Commission’s 2011
issues paper, that they only had the opportunity to consider the issues
hypothetically. Providing
the sector with a real draft Bill and model
constitution will move the debate from the conceptual to the practical. This
approach
will also provide officials with the opportunity to consult with the
A&P society sector before the exposure draft is released,
including testing
whether the concerns are primarily based on a perceived loss of status.
Other substantive recommendations
27 This EGI paper only discusses the major issues raised by the
Commission’s report, not every issue. The other issues
are discussed in
the regulatory impact statement. I will report on any significant issues that
might arise in relation to those
other matters as a result of the exposure draft
process.
Implementation
28 It is clear that the great majority of societies do not have the
resources to obtain legal advice on the reforms, and they
will not be able to
successfully transition to the new regime unsupported. In addition to the
exposure draft process, the government
response also proposes coordination
between government agencies and major sector umbrella organisations, road show
presentations
and plain language guidance material.
Consultation
29 The Commission consulted extensively. Over 200 submissions were made
in response to the issues paper it released in 2011.
The Commission held
public meetings in five locations and there was specific tāngata whenua
input. The Commission also consulted
directly with interest groups and
societies and set up a reference group to test proposals and provide
feedback.
30 There was general support for the reforms proposed by the Commission.
Most submitters agreed that the IS Act 1908 is deficient
in relation to
governance, rights and obligations including officers’ duties, and dealing
with conflicts of interest and internal
disputes. A minority of submitters
consider that the IS Act 1908 is generally sufficient to allow like- minded
persons to incorporate
as societies. However, several submitters among the
minority did acknowledge that some specific changes were needed.
31 The Department of Internal Affairs, Ministry of Justice, Te Puni
Kokiri, Ministry for Primary Industries and Treasury have
been consulted on the
contents of this paper. The Department of Prime Minister and Cabinet has been
informed.
Financial Implications
32 There are no known financial implications at present. The cost of the education initiatives proposed for 2015 will be met from existing baselines. Decisions are yet to be made about resourcing any subsequent education initiatives.
33 Consideration has not, at this stage, been given to whether the existing register of incorporated societies would be needed to be modified or replaced. If there are any such changes, the associated costs would not start being incurred until 2016/17. If there are any such costs, then consideration would be given to meeting some or all of them through third party revenue.
Human Rights
34 The proposals in this paper appear to be consistent with the New Zealand Bill of Rights
Act 1990 and the Human Rights Act 1993.
Legislative Implications
35 The changes proposed by the Law Commission can only be implemented by
way of primary legislation. I have sought a Category
6 priority: drafting
instructions to Parliamentary Council Office in 2014. I am proposing that the
draft Bill would be exposed for
public comment in 2015. Further policy
decisions would then be sought with a view to the Bill being introduced in 2016,
enacted
in 2017 and fully brought into force by 2020.
Regulatory Impact Analysis
36 The General Manager, Strategic Policy Branch and the Ministry of Business, Innovation and Employment Regulatory Impact Analysis Review Panel have reviewed the attached Regulatory Impact Statement (RIS) prepared by the Ministry of Business, Innovation and Employment. They consider that the information and analysis summarised in the RIS meets the criteria necessary for ministers to fairly compare the available policy options and take informed decisions on the proposals in this paper.
Publicity
37 The Minister for the Community and Voluntary Sector and I propose to
release a media statement announcing the tabling of the
government response on
the day that it is tabled.
Recommendations
I recommend that the Committee:
Government response
1 Note that the government response to the Law
Commission’s report A New Act for Incorporated Societies is
required to be tabled by 4 March 2014 under the 120 working day rule in Cabinet
Office Circular CO (09) 01
2 Note that the Law Commission concluded that the Incorporated
Societies Act 1908 lacks guidance on society and officer rights and obligations
and about how disputes within societies should be dealt with
3 Note that the Law Commission considers that there is a strong need to replace the 1908
Act with a modern statute
4 Note that the main points in the attached draft government response
are:
4.1 To agree that a new Incorporated Societies Act is needed to replace the
1908 Act
4.2 To draft a Bill and prepare a model constitution
based largely on the recommendations in the Law Commission’s
report
4.3 To release the Bill and model constitution as exposure drafts for public comment
4.4 To delay government decisions on whether agricultural and
pastoral societies should continue to be incorporated
under separate
legislation until after the exposure draft process has been completed
5 Agree to the attached government response to the Law
Commission’s report A New Act for Incorporated Societies
Legislative implications
6 Note that the Minister of Commerce has sought a category 6
priority (drafting instructions to be issued to Parliamentary Counsel Office
in
2014) for an Incorporated Societies Bill in the 2014 Legislation
Programme
7 Invite the Minister of Commerce to issue drafting instructions to Parliamentary Counsel
Office in relation to the proposed Incorporated Societies Bill
8 Agree that the Bill be released as an exposure draft for public
comment
9 Note that some of the detail in the Law Commission’s
recommendations:
9.1 may not be fully consistent with other enactments and/or modern drafting
policies and practices
9.2 may be incomplete (for example in relation to the range of matters that
should be treated as offences)
10 Authorise the Minister of Commerce to make changes to the
exposure draft of the Bill to deal with issues of the type described in
recommendation
9 above
11 Authorise the Minister of Commerce and the Minister of Primary
Industries to approve any targeted consultation paper that might be prepared
for
the purpose of consulting with agricultural and pastoral society stakeholders
prior to the exposure draft process
Report back
12 Invite the Minister of Commerce to report to EGI by 31 March
2016 on the outcomes of the exposure draft process
Publicity
13 Authorise the Ministry of Business, Innovation and Employment
to place this paper and the government response on its website
14 Note that the Minister of Commerce will issue a press release
on the day the government response is tabled.
Hon Craig Foss
Minister of Commerce
/ /
Government response to the Law Commission’s report
A New Act for Incorporated Societies
Presented to the House of Representatives
February 2014
Introduction
1. This Government response has been prepared under Cabinet Office Circular
CO (09) 1.
Background
2. The Incorporated Societies Act is an important statute because the sector is very diverse and every New Zealander is affected by incorporated societies either directly or indirectly. It is essential that the governance and accountability legal frameworks under which incorporated societies operate fully meet contemporary societal needs and be future- proofed to the extent possible.
3. As stated by the Commission in the foreword to its report, the Incorporated Societies Act
1908 has been a success story. However, the Act is now out of date and
deficient in a number of important respects. As the terms
of reference for this
review note, lawyers are often asked for advice on whether to set an
incorporated society up, how to set one
up, how to register it and what to
include in the documents. The incompleteness of the 1908 Act means that
difficult questions frequently
arise around the governance and administration of
such organisations and the resolution of their internal disputes. For these
reasons,
the terms of reference asked the Law Commission to take a first
principles look at the Act.
The Law Commission report
4. The report recommends a new Incorporated Societies Act to replace the 1908 Act.
Although the Commission has recommended a new Act, the report emphasises that the fundamentals of incorporated societies should remain unchanged, in particular:
• societies are organisations run by their own members
• societies should not distribute profits or financial benefits to members
5. In identifying the key areas for reform, the report notes that the 1908 Act lacks guidance about the obligations of those running societies and about how disputes within societies should be dealt with. The report also notes that the 1908 Act is silent on the duties and responsibilities of committee members and others taking on responsibilities in incorporated societies. There are no express procedures for managing conflicts of interest, and the Act’s total silence on what to do about disputes with or between members means societies are too often disrupted by disputes that they have no effective method for resolving.
6. These gaps and other issues are comprehensively addressed in the report’s 102 recommendations. The key sets of recommendations are:
• to replace the 1908 Act with a new Act
• to provide a procedure for dealing with financial conflicts of interest
• to require each society to include disputes procedures in their constitution
• to provide a transition period of no less
than four years.
Overview of the Government’s response
7. The Government:
a. agrees that the fundamentals of incorporated societies should remain unchanged b. agrees with the key recommendations as summarised above
c. is satisfied that the package of recommendations provides a sound basis for a new
Act
d. considers that Appendix A of the Commission’s report provides a sound basis for regulations that would be made under the new Act prescribing the matters that would be mandatory for the rules of every society’s constitution to address.
8. The Government has decided that exposure drafts (ED’s) of the proposed Bill and model constitution will be released for public comment before the Bill is introduced into the House. Issuing ED’s will have the following benefits:
• It will provide stakeholders with the opportunity to better understand the practical implications of the Bill and model constitution taken as a whole.
• It will provide the opportunity for minor issues to be resolved before the Bill is introduced into Parliament. This will provide the opportunity to free up select committee time to focus on the major issues.
• It should lead to higher quality legislation.
The Government’s response on specific issues
9. The Government’s responses on the recommendations are discussed below in the following ways:
• In some cases the response states whether or not the Government agrees with a recommendation. This approach is used mainly in relation to recommendations that are expressed in broad policy terms.
• In all other cases but one, the response states whether the Government broadly agrees with a recommendation or agrees that the provisions in the ED will be modelled on the Law Commission’s proposals. This approach is used mainly in relation to recommendations that include detailed descriptions of the proposed law changes. The purpose of the “broad agreement” approach is to recognise that changes may need to be made to some of the detail as issues become evident during the drafting process. Broad agreement could either mean that the provisions will be drafted exactly in accordance with the Commission’s recommendation or that there may be some modifications.
• For one recommendation (recommendation 3 relating to
agricultural and pastoral societies), the Government has decided
to wait until
after the ED process before making a decision.
Chapter 1: Origins justifications and principles (Recommendation 1)
10. The Government agrees the 1908 Act should be replaced by a new
Act.
Chapter 2: The non-profit sector: legal structures and status (Recommendations
2-3)
11. The Government agrees that charitable societies should no longer be able
to incorporate under the Charitable Trusts Act 1957 and
that those currently
incorporated under that Act
should transition to become societies under the new Act (recommendation 2). The Government will ensure that any changes in the new Incorporated Societies Act are aligned with any changes that may occur as a result of the Law Commission’s work on stage 2 of its review of trusts, intended to deal with charitable trusts and the Charitable Trusts Act 1957.
12. Recommendation 3 proposes a simple mechanism for agricultural and
pastoral societies to voluntarily transfer registration from
the Agricultural
and Pastoral Societies Act 1908 to the new Incorporated Societies Act. The
Government has decided to reserve judgment
on this matter until after it has had
the opportunity to consider feedback on the ED. A decision will then be made
about whether
to implement recommendation 3, transfer the registration of
A&P Act entities to the new IS Act, or make changes that will align
the
A&P Act with the new IS Act.
Chapter 3: What kinds of society can be registered under the Act
(Recommendation 4)
13. The Government agrees that the new Act should prohibit societies
operating for the monetary gain of members. The provisions
in the ED will be
drafted broadly in accordance with recommendation 4.
Chapter 4: Establishment and registration of societies (Recommendations 5-12)
14. The Government agrees or broadly agrees with all the recommendations in chapter 4.
Specifically:
a. the ED will provide for reducing the minimum number of members of a society from
15 to 10 (recommendation 5) and include provisions which will require societies to continue to at least have the minimum number (recommendation 6)
b. there should be rules on society names modelled on s 22 of the Companies Act
1993 (recommendation 7)
c. the ED will include changes in relation to branches as outlined in recommendations
8-12.
Chapter 5: The legal dealings of an incorporated society (Recommendations 13-
18)
15. The Government agrees or broadly agrees with all of the recommendations in chapter 5.
The ED will include:
a. Limitation of liability provisions based on recommendations 13-14, including provisions relating to indemnification modelled on s 97 of the Companies Act
b. Provisions stating that a society has full capacity to carry on or undertake any business or activity, or do any act or enter any transaction, modelled on s 16 of the Companies Act (recommendation 15)
c. Ultra vires-related provisions as outlined in recommendations
16-18.
Chapter 6: Committees, officers, duties and arrangements for running societies
(Recommendations 19-45)
16. The Government agrees or broadly agrees that:
a. the ED will provide that every society must have a committee of at least
three members which has responsibility for the affairs
of the society
(recommendation 19)
b. the ED will include committee composition, role and function provisions modelled on recommendation 20
c. officers’ duties shall be stated in the new Act in general terms (recommendation 27)
d. the ED will include officers’ duties provisions modelled on recommendations 28-29
e. the ED will include other officers’ duties-related provisions modelled on recommendations 30-33
f. the ED will include conflict of interest provisions modelled on recommendations 34-
42
g. the ED will include financial reporting provisions modelled on recommendations 43-
44
h. there will be a power for an annual return form to be prescribed by regulations
(recommendation 45).
17. In relation to recommendations 21-26, the Government agrees that:
a. every society should have a statutory officer at all times (recommendation 21) and that the officer should be a member of the society’s committee (recommendation 22)
b. there should be statutory officer qualification and disqualification provisions modelled on recommendations 23 to 25
c. there should be a provision relating to not invalidating the statutory officer’s actions due to appointment defects and related reasons modelled on recommendation 26
18. The provisions in the ED will make it clear that the statutory officer
role is limited to being a contact point, particularly
for the Registrar in
relation to compliance matters. It will not mean that the statutory officer
will be required to carry out all
the society’s statutory compliance
obligations or have any additional exposure to liability. Consistent with the
Companies
Act, every person charged with governance will be accountable for
discharging all governance responsibilities.
Chapter 7: Constitutions (Recommendations 46-65)
19. The Government agrees or agrees in principle with 18 of the 20 recommendations in chapter 7. Further advice will be obtained before decisions are made on the other two recommendations. The ED will include constitution-related provisions broadly in accordance with recommendations 46-57, which relate to:
a. a model constitution
b. mandatory requirements for every constitution (also see Appendix A of the
Commission’s report)
c. optional rules for constitutions d. amending a constitution
e. transitional issues relating to changing constitutions.
20. More specifically, the Government agrees with recommendation 51 that the new Act should enable a model constitution to be made in regulations. A decision will be made at a later date whether the model constitution will be included in regulations or appear on the Registrar’s website.
21. The Government agrees that:
a. the new Act should require every society to have a registered office and maintain a register of members (recommendations 58-61)
b. the new Act should not require every society to have a common
seal.
22. The ED will include provisions relating to general meetings broadly consistent with recommendations 63 and 65.
23. Advice will be sought before deciding whether there is a need to have express provisions:
a. permitting the use of a common seal (recommendation 62)
b. permitting the use of modern technology for the purposes of conducting
general meetings (recommendation 64).
Chapter 8: Complaints and grievances (Recommendations 66-75)
24. The Government agrees or agrees in principle that:
a. the new Act should require all societies to include procedures in their constitutions for dealing with internal disputes (recommendation 66)
b. the new Act should provide societies with the flexibility to have disputes procedures
that meet their needs, subject to a requirement that those procedures comply with the rules of natural justice (recommendation 67)
c. the ED will include other disputes-related provisions broadly consistent with recommendations 69-72 and 74-75
25. Advice will be sought before deciding whether it is necessary to include an express
provision to permit societies to include appeal rights in their dispute procedures
(recommendation 73).
Chapter 9: Civil enforcement (Recommendations 76-85)
26. The Government agrees or broadly agrees that:
a. the new Act should provide for a society, member or former member to apply to a court for orders to enforce the constitution of a society (recommendation 76)
b. the new Act should provide for a society to apply for court orders for redress from breaches of officers’ duties (recommendation 80)
c. the Government agrees that the new Act should provide for a society to apply for court orders to restore any money wrongly paid to a member (recommendation 85)
d. the ED will include provisions relating to the private civil enforcement of statutory duties that are broadly consistent with recommendations 81, 83 and 85
e. the ED will include a remedy for oppressive conduct that is broadly consistent with recommendation 84.
27. The Government agrees that the Registrar of Incorporated Societies should
have last-resort civil enforcement powers to enforce
a society’s
constitution (recommendations 77-79) and in relation to serious breaches of
officers’ duties (recommendation
82). The Government will obtain further
advice as to the best way of framing these provisions.
Chapter 10: Criminal sanctions and the powers of the Registrar
(Recommendations 86-89)
28. The Government:
a. has decided that the ED will include offence provisions that are broadly
consistent with the proposals in recommendation 86.
The Government will
obtain further advice before deciding whether the ED will include an offence
for a person dishonestly using
their position to obtain an advantage or cause
loss. These matters may be fully covered by existing offence provisions in Part
10
of the Crimes Act 1961 and the Secret Commissions Act 1910.
b. agrees the new Act should include powers for the court to impose governance and officer banning orders on persons convicted of offences under the new Act (recommendation 87). Consideration will also be given to broadening the disqualification powers to recognise banning decisions made under other Acts (e.g. the Companies Act) and under similar legislation in other countries.
c. has decided that the ED will include infringement offence provisions covering administrative obligations broadly consistent with recommendation 88.
29. The Government agrees that certain powers contained in the Corporations
(Investigation and Management) Act 1989 should apply to
incorporated societies
(recommendation 89). Paragraph 10.74 of the Commission’s report states
that the relevant provisions
should be repeated in the new Incorporated
Societies Act. The Government will obtain further advice before deciding
whether to
give effect to the recommendation as proposed by the Commission or by
some other means.
Chapter 11: Terminations, restructures and rescues (Recommendations 90-102)
30. The Government agrees with all the recommendations in chapter 11. Specifically:
a. the Government agrees that new Act should include a new statutory power for the
Registrar to remove a society from the registrar on request, consistent with s
318(1)(d) and (2) of the Companies Act (recommendation 90)
b. the Government agrees that the new Act should replace the existing provisions for revocation of dissolution with procedures for restoration to the register modelled on ss 328-330 of the Companies Act (recommendations 91-92)
c. the ED will include other provisions relating to dissolutions broadly consistent with recommendations 93-95
d. the Government agrees that the new Act will include provisions to facilitate amalgamations and mergers of societies (recommendation 96)
e. the ED will include provisions on mergers and amalgamations broadly consistent with the features listed within recommendation 96
f. the Government agrees that the new Act should provide for societies to be placed in voluntary administration (recommendation 97). Advice will be sought before decisions are made about whether this should be given effect to by way of reference to Part 15A of the Companies Act or some other means.
g. the Government agrees with recommendation 98 listing who will have the power to place a society into administration.
h. the ED will include provisions related to distributions broadly consistent with
recommendations 99-101.
i. the ED will retain the substance of the provisions of division of
surplus assets on winding up in s 27(3)-(7) of the 1908 Act
(recommendation
102).
Appendix A: Rules that must be included in constitutions
31. The Government has decided that the draft model constitution will be
broadly consistent with the rules that the Commission has
recommended should be
mandatory for every constitution as set out in Appendix A of the
Commission’s report.
Links to the Charities Act
32. Some issues are likely to arise during the drafting process relating to links between the new
Act and the Charities Act 2005. For example it will be necessary to consider:
a. including provisions for the Registrar of Incorporated Societies and the Registrar of the Charities Register to provide each other with certain information, such as decisions to deregister an entity.
b. whether differences between the Commission’s proposed definition of
officer in recommendation 30 and the definition in section
4 of the Charities
Act are an issue.
Sector education
33. The proposed reforms are significant because they will clarify and modernise the law, fill gaps in the law, and change some legal rights, duties and obligations. It is clear that the reforms can only be successfully implemented if the not-for-profit sector has a good understanding of them. The Government has concluded that sector education will be an integral part of the implementation programme. For example, seminars will be held while the draft Bill and Regulations are being exposed for public comment. Practical guidance material will be prepared before the new Act comes into force.
34. The relevant government agencies will work with relevant not-for-profit
sector umbrella organisations to develop a sector education
package.
Conclusions
35. The Government welcomes the Law Commission’s report A New Act for Incorporated Societies tabled in the House of Representatives on 21 August 2013. The Government has concluded that there is a need to reform incorporated societies legislation in accordance with all the Commission’s key recommendations and largely in accordance with the detailed recommendations.
36. The next steps will be to draft a Bill and model constitution in accordance with this response, and expose them for comments. The Government will subsequently introduce a Bill into Parliament.
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URL: http://www.nzlii.org/nz/other/lawreform/NZLCGovResp/2014/2.html