MUCH ANTICIPATED CHANGES TO GOVERNANCE OF SOCIETIES

Posted by Dasha Kovalenko-Gormack on July 5 2021 in News

It is fair to say that the introduction of the Incorporated Societies Bill 2021 (Bill) has been much anticipated. The Bill will replace the Incorporated Societies Act 1908 (Act) and will aim to codify principles established in case law and strengthen general governance of not-for-profits.

Below we summarise three key features of the Bill that in our experience acting for incorporated societies, will be of particular interest to incorporated societies:

Officer’s duties

Currently officer’s fiduciary duties are set out in case law, not in the Act. The Bill sets out the officer’s duties, which are now akin to director duties. These duties are:

a) Duty to act in good faith;
b) Duty to act in the best interests of society;
c) Exercise power for proper purpose;
d) Not act in any matter that contravenes the new Act or the constitution of the society;
e) Exercise care and diligence that a reasonable person with the same responsibilities would exercise in the same circumstances taking into account a number of specified factors;
f) Not agree to activities of the society being carried on in a manner likely to create a substantial risk or serious loss to the society’s creditors;
g) 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 when required to
do so.

Conflict of interest and disclosure 

The Bill now clearly sets out the obligations of disclosure and examples when there is a conflict of interest. An officer is deemed to be interested in a matter if:

a) The officer may obtain financial benefit from a matter;
b) The officer is a partner, spouse, child, parent, grandchild, grandparent, or first cousin of a person obtaining a benefit from a matter;
c) The officer may have a financial interest in a person to whom the matter relates;
d) The officer is a partner, officer, director, board member or trustee of a person who may have a financial interest in a person to whom the matter relates;
e) The officer is interested because the constitution provides as such.
 

If an officer is interested, they must not vote or take part in a decision on the matter. Failure to disclose an interest could give rise to a possibility of judicial review.

Additionally, in instances other than when the society receives fair value, the society has an ability to avoid a transaction where an officer is interested, within three months of notification of the relevant transaction to the members.

Amalgamations

Currently, there is little guidance on how amalgamations of societies can occur, and how the amalgamation is completed often depends on the rules of the society coupled with tax/accounting advice.

The Bill on the other hand, clearly records that an amalgamation can occur by way of a society continuing as one amalgamated society or a new society. Further, the Bill sets out mechanisms of amalgamation which include:

a) Circulation of the amalgamation proposal from each society to its members and creditors;
b) The committee of each of the societies resolving the amalgamation being in the best interests of the society; and
c) The committee being satisfied on reasonable grounds that the society will pass the solvency test.

If you have any questions about anything in this article or are an officer in a society/are involved in management or running of a society, please feel free to contact us.

Richard Hatch | Partner | richard.hatch@shieffangland.co.nz
Dasha Kovalenko-Gormack| Senior Associate | dasha.kovalenko@shieffangland.co.nz