Be Prepared – Incorporated Societies Law Reform

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The new Incorporated Societies Act 2022

According to comic Tom Lehrer, “Be Prepared” is the Boy Scouts’ marching song. That clarion call should have been resounding in the ears of all societies and New Zealand lawyers since 2015 when the Exposure Draft Incorporated Societies Bill (to replace the Incorporated Societies Act 1908) was published for public comment (the slowness of the reform process was sadly frustrating).

All lawyers, whether or not in private practice and whatever their legal specialty, are fair game if they are associated with a not-for-profit organisation – lawyers are asked to join committees and people assume lawyers know the law, including law they were not told about at law school and may have never looked at.

According to the Minister of Commerce and Consumer Affairs when moving the Third Reading of the Bill to replace the Incorporated Societies Act 1908 there were “around 24,000 incorporated societies in New Zealand, and that number is rising.” Following enactment of the 2022 Act charitable societies registered under the Charitable Trusts Act 1957 will be transferred to the new incorporated Societies Act regime, so there may well be around 30,000 societies incorporated under the Incorporated Societies Act and the Charitable Trusts Act.

Reviewing society constitutions

The 1908 Act is still in force, and section 256 of the 2022 Act provides for the making of Orders-in-Council to bring the balance of the 2022 Act into force and to facilitate the orderly implementation of 2022 Act. In simple terms, there is no immediate change affecting existing and newly formed incorporated societies, but the Boy Scouts motto to “Be Prepared” should be borne in mind. It appears probable that existing societies will have a period from around October 2023 to April 2026 to re-register with constitutions complying with the 2022 Act.

According to “Snapshot of the Profession” at 8 March 2019 (https://www.lawsociety.org.nz/news/lawtalk/issue-926/snapshot-of-the-profession-2019/) we had around 9,200 lawyers in private practice (excluding barristers) in New Zealand (the most recent statistic I could find), and we may now have around 9,500. If you look only at lawyers in law firms (excluding barristers) there may potentially be about 3-4 societies per lawyer seeking advice after the new Incorporated Societies Act is enacted. However, if you assume that practitioners who spend over 50% of their time dealing with conveyancing. company and commercial work are most likely to be asked for assistance in revising incorporated societies’ constitutions, then those people may each have 6-8 societies seeking such advice.

Are members of the legal profession adequately equipped to provide that advice? Do they have the ability to rise to the challenge of helping societies review their constitutions in the transitional period after the new Act is passed?

Concerns

I have a number of concerns:

  • New Zealand lawyers are provided with no academic training in incorporated societies law (in two decades of presenting seminars on society law to New Zealand lawyers I can count on the fingers of one hand the number of times a lawyer has recalled hearing of the Incorporated Societies Act 1908 while doing their law degree, and the longest time spent on that subject was stated to be 10-15 minutes!),
  • There are relatively few lawyers specialising in advising incorporated societies,
  • Most lawyers who are “honorary solicitors” for not-for-profit societies do not charge for their services, but the burden of coming up to speed with the changes and then reviewing and revising incorporated society constitutions for compliance with the new Act will be significant, so doing the work at no cost is unlikely to be realistic,
  • Whether or not lawyers charge for their advice to incorporated societies, if they provide incorrect advice they can still be sued for negligence, and

The potential flood of incorporated societies that will seek advice could overwhelm many lawyers who will, as a result, be tempted to place that work at the back of the queue simply because they will not know where to start and what needs to be done (compounding the professional indemnity risks).

In my opinion, legal firms need to be proactive, and “be prepared” for this work:

  • Most firms should have some lawyer or work group assigned to deal with enquiries about the new Incorporated Societies Act; and
  • Those who will do this work need to start up-skilling themselves now.

If this is not done, I believe the legal profession will struggle to cope with the challenges associated with the Incorporated Societies Act 2022.

Mark Dadelszen is well-placed to advise on the implications of the proposed new Incorporated Societies Act, and he advises societies and trusts throughout New Zealand, involved in a wide range of activities – you can contact him at mark@nfplaw.co.nz.

This is one of a series if articles on societies and charitable trusts by Mark Dadelszen, a lawyer and author of Members’ Meetings, 3rd Edition, 2012, and Law of Societies, 3rd Edition, 2013 (both texts being in the course of editing for 4th editions to be published after the new incorporated Societies Act is enacted).