Article 2 in a series of 3
As we mentioned in our first article in this series, the new Incorporated Societies Act 2022 became law on 5 April 2022. Some key changes resulting from the new Act are:
Constitution (Rules)
The new Act sets out what the Constitution (Rules) must contain:
- The name and purpose/s of the society;
- The process of becoming a member and ceasing to be a member;
- The composition, powers, and functions of the committee, the election and removal of officers, quorum, and procedures;
- Procedures for amending the Constitution;
- Processes for managing and controlling the society’s finances;
- Procedures for resolving disputes and a process for complaints;
- Arrangement and requirements for general meetings;
- Quorum and procedure for general meetings and special meetings;
- Nomination of a not-for-profit entity to which surplus assets can be distributed on liquidation/removal;
- Power to make and amend bylaws.
Officers’ Duties
The new Act sets out six duties of the society’s officers:
- Duty to act in good faith and in the best interests of society;
- Duty to exercise powers for a proper purpose;
- Duty to exercise reasonable care and diligence;
- Duty not to act or agree to the society acting in contravention of the Act or the society’s Constitution;
- Duty not to allow the society’s activities to be carried out in a way likely to create a substantial risk of serious loss to the society’s creditors;
- Duty not to agree to the society incurring obligations that it cannot perform.
Officers can be held personally liable for breaches of these duties. If the society wishes to indemnify or insure its officers for breach of officers’ duties, its Constitution must expressly authorise this.
Committee
Every society must have a committee (board) with at least three officers who will manage the affairs and operations of the society. The Committee members must also consent in writing to be an officer and certify that they are not disqualified from holding office as an officer of the society.
Membership
A society must have at least ten members and members will need to give consent. Body corporates will continue to count as three members.
Dispute Resolution
The Constitution must contain a process for dispute resolution which must be consistent with natural justice. The new Act provides safe harbour provisions for inclusion into a Constitution (Schedule 2 of the Act).
Financial Reporting
The new Act imposes a requirement to file financial statements within six months’ of its financial year end. Larger societies will need to prepare financial statements using External Reporting Board accounting standards. Auditing requirements will depend on annual spending thresholds.
Conflicts of Interest
An officer’s conflict of interest must be disclosed to the Committee and appropriately managed and kept in an interests register (unless the Constitution provides otherwise).
An interested Committee member:
- must not vote or take part in a decision of the Committee relating to the matter;
- must not sign any document concerning the conflict;
- may participate in the discussion of the matter by the Committee and be present at the time of the Committee’s decision.
Enforcement
The new Act contains civil law enforcement provisions. The society may recover financial gain from members, and members or officers may also apply or intervene in proceedings on behalf of the society.
Infringement and Offences
The new Act sets out some infringement offences for failing to comply with duties. These minor offences expose the incorporated society to a fine not exceeding $3,000.00, or an infringement fee for breach, as prescribed by the regulations.
Subpart 6 of the new Act also sets out offences of misconduct which could (on conviction) result in fines of up to $200,000.00 and/or terms of imprisonment of up to five years. Offences include:
- False statements;
- Fraudulent use or destruction of property;
- Falsification of register, records, or documents;
- Operating fraudulently or dishonestly incurring debt.
These are just some of the key changes introduced by the Incorporated Societies Act 2022.
Want to know more?
If you have questions about the changes and how they may affect your society, or if you need assistance drafting a compliant constitution, please contact us.
Make sure you read our first article and look out for our upcoming article in this series of 3:
Article 1 New Incorporated Societies Act 2022: What Societies Need to Know
Article 3 Incorporated Societies: Is it time to think about moving to a charitable trust?
