The New Zealand Amateur Sports Association says changes to the law go too far and will result in the widespread dissolution of community groups, including sports clubs because they won’t meet the new legal requirements.
Changes to the Act beef up compliance requirements for incorporated societies including financial reporting, re-writing their constitution, declaring and managing conflicts of interest, and the need to set up a dispute resolution scheme.
The stakes also become higher for officers, with duties comparable to those of company directors and personal fines for non-compliance that may apply for up to six years after someone has left the club.
The changes were ratified more than a decade after the the Law Commission commenced a review of the “uncomfortably old” Incorporated Societies Act 1908.
But association chair Gordon Noble-Campbell said for the most part the Act had been working well, and the changes brought in were not a “one-size fits all” solution.
“I think that the old law needed to be modernised, to remove references to shillings and pence. But the reality is it was fulfilling its purpose in providing a relatively light governance framework for organisations to operate under.
“It was certainly fit for purpose for a section of the community, particularly the section of the community we’re talking about. And as already illustrated, even in its relatively light form was proven to be problematic in terms of compliance for community sport clubs.”
He is referring to the current annual financial reporting requirements, which if not filed, put the society at risk of dissolution.
Last week 493 societies were dissolved by the registrar “being “satisfied that [they] are no longer carrying on their operations”.
Noble-Campbell said about 38 percent of them were community sport organisations, with about 1000 sports groups dissolved in the past five years – many of which did not realise it had happened and continued to operate.
He said if this was the level of dissolution under the current law, levels would be even higher when the requirements under the Act were stricter.
“You can’t get grant funding, you can’t run raffles… there’s all sorts of implications.
“This has the potential to become an extinction event and you might say I said that glibly and rather dramatically, but actually, the statistics we see today suggests that many people – based on their inability to comply with the existing legislation – are increasingly unlikely to comply with the new legislation.”
“We shouldn’t be trying to make it hard to run and operate a club for the benefit of the community” – Gordon Noble-Campbell, NZ Amateur Sport Association
Any society currently operating or that is set up between now and October 2023 will work under the old legislation, but must re-register with the Companies Office some time between October 2023 and April 2026.
When they re-register they become subject to the new rules.
Noble-Campbell said while the law had already been passed, the window until the compliance requirements changed was a good chance to amend some of the “more pointed effects” of the new Act.
He wanted groups that promoted amateur sport exempt from the stricter financial reporting requirements, and said sports clubs should be able to offload the dispute resolution and conflict of interest requirements to their respective national sporting organisations, such as NZ Rugby or Tennis New Zealand.
“Part of the problem is that we don’t have the knowledge, competence and skills to do this additional stuff, they’re [also] not interested in doing it, because they’re there for the love of the game. And finally when they figure out they’re going to be liable for not doing things they’re going to run for the hills.”
He said the threat of penalties could also be mitigated.
“What we’re suggesting is that if you are a small society and an amateur sport promoter, then if the registrar identifies an issue of non-compliance, rather than slapping you with a fine or taking you off the register you are referred to the national sport organisation [you fall under] for follow up.”
He said making it too hard for clubs to operate legally was doing a disservice to the community.
“Clubs deliver much more than a physical activity for kids or adults, they provide the really important social glue so we shouldn’t be trying to make it hard to run and operate a club for the benefit of the community.”
Glenfield Tennis Club president Sandie Newton said the changes would “absolutely” put people off helping run their local sports club.
“We’ve always struggled to get volunteers and you’ve always needed someone who’s a leader, like a president or a chair who has some business acumen.
“Now you’re going to need more people with more business acumen and it’s got to be legal stuff, financial stuff, definitely people who are totally switched on within the business community to be able to keep your club going… they are really asking a hell of a lot of volunteers.”
Commerce and Consumer Affairs Minister David Clark said there would not be any amendments to the Act before the changes took effect, but there were still regulations that needed to be worked through and there would be more public consultation.
He said deterrence concerns were raised during the select committee process.
“It is important to note that the new Act simply codifies rules that have long existed or would have been made in future by the courts. For example, section 76 of the Act says that a person must consent before being made a member of a society. In my view, it is better that individuals considering taking on the role of society officer have a clear understanding of their duties and potential liabilities.
“Societies, when they become incorporated, benefit from legal personality and limited liability, but with these advantages come responsibilities around governance standards and financial reporting.”
Newton said the level of awareness around the changes was poor, and was worried clubs would not realise they were not following the rules.
“People who are working in these grassroots jobs and stuff like that, they don’t go to these websites, they don’t see all the stuff that is involved.”
Noble-Campbell said the association had been running a series of events around the country to raise awareness and the feedback coming through was similar.
“They say… we had no idea that this had happened, we’re really concerned about what it means for us and our organisation and what we need to do. So just generally speaking, concern everywhere and a lot of people saying, well what can we do now that this act has come into law.”
Clark said the Companies Office would make educational resources available and said officials from MBIE, Charities Services and the External Reporting Board were also arranging webinars to provide more information for incorporated societies.