By: Jonathan Pow
Published: 29/10/2014
Introduction

The vast majority of local, regional and national sports organisations are set up as incorporated societies under the current Incorporated Societies Act 1908 (the "Act").  The Law Commission proposed reforms for this uncomfortably old piece of legislation which were tabled in Parliament on 21 August 2013.  On 28 February 2014, the Government accepted almost all of the recommendations in the Law Commission's report.  The recommendations will provide a very strong foundation for the Government to progress much needed reform of the Act and are unlikely to provoke any political controversy.  The new legislation should come into force soon. 

Whilst it may create little political controversy, it will be very important for sporting organisations (and societies generally) to understand the reform as it will very likely have an impact on their rules, governance and administration matters.
 
PART 3 – DON'T LEAVE THINGS TO CHANCE

Dispute resolution

It is very common for disputes to arise between members of societies.  It is also quite common for a society's rules to be inadequate to properly deal with those disputes.  This creates uncertainty as to how the dispute can be properly resolved both from the society and a member's point of view.  The consequence is numerous complaints by members that they haven't been treated fairly or been properly heard. 

Typically, disputes will either involve concerns about a member's conduct or complaints by members against other members, the committee or against the society itself.  The risk that those disputes are not properly and fairly resolved can be avoided if a society has clear procedures in place in its rules which it must follow.

The reform will specify certain minimum procedures but leave societies to add flesh to those minimum criteria to provide functional dispute resolution procedures.  The minimum requirements in the reform will follow natural justice: namely, that a member has a right to be heard before a complaint is determined; a member needs to be fairly and fully advised of all allegations concerning him/her; and that a decision-maker must consider all written statements or submissions before making a decision. 

The legislation will also provide that the committee will need to address any apparent bias of a decision-maker.  The legislation will also likely allow societies to resolve disputes using independent means (such as arbitration or approaching an independent decision-maker).  A society's rules can deal with rights of appeal. 

As part of the greater emphasis placed on more robust disputes resolution procedures contained in the rules of an incorporated society, sports organisations may wish to consider specifying whether the decision of any dispute may be appealed to the Sports Tribunal of New Zealand.  Only if the rules specifically provide, can a matter be appealed to the Sports Tribunal.  If the sports organisation so wishes, the rules could also specify that the society and its members agree that any, or a specified type of, dispute can be heard at first instance by the Sports Tribunal (subject to the Sports Tribunal agreeing to hear the matter, in accordance with the Sports Anti-Doping Act 2006). 

Distributing assets on termination

Consistent with prohibiting members obtaining a monetary gain from their activities in the society, legislation will specifically prohibit societies from distributing surplus assets to members on a wind up or on liquidation.  The legislative reform will likely require that any surplus assets be distributed to another incorporated society or another not-for-profit entity or charitable trust.  The society's rules will need to specifically provide for the particular nominated entity. 

However, there will likely need to be transitional provisions where a society's rules already allow for distribution of assets to individual members.  A transition period will likely be four years from the commencement of the new legislation.  This will mean that, during that four year period, any such distribution to individual members is not invalid if the rules have so provided, but, afterwards, a distribution of assets to members will be invalid despite the society's rules.

This aspect of the reform could prove challenging for sports organisations.  In all likelihood, although this is not a legal requirement, an organisation on wind-up would prefer to distribute its surplus assets to similar organisations.  However, for sports organisations there may often be no other organisation involved in the same sport, operating in the same region and having mutual allegiances.  Organisations in the same sport in the same region are often fiercely competitive, creating traditional rivalries.  For national sporting organisations there will likely be no equivalent organisation operating in the same sport.

Care also needs to be taken to regularly monitor whether the organisation, which is to receive the surplus assets, has maintained its name and its objects and is still in existence.  If an organisation to which assets are to be distributed is itself wound up or removed, the organisation's rules will need to be amended and a new recipient of the surplus assets agreed by a majority of members. 

Do you need to change your society's rules?

Reform of the Incorporated Societies Act 1908 is coming and likely sooner rather than later.  The reform is in the public interest as well as in the interests of currently incorporated organisations.  
 
There is always value in a regular review of your society's rules.  Many sports organisations, and societies in general, no longer adhere strictly to their rules in matters of governance and administration.  This is not a deliberate non-observance but normally arises because the rules no longer reflect the way in which the organisation now operates and has been operating for quite some time.  It's the rules that need to catch up to the organisation's practices and operations.  The reform of the legislation is a timely catalyst for a sports organisation to review its rules.  Change, whether to comply with the proposed reform or to reflect the organisation's practices, is not necessarily the goal; it is the review itself that is important. 

Many sports organisations may well find that their rules already meet the proposed reform.  Gaining that knowledge, however, will be time well spent.  For others, it represents a good time to make some changes; particularly to ensure that the rules deal adequately with dispute resolution procedures, the appointment and roles of officers and committee members, meeting procedures, how it enters into obligations and contracts, conflicts of interest (of committee members).  A check should be made that the rules don't allow distribution to members of surplus assets on a wind up and it would be worthwhile to provide details of the organisation's registered office.  Careful thought should also be given as to whether officer's insurance should be considered or maintained.
 

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