Guide's authors ask how far regulation should go before it crowds out what works
Every legal framework for the non-profit sector comes with two kinds of tools. There are the bright line rules, the new statutes and reregistration deadlines that arrive every few decades and get all the attention.
Then there are the older instruments, the duties of good faith and proper purpose that have sat quietly for longer than anyone practising today has been alive, doing the actual work of keeping boards honest. The trouble starts when the second kind gets left in the shed too long.
That distinction sits at the centre of Reissue 1 of Incorporated Societies and Other Associations, the LexisNexis New Zealand update to its title within The Law of New Zealand, revised by Susan Barker of Sue Barker Charities Law and Steven Moe of Parry Field Lawyers to reflect the Incorporated Societies Act 2022 and its replacement of the 1908 statute that forced tens of thousands of member-based organisations to reregister and rework their rules.
"Rules based areas of law tend to crowd out equitable principles. However, the fiduciary duties have been around for centuries because they work," Barker said. Her target is not incorporated societies law specifically but the instinct behind it, the idea that piling on bright line restrictions is safer than trusting the principles that already exist.
Her point is that charities and societies already operate under duties requiring them to act in good faith and further their own stated purposes. The problem, in her view, comes down to enforcement. The law already covers the ground, but nobody is applying it.
Moe sees a related problem from the other end of the relationship, inside the boardrooms rather than the statute books.
"The biggest mistake I see is that people forget the human dimension," Moe said. He argued that disputes brought to lawyers rarely start with the rules themselves.
"As member-based organisations there will always be a lot more going on than just what you are first told, so it takes time to understand the human dynamics of how a board is operating, or what is behind a particular question about something like conflicts of interest, payments or how fees are being used," Moe said.
The reissue also covers related bodies including industrial and provident societies, friendly societies, credit unions, agricultural and pastoral societies, and building societies.
Barker's frustration with the current framework goes beyond incorporated societies to the charities sector more broadly, where she has spent over a decade building a specialist practice.
"The biggest challenge is the disconnect between the legal framework and the reality for charities on the ground," Barker said. She traced the problem to how the Charities Act 2005 was assembled, arguing it was rewritten at select committee stage and rushed through Parliament without proper consultation, then patched repeatedly ever since without a comprehensive review.
"Enforcing the fiduciary duties appears to be a blind spot for both Charities Services and IRD," Barker said. Her preferred fix is narrow rather than sweeping.
"I would like to see a simple amendment made to the Charities Act clarifying the overarching fiduciary duty, and clarifying the consequences for breach," Barker said.
Underpinning all of it is the non-distribution constraint: a distinguishing feature drawing a hard line around how charities and other not-for-profit entities should be defined.
"Not-for profit entities are not barred from earning a profit, but they are prohibited from distributing that profit to individuals: any net earnings must be retained and devoted in their entirety to furthering the entity's purposes," Barker said.
Governance culture has improved since the new Act came into force.
"I see more of those involved in incorporated societies taking their roles seriously, which is really encouraging," Moe said.
On the question of how artificial intelligence fits into legal practice for those advising charities and community organisations, both Barker and Moe voiced caution around judgement rather than speed.
"I use general-purpose AI like I would a junior, asking for help with specific research questions. It comes back very quickly, and although it is often wrong (I don't rely on it at all), it often has some good ideas for lines of inquiry," Barker said. She raised a concern that extends past her own practice.
"I worry about how juniors are going to learn their craft if they are not being asked to do this work. I think it is important as a profession that we think through how we bring the young ones through," Barker said.
Moe reached for his own tool metaphor to describe the same caution.
"I wouldn't plant seeds in the garden or try to cut branches with just my hands. I would use tools such as a saw, a shovel, gloves," Moe said. "I view AI as providing an additional set of tools that are helpful but ultimately need to be directed by a lawyer who understands the context."
Barker's path into charities law began with an accountancy and piano performance degree at Victoria University, then a bursary-funded stint at Inland Revenue where she first encountered the concept of charitable purpose. Moe spent the early part of his career advising large corporates before moving into the for-purpose sector. Both pointed those new to the area toward the same starting advice.
"It is good to get in at the beginning of a new regime. At this point, you know as much as anyone else. Read everything and build from there. Lived experience of this nature can become very valuable in the fullness of time," Barker said.
Asked what they would want readers to take from the reissue above all else, Barker returned to the idea of purpose as the thing holding these organisations together.
"It is their commitment to their purposes that underpins support for their activities," Barker said.
Moe's answer pointed to the same discipline from a more practical angle.
"Good governance and proper running of an Incorporated Society starts with reading and understanding your rules and making sure they are fit for purpose," Moe said.
Existing incorporated societies that missed the reregistration deadline under the 2022 Act faced losing their corporate legal identity, along with the legal status and standing that came with it, unless they applied to be restored to the register under the Act. For practitioners advising these organisations, and in-house lawyers working within them, understanding the statutory framework that enables them to do so is essential to protect clients from an undesirable outcome.
This authoritative title, fully revised by leading experts Sue Barker (Director, Sue Barker Charities Law) and Steven Moe (Partner, Parry Field Lawyers), gives you a clear, practical roadmap through the new legislative framework.
Download the free preview content, which offers a glimpse into the new Reissue of Incorporated Societies and Other Associations – The Laws of New Zealand HERE.
This article was produced in partnership with LexisNexis.
