By Geoff Caradus

7 February 2024

If you are involved in the management of an existing Incorporated Society then you need to be aware that the (new) Incorporated Societies Act 2022 and the (new) Incorporated Societies Regulations are now fully in force – and what they mean for you.

Most importantly:

• Existing Incorporated Societies are required to re-register under the New Act any time from now through until 5 April 2026.
  
  
• If existing societies don’t re-register by 5 April 2026 they will cease to exist.  

• As part of the reregistration process, societies will need to review and update their rules (now called their “constitution”) to ensure they comply with the requirements under the new Act.

There are a few things that you should think about when deciding exactly when to make a start on this process:

• Happily, until a society has re-registered under the new Act it will continue to be bound by the operating and reporting requirements of the (previous) Incorporated Societies Act 1908.  This means that until you re-register, nothing changes for you.  But don’t use this as a reason to wait too long…

• If you haven’t undertaken a more general review of your society’s rules for some time now, you may want to use this as a prompt to consider whether your existing rules remain fit for purpose or whether other changes could be usefully made to better align your society’s founding document with its current aims, practices and operations.  It may even be a good time to assess whether or not an incorporated society remains the appropriate type of entity through which to carry out the activity you are carrying out – or whether a charitable trust or company might be more appropriate.  The more substantive the changes you need to make, the longer they will likely take to put in place, and so the earlier you need to start.
  
  
• You don’t want to have to hold an additional general meeting of members just to approve a rule change. You should therefore be looking to have your amended rules approved at your last annual general meeting before 5 April 2026, at the latest. You should look to work back from there in terms of timing.
  
  
• There is no time like the present.

How Pitt & Moore can help

We are available to assist with re-registration under the new Act, reviewing and updating of society rules or providing brand new constitutions, assessing the suitability of currently registered incorporated societies and providing advice regarding alternative structures and helping to create them.

A limited liability company (LLC) is a vehicle frequently used to own and operate businesses. One of the benefits of an LLC is the limitation of liability it offers to its shareholders. Whilst the company has full responsibility for the company’s obligations it shelters the shareholders from loss if the company’s business fails.

However, what is often overlooked is the responsibility and therefore potential liability that sits with the directors of an LLC. A director can find he/she is personally liable for losses which would otherwise be losses of the company by breaching the director’s duties. The recent Supreme Court decision of Debut Homes Limited (in Liquidation) v Cooper is an example of a director being held liable for a part of the company’s losses as a consequence of breaching directors duties. Note – the Supreme Court judgment covered a number of aspects and this is a very generalized focus on one aspect, namely breach of director’s duties.

So what happened? 

A very abridged version of facts is that Mr and Mrs Cooper owned Debut Homes Limited, a residential development company. At 31 October 2012 the company’s assets were less that its liabilities but was continuing to pay its debts. The company was also part way through the completion of a development when Mr Cooper met with his accountant (November 2012) to discuss a way forward in light of the difficult financial position of the company. Mr Cooper was advised that completing and selling the development would likely result in a shortfall of GST owing to the IRD. Mr Cooper decided to complete the development with a view to then winding up the company as he thought this course of action would generate more money to repay the secured creditors. The GST shortfall was in the order of $300,000. 

The company was placed into liquidation on 7 March 2014 on application of IRD. Fast forward to 24 September 2020 when the Supreme Court judgment was issued and Mr Cooper is found liable to contribute (personally) $280,000 towards the assets of the company. 

Why did he have to pay personally? 

Well, the Supreme Court agreed with the High Court and took the view the company should have been liquidated on or about the time of Mr Cooper’s meeting with the accountant in November 2012 when it was clear that the company was not salvageable. As a consequence of the decision to continue to trade in such circumstances where Mr Cooper was well aware that a creditor would not be paid, he breached a number of duties and thereby exposed himself to personal liability.

Mr Cooper tried to rely on the defence contained in s138 of the Companies Act 1993 that he relied on the advice of his accountant. The Supreme Court held the advice given was too generalised to enable Mr Cooper to have the benefit of the defence. 

The short takeaway from this case is that if you are a director of a company that is, or is about to become, financially distressed you need to take specific advice and positive action to stave off possible personal liability. Doing nothing is not a strategy. 

As outlined below, this article is by no means a summary of the Supreme Court decision (that’s 53 pages long) and is not to be considered advice.

Talk to us

For more information or professional advice on this topic please contact Anissa Bain.