Introduction
The appointment of an administrator may become necessary in situations where schemes are experiencing managerial deadlock, serious mal-administration or are in a serious negative financial position. The administrator takes over the executive function of the trustees, and can take any or all decisions necessary to restore the scheme to a healthy position from and administration, management or financial perspective.
What does the legislation state in regard to schemes under administration?
Section 16 of the Sectional Titles Schemes Management Act 8 of 2011 (the “STSM Act”) deals with the appointment of administrators.
Who and where can one apply for the appointment of an administrator?
A body corporate, a local municipality, a judgment creditor of the body corporate or any owner or other person having a registered real right in or over a unit may apply to a Magistrate’s Court for the appointment of a suitably qualified and independent person to serve as the administrator of the body corporate.
When is it appropriate to appoint an administrator?
If a Magistrate’s Court on hearing the application finds:
- evidence of serious financial or administrative mismanagement of the body corporate; and
- that there is a reasonable probability that, if it is placed under administration, the body corporate will be able to meet its obligations and be managed in accordance with the requirements of the STSM Act, the Magistrate’s Court may appoint an administrator for a fixed period and on such terms and conditions as it deems fit.
Who pays for the administrator?
The remuneration and expenses of the administrator are administrative expenses of the body corporate, and are paid from the levies due by each member of the body corporate.
Powers and duties of the administrator
An administrator has, to the exclusion of the body corporate, such powers and duties of the body corporate as the Magistrate’s Court directs.
The administrator must:
(a) convene and preside at the meetings required in terms of the STSM Act and the scheme’s rules; and
(b) lodge with the ombud:
(i) copies of the notices and minutes of meetings; and
(ii) written reports on the administration process every three months or at such shorter intervals as the Magistrate’s Court may direct.
How long must an administrator serve as such?
An administrator must exercise these powers and duties to address the body corporate’s management problems as soon as reasonably possible.
The Magistrate’s Court may appoint an administrator for a fixed period and on such terms and conditions as it deems fit.
A Magistrate’s Court may, on application by the administrator or any person or body:
(a) remove the administrator from office;
(b) replace the administrator;
(c) extend the term of the administrator’s appointment or amend his or her terms of appointment; and
(d) may make such order for the payment of costs as the Magistrate’s Court considers fit.
Ultimately, the administrator takes over the executive function of the trustees, and is in a position to take any or all decisions necessary to restore the scheme to a healthy position from and administration, management or financial perspective. The exact time period to achieve such purpose will differ from scheme to scheme, depending on the reason for the appointment of the administrator.
It may be that the scheme is only experiencing managerial deadlock in which case the administrator can work to mediate the negative managerial interactions, or have the body corporate appoint an uneven number of trustees such that no decisions result in an even number of votes causing split decision outcomes.
In circumstances where the scheme is experiencing serious mal-administration in that the scheme is not operating in accordance with the legislative requirements as set out in the STSM Act and the Regulations made thereunder, the administrator may be appointed for the period of time that it takes to bring the scheme back in conformity with the statutory obligations. General meetings of the body corporate may need to be called and held such that resolutions be taken to achieve this purpose. As I have discussed in various articles and training courses, the administrative duties in regard to managing sectional title schemes are manifold. Ensuring that the scheme has all legal documents, contracts, plans, minutes, resolutions etc is important for the administrative health of the scheme. This task could be time-consuming as well as labour intensive depending on the circumstances of the scheme.
It may be that there are physical projects that relate to the physical attributes of the scheme that have legal and financial consequences. I previously assisted in administrating a scheme that had various unauthorised extensions to sections. The scheme was under administration for many years as these illegal extensions needed to be regularised and legalised. Land surveyors, Conveyancers and the Deeds Registry all needed to be involved. The scheme’s participation quota schedule need to be amended such that each member paid their levies in conformity with the actual floor size of their sections. During that period of administration the members were restricted from transferring their properties until such time that the extensions to their sections had been legally finalised. A project like this needed to be done under the supervision of an expert administrator to ensure its efficient and legally correct completion.
In circumstances where the scheme is in a serious negative financial position the period for which the administrator is appointed would be dependant on how long it would take to recover the outstanding amounts from the members of the body corporate. It may be that special levies need to be raised to pay local municipality’s outstanding rates and taxes. Where there are outstanding levies the administrator may need to follow levy collection procedures that include the collection at the Community Schemes Ombud Service, or Court procedures that include the attachment and sale in execution of movable property and ultimately the unit in the scheme that is owned by a member in arrears. These procedures are expensive and time-consuming. The paying members often need to subsidise the members who are in arrears.
Furthermore, the financial reporting functions of scheme executives is burdensome and requires skill and expertise. Accountants and auditors may need to be employed to bring the scheme in line with the financial statutory standards set out in the STSM Act and the Regulations made thereunder.
In conclusion, the time period for which an administrator is appointed is not set in stone. It will differ from scheme to scheme depending on the circumstances of that scheme and the reasons for which the administrator was originally appointed. Once the administrator has restored the scheme to a healthy position from and administration, management or financial perspective, the Magistrate’s Court may remove the administrator from office.
WRITTEN BY DR CARRYN DURHAM
