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. Section 16 of the Sectional Titles Schemes Management Act 8 of 2011 (the “STSM Act”) deals with the appointment of administrators.
In a previous article I discussed what the legislation states in regard to schemes under administration, and specifically who and where can one apply for the appointment of an administrator; when is it appropriate to appoint an administrator; who pays for the administrator; the powers and duties of the administrator; and the period for which as administrator should serve as such.
In this article I will discuss some of the elements that illustrate that a scheme is operating better when under administration. I will break the discussion up into situations where schemes are experiencing managerial deadlock, serious mal-administration or are in a serious negative financial position.
Schemes that have managerial deadlock
It may be that the scheme is only experiencing managerial deadlock in which case the administrator should work to mediate the negative managerial interactions. This may involve the calling of various body corporate meetings to explain the importance of future member involvement in the management of the scheme. The administrator may need to mediate and conciliate between members that have interpersonal problems that result in different factions forming in the scheme.
Going forward it may be prudent that the administrator encourage the members of the body corporate appoint an uneven number of trustees such that no executive decisions result in an even number of votes causing split decision outcomes.
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. That being said the ultimate goal is to place the body corporate in a position to self-manage in the future. A certain amount of expert assistance is required to fix the managerial issues, but transferring those skills to members of the body corporate that will be appointed to act as the future executive of the scheme is pivotal to ensure that the scheme will have perpetual managerial continuity and sustainability going forward.
Schemes that are being mal-administered
Efficient administrative management is an important function of the body corporate, and in this regard there are various tasks and functions that are required to ensure the sound administrative management of the scheme. Administering a sectional title scheme involves some major paper pushing, which includes the duty to prepare, store and make various documents and records available for inspection. The body corporate need to keep records such as the minutes of meetings; the lists of various role players in the scheme; details of any possible future development rights; copies of various other documents; and the scheme’s domicilium. 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.
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. Visits to the Deeds Registries office may need to be done. Computers and software may need to be purchased to process and store all the administrative documents and records. It may be that an administrative assistant needs to be employed to undertake the administrative tasks to ensure the scheme is brought up to date with the legislative administrative duties in regard to bodies corporate.
Schemes that are in negative financial position
In circumstances where the scheme is in a serious negative financial position, the administrator is appointed 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. The administrator may need to ensure that the annual audited financial statements; books of account; maintenance, repair and replacement plan; budget; trustees’ report; and insurance records including the insurance policy and replacement values, liability and fidelity insurance are all updated, stored and available for inspection by members. 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. The employment of a financial manager, bookkeeper or managing agent going forward may ensure a smooth transition from the administrator exercising these executive functions to the body corporate operating under the management of trustees after the Magistrate’s Court cancels the administration.
Conclusion
Whether the scheme is operating in a healthy manner depends on the circumstances that lead to the appointment of the administrator in the first place; the efficiency and capability of the administrator to rectify the problems experienced by the scheme; the appointment or employment of persons to assist the administrator (and ultimately the body corporate going forward); and the transfer of the expertise and skills to the body corporate to continue the schemes healthy management in the future.
The most important thing for the administrator to do is to restore the scheme to a healthy position as fast and efficiently as possible. Following that the administrator must place the scheme in a position to become self-sustainable in the future. Realistically this may require the administrator’s intervention in the beginning, followed by the assistance of employees such as administrative assistants, bookkeepers, accountants, auditors, lawyers and managing agents.
In my view the transition for a scheme from being under administration to being self- managed once again involves not only that the scheme is administratively, managerially and financially up to date, but that the members of the body corporate and newly appointed group of trustees are capable of carrying the executive torch going forward. In this regard some schemes may require the appointment of an experienced and knowledgeable single professional manager or managing agency firm as an executive organ of the body corporate. In some circumstances this option could be preferable to the position where the trustees are elected as the executive arm of the scheme, and who may supplement their expertise by appointing a managing agent to assist them in the day-to-day management of the scheme.
WRITTEN BY DR CARRYN DURHAM
