By the Paddocks Club team

Below are examples of two questions on the Paddocks Club discussion forum, to show you what is available to our Community members!

Can trustees change the levy instalments to ease the burden

Member’s question:

Good day Paddocks,

Please would you advise, as with the unprecedented situation with Covid-19 and lock down in South Africa, whether trustees can determine to provide owners with leniency on levy payments for a period and then recoup this in the remaining months to ensure the budgeted amount is still collected.

We would presume that to change the budget would require referral back again to a general meeting, but we are being overrun with queries relevant to a either a reduction in levies for a period or removal of levies for a period. We would appreciate your response.

Thank you.

Graham’s answer:

Dear member,

Let me first deal with what I see as the easy parts.

Trustees can, but are not obliged to charge interest on overdue payments. If they do, they can set the level of interest as long as it is under the rate determined to the National Credit Act. So trustees can meet and decide to waive or reduce the interest – not retrospecitively, but from the date of their resolution. That would give substantial relief, because compound interest increases the debt burden amazingly fast.

Trustees can, but are not obliged to start proceedings to recover outstanding levies.  The substantial legal and other collection fees that are added to the capital amount of a debt mean that the total debt burden increases very fast. So trustees could decide to keep owners informed of their debts but suspend further legal action. And that makes a lot of sense, because courts and the Community Schemes Ombud Service are not working anyway, so not much can be done. Notifying owners of this decision, trustees can explain to the paying owners that they are avoiding fruitless expenditure, while at the same time reducing the stress on defaulters and their families.

Then onto something more difficult.

Can the owners direct the trustees to rescind their original contribution levying resolution so as to re-allocate the dates and amounts of the instalments? And  could the trustees do this, so as to change their decision as to when the contribution installments are payable.

I think this is at least arguably possible, particularly in emergency circumstances.

Then let’s tackle the hardest one.

Reducing the current level of contributions levied (levies).

While there is no provision in the Act or rules for reducing a validly approved administrative budget or the contributions levied on that basis, I think there may be a workaround / hack that would work.

Note: What I suggest below should not be considered if the budget is already as lean as it could be, because this would be contrary to the owner’s obligation to approve a budget that covers the scheme’s operational expenses.

If there is any unnecessary expense in the budget, any cost that could be cut or reduced, then the owners can take an ordinary resolution to change the financial year end under Prescribed Management Rule 21(1), effectively cutting the current financial year short, and call an annual general meeting to approve a new reduced budget. The owner approval of the revised budget at the anticipated annual general meeting would create the legal basis for the trustees to levy contributions to meet a reduced income target.

And at the same time they could look a doing things differently, where this seems to make sense. e.g.

• provide for weighted or differently-calculated instalments, or
• offer a discount for owners who can afford to pay the full year’s levies in advance, thus very much reducing the costs of managing the scheme’s cash flow and increasing its income from investments. A good accountant can relatively easily advise on the adjustments needed to take account of this type of discount, which is specifically provided for in terms of Prescribed Management Rule 26(1)(e).

Regards,

Graham

Can the annual general meeting be delayed because of the COVID-19 lockdown?

Member’s question:

Good day Paddocks,

Is there any latitude in respect of the annual general meeting dates. Can annual general meetings be held later due to the lockdown?

Thank you.

Graham’s answer:

Dear member,

Yes, in practice I think there is latitude that should be applied where reasonably necessary.

Bear in mind that there is no specified penalty for holding the annual general meeting late, so where it is not practical or possible to hold it with remote attendance and the scheme does not really need an immediate increase in contributions, I think it makes sense to convene or re-convene the annual general meeting for after lockdown.

Regards,

Graham

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Article reference: Paddocks Press: Volume 15, Issue 04.

Graham Paddock is available to answer questions on the Paddocks Club discussion forum for Community members. Get all your questions answered by joining Paddocks Club.

This article is published under the Creative Commons Attribution license.

Back to Paddocks Press – April 2020 Edition.