The worst types of mistakes made are those we make without even realising it. Why? Because one minute we’re going about our business in ignorant bliss and the next the rug is pulled from under us when someone (usually very publicly) points out our error, leaving us red-faced and on the back foot as we hurriedly scramble to correct the mistake.
One of the areas in sectional title management where I often bear witness to this is when a managing agent holds the body corporate’s funds in a cheque account and is called out for doing so either by a trustee at a trustee meeting or, worse yet, by a member at the scheme’s Annual General Meeting… but why is this a problem? Let’s take a closer look together.
The Prescribed Management Rules require that all money received by the body corporate be deposited into “an interest bearing account”.
This means that:
- any payment made as a contribution levied (in respect of both the administrative and reserve funds),
- any insurance payouts received,
- any funds received for damages claims successfully instituted,
- any fines duly imposed and paid, and
- all other income received by the body corporate
must be deposited into an account that generates interest. This means that a cheque or current account or any other account that does not earn interest cannot be used to keep the body corporate’s funds.
Subsequent to receiving the money and keeping it in the interest bearing account, the prescribed management rules allow the trustees to invest the portion of that money that was levied specifically as reserve fund contributions, provided that the majority of trustees first sign a written trustee resolution authorising the investment and that the investment be with:
- a pension fund organization
– registered in terms of the Pension Funds Act, 1956 (Act 24 of 1956);
- a friendly society
– registered in terms of the Friendly Societies Act, 1956 (Act 25 of 1956);
- a unit trust scheme
– as defined in the Unit Trusts Control Act, 1981 (Act 54 of 1981);
- a board of executors; a trust company or any other company which invests, keeps in safe custody, controls or administers trust Property;
- a manager who controls or administers a scheme
– in terms of the Participation Bonds Act, 1981 (Act 55 of 1981);
- a licensed stock exchange or stock broker
– in terms of the Stock Exchanges Control Act, 1985 (Act No. 1 of 1985),
- a company registered as a management company
– In terms of the Unit Trusts Control Act, 1981 (Act No. 54 of 1981),
- a company or institution registered as a trustee
– In terms of Act No. 54 of 1981;
- an attorney practising as such on his own account or in partnership or as a member of a professional company;
- an accountant or auditor registered as an accountant and auditor and engaged in public practice as such
– in terms of the Public Accountants’ and Auditors’ Act, 1951 (Act No. 51 of 1951);
- a person approved by the Registrar or a person who is a member of a category of persons approved by the Registrar
– in terms of Act 1 of 1985;
- a financial exchange, member or recognized clearing house
– in terms of the Financial Markets Control Act, 1989 (Act No. 55 of 1989);
- a registered insurer
– defined as such in the Insurance Act, 1943 (Act No. 27 of 1943);
- an agent, broker or other person
– contemplated in section 20bis and section 23A(2)(a)(vi) of Act 27 of 1943; or
- a person deemed to be carrying on insurance business in South Africa
– in terms of section 60 of Act 27 of 1943.
While the extensive list above illustrates that the body corporate is spoilt for choice when it comes to the types of accounts in which a body corporate’s funds may initially be kept and, on the authority of a trustee resolution, later invested, the simple cheque account is noticeably missing from the menu. Don’t wait to be called out at your next meeting – transfer the body corporate’s funds into an interest bearing account today. While you are making the change, why not take the time to make an appointment with a professional financial adviser to discuss the best options for investing the body corporate’s reserve funds?
Article reference: Paddocks Press: Volume 16, Issue 10.
Specialist Community Scheme Attorney (BA (Law) LLB), Ané de Klerk, is a senior associate at The Advisory, a boutique law firm specialising exclusively in community scheme law. Get in touch with her at www.theadvisory.co.za.
This article is published under the Creative Commons Attribution license.