What Does Being a Trustee of a Body Corporate Entail? (Part 1)

When all the trustees of a body corporate resign, the options available to the owners include the appointment of:

1.  replacement trustees at a special general meeting.
2.  an executive managing agent at a special general meeting or approaching the Community Schemes Ombud service to do so.
3.  appointment of an administrator by way of an application to court.

If, for example, you have been nominated by an owner to stand for election as a trustee to continue managing the scheme, you may want more information before deciding whether to accept the nomination. This may include details about the number of trustees, office requirements, trustee disqualification, payment and indemnity, trustee meetings, and their powers and duties.

At the opening of a sectional title scheme, the prescribed management rules state that all owners shall serve as trustees until the first general meeting. Thereafter, the number of trustees is to be determined at the annual general meeting (AGM). At the first AGM, the developer typically acts as the chairperson, and the owners retire as trustees, although they remain available for reappointment. The developer must retire as both trustee and chairperson, but may be re-elected.

The prescribed management rules state that an owner may nominate any person, including themselves, for the office of trustee. The requirement that at least half of the trustees must be owners or spouses of owners, as outlined in the previous Act’s regulations, was not re-enacted in the new regulations. Prof. CG van der Merwe notes that owners can elect a team of professionals as trustees, but suggests that a better option is to appoint an executive managing agent. An election is not required if the body corporate consists of fewer than four members (owners); in such cases, all the owners are considered trustees. To avoid deadlock, it is advisable to have an odd number of trustees, such as three, five, or seven.

An employee of a managing agent, a body corporate, or a person who is a managing agent, may not serve as a trustee unless they are also an owner. This rule is in place to prevent conflicts of interest, as Prof. CG van der Merwe points out. For example, a conflict could arise if the managing agent’s remuneration is to be decided by the trustees, and the managing agent is also a trustee. Similarly, these individuals are disqualified from being appointed as proxies by owners to attend general meetings of the body corporate. Additionally, the prescribed rules state that any trustee with a direct or indirect personal interest in a matter under consideration must not be present or participate in the discussion or decision-making regarding that matter.

A trustee ceases to hold office when they:

1. Resign by written notice to the body corporate.
2. Are declared by a court to be of unsound mind.
3. Become insolvent, and their insolvency leads to the sequestration of their estate.
4. Are convicted of theft, fraud, forgery, perjury, or any other offence involving dishonesty, in the Republic of South Africa or elsewhere.
5. Are sentenced to imprisonment without the option of a fine.
6. Are removed from an office of trust due to misconduct, such as fraud or the misappropriation of money.
7. Are removed from office by ordinary resolution at a general meeting, provided that the notice for the meeting clearly specifies the proposed removal.
8. Become disqualified from holding office as a director of a company under the Companies Act.
9. Fail or refuse to pay any amount due to the body corporate after a court or adjudicator has issued a judgment or order for payment of that amount.

A replacement trustee may be appointed if a trustee ceases to hold office, either by the remaining trustees or, if all trustees have ceased to hold office, by the members at a general meeting. The appointment is for a specified period, such as six months, or until the next annual general meeting. The replacement trustee need not be an owner and will have the same functions and be subject to the same obligations as a trustee.

 

Reference list:

1. CG van der Merwe Sectional Titles Share Block and Time Sharing Vol 1 Sectional Titles 14-252
2. Sectional Titles Act 95 of 1986 Annexure 8 Rule 5(a)
3. Annexure 1 Rule 6(2)
4. Annexure 1 Rule 20(6)
5. Annexure 1 Rule 6(3)
6. Annexure 1 Rule b(4)(a)-(2)

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