Trafalgar News

Trafalgar News

Can amending your FYE assist in having your AGM held earlier?

If a body corporate was established prior to 7 October 2016, its financial year would automatically run from the first of March to the end of February annually. All bodies corporate established after the Sectional Titles Schemes Management Act 8 of 2011 (“the STSMA”) came into force, have a financial year that runs from 1 October to the end of September.

Any body corporate (pre- or post the STSMA) can change this period, by an ordinary resolution of the members of the body corporate at an annual or special general meeting. However, this is not something we see often in practice, not that it is not motivated as a potential solution, fully or in part, to holding an annual general meeting within time.

The reason for this change in default financial year within bodies corporate, is to lessen the burden (i.e. the number of audits) on auditors, who are normally inundated with the financial year-end reporting and auditing of companies and corporations at the end of March, the previous default period for all sectional title schemes.

In our experience, the change of date, on its own, does not ensure that an annual general meeting, which must be called within four (4) months of the end of the annual financial year of a body corporate, will be held timeously, and factors such as when the financial records and audit instructions are given to the appointed auditor when the auditor has made an appointment to inspect the records of the body corporate and undertake the audit, other agenda items holding back the distribution of the notice, etc. must all be taken into consideration. However, if a “bog standard” annual general meeting will be called and convened, and despite making all efforts to call and convene same within the required period of four (4) months, it is still impossible or very challenging, and the delay rests with the audit process, then it is a good idea to propose, as trustees, a change to the financial year end of the scheme, which can be done at a quorate annual or special general meeting of the members of the body corporate.

At times, the members may consider when it would be suitable for them to convene an annual general meeting, for example, when most owners are residents at the scheme or available, such as December annually, and for the financial year end to be calculated from this proposed date. This is possible, and a change, as described above, of the financial year end is all that is required.

The Legislature did consider reducing the 4 (four) month period after the financial year in which bodies corporate have to undertake an audit, namely to two (2) months, but there was strong opposition against this proposed change from members of the public, and instead, the default date was amended, but the period remains the same.

Should a body corporate wish to have an annual general meeting as soon after its financial year end as possible, the notice calling the annual general meeting may be sent out to all members prior to the end of the financial year, and the meeting may be held literally one (1) day after the financial year end, noting that one of the items of the prescribed agenda is the appointment of the auditor for conducting the audit and that audited financial statements are not required to be tabled at the annual general meeting, but may be tabled, for consideration, and not approval, at a special general meeting.

The issue we find in practice, with the above, is that due to owner apathy, it is difficult to reach a quorum for the business of an annual general meeting, with all the prescribed and potentially added business, now imagine how unlikely it would be to obtain a quorum at a special general meeting to deal with potentially one (1) item of business, namely the consideration (not even approval) of the audited financial statements! A further thought, in my opinion, is that the members must have had sight of the audited financial statements prior to their consideration and approval of the budgets of the body corporate in order to ensure that what they are estimating or accepting as estimates from the trustees, will be sufficient.

Asking a lawyer about numbers is never a good thing, but common sense should prevail, and as long as trustees have a “good excuse”, calling an annual general meeting a bit late leads to “no harm, no foul”, but just how much is a bit, that’s a question for another day!

Written by: Zerlinda van der Merwe BA (Law) LLB LLM (Cum Laude), Co-Founder and Director of TVDM Consultants (Pty) Ltd

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