INFORMAL “DECISIONS” BY HOMEOWNERS’ ASSOCIATIONS

Many homeowners’ associations have strict requirements concerning the aesthetic appearance of buildings on the estate. These include fences and other smaller additions that are not always considered by the homeowner to be building projects in terms of the rules, the Memorandum of Association (MOA) or the Memorandum of Incorporation (MOI). The owners then fail to submit plans and/or drawings for formal approval by the trustees or directors of the association.

Some homeowners knowingly attempt to avoid the prescribed formal process and merely invite a trustee or director for an informal discussion, explaining with waving arms the envisaged building project, be it a fence or a pergola. The nod of approval by the trustee is then held by the homeowner to be “approval” of the planned project.

The courts have ruled as follows with regard to the “consent” granted by a trustee at an informal meeting with the homeowner, where the MOA or MOI of the homeowners’ association clearly dictates a procedure for approval of any building or improvement:

  1. In order for a trustee or director to sign off a plan in his official capacity, a trustee must properly inform himself of the issues which affect the complex as a whole and not simply have regard to his or her inter-personal relationship with the homeowner. In order to be properly informed, a trustee must ordinarily make a decision in committee with the benefit of debate. His decision must consciously have regard to the MOA or the MOI, whichever case it may be, and the long-term interests of the members. Failure by the trustee to do so will imply that the trustee has not applied his mind to all the relevant issues. It may be possible to impute acceptance by a person both in his individual and official capacity.
  1. The nature of the relationship established between homeowners under a MOA or MOI to which each subscribes, constitutes an agreement in terms of which each homeowner submits contractually to the decisions of a body of elected trustees to whom they have conferred the right and power to make binding decisions on matters that affect their relationship inter se, or which generally affect the estate.
  1. It is further important to take note of whether written consent has been granted by the trustee, as such an action by the trustee would be an additional consideration to establish whether a formal decision will be deemed to have been made.

See specifically Hoosen & Others NNO v Deedat 1999 (4) SA 425 (SCA) and Khyber Rock Estate East Home Owners Association v 09 of Erf 823 Woodmead Ext 13 CC, a judgement by his honourable acting justice Spilg in the Witwatersrand Local Division in case number 7689/2006.

An informal discussion regarding the building plans of the homeowner can thus not be deemed as a formal decision made by the trustees of the homeowners’ association, if the homeowner failed to follow the prescribed procedure.

In the event that a homeowner indeed deems the informal consent as a “decision” made by the trustees of the homeowners’ association, the courts will not interfere with the decision made by a homeowners’ body save under recognised grounds of judicial review as applied to a voluntary association whose members have bound themselves to its rules, which include the conferring of decision-making functions on an elected body of trustees. (Turner v Jockey Club of South Africa 1974 (3) SA, SA Medical & Dental Council v McLoughlin 1948 (2) SA 355 (AD) and Marlin v Durban Turf Club & Others 1942 AD 112).

Trustees and directors should therefore take care when having informal discussions with homeowners and insist on the due process, in terms of the rules, the MOA or the MOI, to be followed to the letter. Rather avoid commenting or voicing an opinion except at the appropriate forum – the formal meeting of the trustees or directors where the item is noted on the agenda in compliance with the association’s prescribed formal requirements.

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted. (E&OE)

WHAT’S THE BUZZ ABOUT BUSINESS RESCUE?

If a company/close corporation is in financial trouble and all possible avenues to save the business have been exhausted, there is one last option available to save the business: it can lodge an application for business rescue at the CIPC. In order to qualify for business rescue proceedings, the business must satisfy the requirements as set out in the next paragraph.

A company/close corporation will only be considered as a business rescue candidate if all three the following requirements are met:

  • The decision to start business rescue proceedings must be taken before any liquidation proceedings have been instituted against the business.
  • The business is financially distressed.

A business is seen as financially distressed if:

  • It seems reasonably unlikely that the business can pay its debts in the normal course of business for the next six months, or
  • It seems reasonably likely that the business will be insolvent in the next six months.
  • There seems to be a reasonable chance of rescuing the business.

What is the aim of a business rescue plan?

The aim of placing a company/close corporation under business rescue is to give the business some breathing space to implement the business rescue plan and give the business a fair chance to become a going concern again.

Alternatively, if the business is liquidated despite the business rescue proceedings, the aim is to hopefully have a higher return available for the creditors and shareholders than would have been the case if the business was liquidated before undertaking any business rescue proceedings.

To give a business the maximum chance of recovering its finances and to continue operating as a solvent enterprise, the business rescue plan normally restructures a business’ assets, liabilities and equity, as well as its way of doing business.

Who can be appointed as a business rescue practitioner?

There is a list of licensed business rescue practitioners available on the CIPC’s website.

What does a business rescue practitioner do?

The appointed business rescue practitioner will investigate the business’ situation and propose a business rescue plan. After the business rescue plan has been approved by the creditors and shareholders, the business rescue practitioner will implement the plan. The reason why the creditors and shareholders must approve the business rescue plan is that they will withhold their rights against the business to claim payment as long as the business is operating under the business rescue plan.

After implementing the business rescue plan, the business rescue practitioner will temporarily oversee and manage the business together with the current management.

The business rescue practitioner also takes over dealing with the creditors and shareholders. In addition, the business rescue practitioner will communicate with registered trade unions which represent employees of the business. If there are employees who are not members of any registered trade union, the business rescue practitioner will deal with these employees or their representatives as well.

The first step to start with a business rescue is for a business to file a notice with the CIPC that it wants to start with business rescue proceedings. The rest of the business rescue process and the business rescue documents which are required to be submitted to the CIPC, is set out on the CIPC’s website.

This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted. (E&OE)

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