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SECURITY ESTATES BEWARE: YOUR LEVIES AT RISK IF OWNER GOES UNDER

There are many advantages to living in a security estate, provided that the HOAs (Home Owners Associations) which normally run them are financially sound. Since HOAs rely on the collection of levies from members to fund communal expenses, they should always be protected in this regard by title deed conditions obliging all owners –

  1. To become and remain members of the HOA and to be bound by its constitution (with rules and regulations requiring prompt payment of levies), and

  2. To obtain a levy clearance certificate before transferring ownership to a buyer, who must in turn be bound to join the HOA.
The practical result is that any outstanding levies will have to be settled in full before any transfer of ownership can take place.

But what if an owner’s estate is liquidated/sequestrated? The liquidator/trustee is required by law to sell the property as an asset in the estate, and must then pass transfer to the buyer. But if the liquidator/trustee can do this without a clearance certificate from the HOA, i.e. without settling the arrear levies, your HOA will be left with a (probably worthless) concurrent claim against the owner’s estate. The result – you and the other owners will have to cover the shortfall.


Conflicting cases: HOAs at risk

A High Court decision in March this year had HOAs celebrating because the effect of the Court’s order was that the HOA had a right to full payment of arrears before transfer could be passed. But a contrary decision by another High Court in June has thrown the whole matter into doubt again. There could be a lot at stake here – in the second case for example, the HOA is down R426k (plus legal costs) on a house sold by the trustee for R700k.

The second case is reportedly being appealed, and its effect is accordingly suspended. But until the Supreme Court of Appeal rules definitively on the matter, HOAs should consider themselves at risk and should –
  • Keep a close eye on any levy accounts going into arrear

  • Act immediately to collect outstanding levies - take legal action if necessary.


DIRECTORS PART 1 – YOUR DUTIES, AND YOUR RISK

Your risk of personal liability for any “loss, damages or costs”, sustained through your actions (or omissions) by any company of which you are a director, has risen sharply since the new Companies Act came into force in 2011.

Your potential liability is in effect enforceable not only by your fellow directors but also by shareholders, employees and trade unions. All of them can, if need be, force the company to take action against you.

All in all, your risk is high, and you need to understand, manage and restrict your exposure.


Firstly, are you a “director”?


This is critical. Even if you aren’t on the letterhead as a formally-appointed director, you could well be at risk, because “director” here includes anyone occupying the position of director regardless of title, it includes alternate directors, members of board and audit committees, even “prescribed officers” (broadly, senior managers and officials with defined levels of power or function). Note also that that the Act makes no distinction between executive and non-executive directors – so non-executives must inform themselves fully as to the company’s affairs, and be able to prove accordingly in need.


Your duties

Your duties as a director are wide-ranging and onerous. In broad summary (take advice for specifics), the Act requires that –
  • You act strictly within the limits of your authority, in accordance with the Act, and in accordance with the company’s MOI (Memorandum of Incorporation)

  • You don’t acquiesce in the carrying on of the company’s business recklessly, with gross negligence, or fraudulently

  • You aren’t party to any act or omission with a fraudulent purpose or “calculated to defraud a creditor, employee or shareholder of the company”
  • You do not sign, consent to or authorise any misleading financial statements or information

  • You vote against any proposed prohibited activity such as payment of a dividend to the company’s prejudice, unauthorised issuing of shares, etc

  • You use your position as director (and knowledge you obtain while acting as such) only to the advantage of the company – never for your own or another person’s advantage

  • You never “knowingly” cause harm to the company

  • You keep the company informed of any relevant information you become aware of

  • You always act -

    • In good faith and “for a proper purpose”
    • In the company’s best interests
    • With the “degree of care, skill and diligence” required of a director in your position.



DIRECTORS PART 2 – HOW TO LIMIT YOUR LIABILITY


“The biggest risk is not taking any risk... In a world that’s changing really quickly, the only strategy that is guaranteed to fail is not taking risks.” (Mark Zuckerberg, founder of Facebook)
Your increased risk of personal liability is compounded by the reality that you will at times make bad decisions, or acquiesce in bad decisions made by the board of directors – that’s pretty much inevitable in any business environment.


What you must show

To avoid liability, you must be able to show (record keeping being essential here) that you acted honestly and reasonably, and that your decisions were both rational and informed; specifically that –
  • You took “reasonably diligent steps to become informed about the matter” in question. In other words it is no defence for you to simply say “I didn’t know about this, or about that” – if you should have known about it, you are in trouble.
  • You have complied with the Act’s requirements as to disclosure of any personal financial interests in the matter.

  • You had a “rational basis for believing, and did believe, that the decision was in the best interests of the company”.
Note that you are allowed to rely on employees, internal committees and outside professional advisers, but not blindly – you must “reasonably believe” such persons to be reliable, and competent to give you the advice or information in question.

In summary, your first line of defence against any claim is to ensure that you fully understand the nature and extent of your duties, and that you act diligently, reasonably and honestly at all times. Take advice in the slightest doubt!


Insurance and indemnification

We turn now to another line of protection that you should take full advantage of, namely indemnification by your company against any claims, coupled with insurance (such as “D&O” or “Directors and Officers” insurance) to cover both your liability and your/the company’s associated pay-outs and expenses.

Note however that the company cannot indemnify/insure you for any wilful misconduct, wilful breach of trust, or breach of the prohibitions relating to acting within your authority, unlawful trading or fraudulent actions/omissions. Moreover a director’s fines cannot, except in a few special instances, be paid by the company. Finally, you should also check that the company’s MOI, rules etc do not prohibit such cover.




VICTIMS OF CRIME: ENFORCE YOUR RIGHTS!


Victims of Crime have strong rights – see “The Victims’ Charter” on the National Prosecuting Authority website http://www.npa.gov.za/files/Victims%20charter.pdf. That’s all very well in theory, but to make our rights real it is up to us all to claim them, and to enforce them.


Make the criminal pay! Your right to compensation

One of your rights is to be awarded compensation for damage to or loss of property (including money) caused by the criminal. The court can, if satisfied that the criminal will be able to pay –
  1. Make it one of the conditions of suspension (or partial suspension) of the sentence that the criminal pay you compensation, either in one lump sum or in instalments. The threat of the suspended sentence coming into effect is a strong inducement to the criminal to pay you, and a recent High Court decision has confirmed that this option is preferable where the criminal has no or few executable assets but is employed and able to pay in instalments; or

  2. Make a compensation order, enforceable by you against the criminal as a civil judgment.
Discuss this with your attorney beforehand - you don’t want for example to risk prejudicing any insurance claim you may have, and you may also want to motivate option 1 above because executing against the criminal’s assets under option 2 will, as the Court put it, expose you to ”the costs and bother of execution”.


Don’t miss the boat

Your application for compensation must be lodged before sentencing. Although you can make the request direct, preferably do it through your attorney and/or the prosecutor.




THE SEPTEMBER WEBSITE: WHAT EAVESDROPPERS SEE AT WI-FI HOTSPOTS

“The bear went over the mountain, the bear went over the mountain
The bear went over the mountain, to see what he could see”
(Nursery rhyme)


With Internet fraud mushrooming, PC World’s article “Here's what an eavesdropper sees when you use an unsecured Wi-Fi hotspot” at http://www.pcworld.com/article/2043095/heres-what-an-eavesdropper-sees-when-you-use-an-unsecured-wi-fi-hotspot.htmlis essential reading for you if you ever use any hotspot, anywhere.

The author set himself up at a local coffee shop to capture other patrons’ Wi-Fi signals and, like the nursery rhyme bear, “to see what he could see”. He saw a lot -
  • Webpages visited
  • Emails
  • FTP login credentials
  • Private accounts on Gmail, LinkedIn, Yahoo, and Facebook (an ideal hijacking opportunity for a fraudster)
Read the full article for details, and follow the advice in the last paragraph “How to use Wi-Fi hotspots securely”.



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Email : mblh@mblh.co.za   Tel: +27 (0)21 840 8000



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