Out of Funds

I appreciate that the reduced quorum decisions take 4 weeks to come into effect. Are you aware that proxy votes count towards determining the quorum? Thus, if you have enough proxy votes, even if not many show for the actually meeting, you might have a quorum and can act on the decisions straight away after the meeting. 

While 35(1) says that the EC exercises the functions of the OC, the later parts of that section limit the EC’s power where there are OC resolutions directing the EC or where the Act requires a general meeting to make the decision. Only when the matter does not require a general meeting resolution from a provision of the Act, or it is not subject to a direction to the EC from a general meeting resolution, can the EC exercise a function of the OC as it sees fit. 

In this case, I presume that a resolution at the last AGM determined a levy for the financial year. For the EC to now levy an additional amount before another general meeting would be inconsistent with the AGM resolution. So, I think, no, the EC can’t exercise the function of the OC to determine a general funds contribution because the OC at the last AGM already did this. 

Strictly speaking the EC should not have overspent the budget. On the other hand, sometimes you would be negligent to not spend the money. If you are under budget on some other line of the budget this is usually not a problem. Just explain openly what happened at the next AGM and people will mostly understand that the spending was wise. 

As treasurer, I alway budget to retain about a quarter to a third of our annual budget in the bank. [With a budget of about $150K, I plan to start and end the year with about $50K in the bank.] This gives considerable leeway for some things to go a bit over or for an unexpected expense to come up or whatever. However, the main benefit is for cash-flow. We don’t find ourselves caught short just before a new influx of levies. I also include a margin in some of the more variable budget lines to allow the possibility of spending a bit more than I really expect. That way the approved budget can tolerate some unexpected expenses. It doesn’t need to be a lot more than the realistic expectation, just slightly more to leave the EC some breathing space. Nobody will get upset if you are usually a little bit under budget. If that means you accumulate more funds than you need for comfortable cash fluidity at all times, then you can levy a bit less than the budget next year, but always plan to keep some money in the bank, just in case. 

If you make the budget precisely what you expect to spend and not a penny more you are just asking to run into trouble when a few things turn out to cost even a tiny trivial bit more than expected. You don’t need the hassle. Far better to have an approved budget with some leeway and some cash in the bank that would allow small overruns from your realistic expectation or a minor deficit in any particular year without running into problems.

With the AGM only a few weeks away, presumably the multiple but small budget overruns are being disclosed and explained in AGM papers that might be mailed out already. Presumably the 2016/17 levies have been proposed in the AGM papers too with a proposed due date some time after the AGM. Perhaps you could write to owners, explain the problem, and ask people to volunteer to pay their levies early, even before the AGM, to help out. Not everyone will do it but enough owners might be prepared to pay the proposed levy a little early. That would fix the cash flow problem and allow some bills to be paid.  The early payment would just put those unit owners in credit for a while until the levy became due. 

I also suggest, if you have not already proposed this for the AGM, to levy a bit more than the budget so that the bank balance does not end up at zero again this time next year. Explain that you plan to do that for each of the next few years so that the extra expense is spread out and smaller in any particular year. 

Alternatively, if the timing for adequate notice would allow it, put an extra motion for an additional one-off special levy to prevent cashflow problems in future. 

If the OC is small enough for this to be feasible, go around and door knock and explain face to face. 

I hope that helps!

@’H’ said:
Thank you Peter C.

 Just a couple of asides to start with Peter:

1. Our OC is very large.

Ours is quite large – just over 100 units. 

1. We do not count proxy votes or absentee votes when determining a standard quorum but even if we had, we would have never reached that milestone.

You should count proxy votes toward determining whether there is a standard quorum but not absentee votes. There was an ACAT decision confirming that proxy votes count for this purpose. See the OCN’s useful resource at:

https://web.ocnact.org.au/decisions-by-acat-test#TOC-Do-proxies-count-towards-a-quorum-

In Butt and UP 1725 ACAT decided that proxies do count towards the making of a quorum.

Section 3.9(1) of Schedule 3 of the UT(M)A provides that

(1) A motion may be considered at a general meeting of an owners corporation with 3 or more members only if there is present—

(a) a quorum (a standard quorum) made up by people entitled to vote (on the motion) in relation to not less than ½ the total number of units; or

(b) a quorum (a reduced quorum) made up under subsection (2).

The issue is to determine what “people entitled to vote (on the motion) in relation to not less than ½ the total number of units” means.

ACAT decided that the use of the words “in relation to” leads to the conclusion that the provision means not the people physically present but the number of entitlements to vote that are present. Therefore proxies (ie entitlements to vote) do count towards the quorum.

ACAT concluded this interpretation is reinforced because “Paragraph 3.31.(4) specifically provides in relation to absentee votes that such votes do not count “for the purposes of making up a quorum” If the same approach was intended to be taken in relation to proxies, similar legislative provision would have been made.”

I am told that too much carry over of funds from one year to the next has the potential to distort s119 certificates and that it can also cause problems with adjustments made at settlement between sellers and buyers.

I can’t think why there would be a problem or what ‘distortion’ could occur. The only thing relevant for the s.119 certificate is that an amount was levied for a period (regardless of what is in the budget or funds in the bank etc). Let’s say you pay levies quarterly and let’s say the levy for your unit for that quarter had been determined to be $300. If you have paid your levies and you sell the unit after the first month, the new owner will have to pay you $200 of the $300 at settlement. IE s.119 let’s the seller get their prepaid levies back pro-rata for the period after when the unit is sold. 

How much money the OC has in the bank and when in the year budgeted expenses might occur are irrelevant. If you are looking to sell a unit in an OC that clearly has plenty of cash in reserve then you might get more for the unit (but you might not). Similarly, you would be foolish to pay a high price for a unit if the OC does not have much cash in the bank because you might reasonably worry that you could be up for a big levy hike later as a new owner in an OC without sufficient in reserve. However, none of that causes any problem for the s.119 certificate.

I am also elsewhere advised that the proposition that I posed is not permitted because contributions so determined must be paid within the same financial year. And further that contributions to the general funds must be based on an approved budget for that financial year.

I think the problem is that contributions have been determined by the last general meeting and so the EC can’t make them otherwise until decided by a new general meeting. 

s.78 says just that the general funds contribution must be determined by the owners corporation. Nowhere that I can see does the UTMA say that the contribution has to be ‘based on’ the approved budget. Instead it is the other way around. The budget has to account for the fund contributions and estimates of other sources of income. Our OC quite often has total budgets that are not numerically identical with total levies and our managing agent says that is quite OK. It is explicit in our budget resolution that the contributions to be levied in a particular year for a particular fund (Admin fund, sinking fund or special purpose fund) are not necessarily the same as what is budgeted to be spent from that fund in that year.

If the OC has other sources of income (eg. interest on money in the bank) but the budget and actual spending were always exactly the same as levies then the surplus from the other income would gradually accumulate. At some point you would have to levy less to use up some of the surplus (while leaving enough for cash flow). 

Many owners from other complexes and with different managing agents seem to deal with the problem ‘their own way’. And their way appears to also be a function of the accounting software being used. It seems high time for an amendment to the legislation?

Our managing agent is Independent and their software copes. I see no reason why any other accounting software would not cope with any amount of levy income that the AGM resolves to have.

Bottom line is that there is nothing I can see in the Act that prevents you from levying a slightly higher amount than the 2016/17 budget to cover a small deficit  and build up reserves compared with 2015/16. It is just silly to not have a bit of cash in the bank to deal with the fact that the timing of levies coming in and expenses going out do not coincide perfectly. At the very least you need a bit of a float to cope with cash-flow even if nothing ever went even a tiny bit over budget. 

Thanks again Peter C.  

Your welcome. If you would like to talk more about ACT stuff feel free to send me a message (PM button at the top right of this post) and we could exchange phone numbers.