15 Feb How to change the financial year end of a body corporate?

When a body corporate is established, the first point of business is to have an inaugural meeting where certain relevant issues are tabled and agreed on by the developer and the members of the scheme. This meeting must take place within 60 days of the registered establishment date of the scheme.

At the inaugural meeting, the financial year end of the body corporate must be agreed on. This decision may not always be simple as the date of establishment may be at an awkward date in the year. Therefore, the first financial year of the body corporate is generally either a short financial year (less than a 12 months) or a longer financial year (longer than 12 months). The most popular financial year ends are either February or June.

Financial year end
The recent Sectional Titles Schemes Management Act of 2011 (Act No 8 of 2011), Management Rule 21.1, determines that any new scheme that is registered after October 2016 must have their financial year end as September thus running from October to September of the next year. This makes the decision at the inaugural meeting very simple and clear. The new legislation does not mean that all existing bodies corporate now have to change their financial year ends.

Changing voluntarily
Sometimes, bodies corporate want to voluntarily change their financial year end. Some reasons include the need for overseas owners to be able to attend the meetings during December or January, moving the financial year end so the audit can be completed sooner and to avoid the frenzy around popular February and June year ends, and ensuring a practical date for the annual general meeting to be held within the legislated 4-month period after the financial year end.

The process
The changing of the financial year end is not a decision that the trustees can make on their own. The process involves presenting the proposed change to the scheme’s members along with a request to approve such a change. A simple majority vote is needed at a general meeting. New legislation resolves that any general meeting – other than the annual general meeting – is called a special general meeting. To table the proposed change of the financial year end, the trustees must call for a special general meeting and then table the proposed change.

If the scheme has more than four registered sections, the required quorum is 33,33% in value – represented in person or by way of a proxy. A majority vote determines if the financial year end proposal is passed and accepted. If the scheme has four or less registered sections, the required quorum is 66,66% in value.

Once the proposed change is resolved and approved, the trustees must amend their budget coincide with the new financial year – this is a very important aspect of the financial management of the scheme. If this is not done, the body corporate budget planning will immediately be out of sync with the new financial year.