18 Mar How to protect yourself as a trustee and avoid liability
Serving as a trustee in a sectional title scheme is a significant responsibility. Trustees are entrusted with managing the affairs of the body corporate, ensuring financial stability, and making decisions that affect all members. However, with this authority comes potential legal and financial liability. Understanding your duties and taking proactive steps can help mitigate risks and ensure you fulfil your role effectively.
Understanding your responsibilities
Trustees hold a fiduciary duty to the body corporate. This means they must always act in good faith, in the best interests of the scheme, and avoid conflicts of interest. Their decisions must be transparent, fair, and aligned with the rules set out in the Sectional Titles Schemes Management Act (STSMA).
If a trustee breaches this duty – whether by negligence, mismanagement, or personal gain – they could be held liable for any financial losses incurred by the body corporate. Ensuring compliance with the law and acting with diligence can help prevent potential legal repercussions.
Reducing your risk as a trustee
- Stick to your mandate
Trustees should operate within their designated powers. Any actions that go beyond their legal authority or contradict the scheme’s rules can result in liability. Familiarising yourself with the body corporate’s governing documents and consulting legal professionals when in doubt is crucial.
- Maintain transparency
Keeping thorough records of decisions, financial transactions, and trustee meetings can serve as a safeguard. Minutes should be documented and shared promptly to ensure accountability and prevent disputes.
- Avoid conflicts of interest
If a trustee has any personal or financial interest in a matter before the body corporate, they must declare it and recuse themselves from the decision-making process. Failing to do so can lead to serious legal consequences.
- Ensure proper financial management
Trustees oversee the financial well-being of the scheme. They must ensure that funds are used responsibly, expenses align with approved budgets, and all financial transactions are transparent. Unauthorised expenditure can lead to personal liability.
- Seek member approval when necessary
Certain actions, such as major renovations or legal proceedings, may require written approval from the body corporate members. Acting unilaterally without consulting members can result in liability.
- Secure trustee indemnity insurance
Insurance policies covering trustees against legal claims and financial losses can provide protection. Many body corporates take out fidelity insurance, which safeguards against fraud or dishonesty involving scheme funds.
- Ongoing education and awareness
Trustees should stay informed about changes in sectional title law, the best financial practices, and governance standards. Training sessions and professional advice can help trustees make informed decisions and avoid common pitfalls.
Summary
Being a trustee is an important role that comes with both rewards and risks. By adhering to legal requirements, maintaining transparency, and acting in the best interests of the body corporate, trustees can protect themselves from liability while ensuring the smooth operation of their sectional title scheme. A proactive approach, combined with proper governance and accountability, will go a long way in safeguarding both the trustees and the community they serve.