The finances of the body corporate must be managed well, otherwise every owner in the scheme may suffer from poorly-run accounts. For bodies corporate subject to the Standard, Accommodation, and Commercial Modules, the default position is that its accounts must be audited every financial year.
The only way for a body corporate to avoid this is for the body corporate to agree, by special resolution at a general meeting, to not have the accounts audited. This means that, unless the motion is passed by special resolution, the accounts for the financial year must be audited.
This is certainly confusing. The motion must also be set out in a specific way. It must be “that the body corporate’s statement of accounts for the financial year [YEAR] not be audited”, accompanied with “NOTE: If you want the accounts to be audited, vote ‘no’; if you do not want the accounts to be audited, vote ‘yes’.” This is an explicit requirement of the body corporate legislation.
Further, a special resolution is not a simple majority. It requires three things:
1. Of all votes cast, at least two-thirds must be in favour of not auditing the accounts;
2. Of all votes cast, the number of “no” votes requiring the audit must not be more than 25% of all lots in the scheme; and
3. Of all votes cast, the total of the contribution schedule lot entitlements for the lots who cast those “no” votes requiring the audit is not more than 25% of the total of contribution schedule lot entitlements.
There are two examples to demonstrate this. Say there are 60 lots all with equal contribution schedule lot entitlements, and by some miracle, every lot owner is engaged and votes. For the motion to not audit the accounts to pass, at least 40 people must vote ‘YES’ to not audit the accounts and there must be 15 or less people who vote ‘NO’ to require the audit. This means that, if 16 people voted ‘NO’, then the special resolution fails, and the audit must proceed.
Say there is a 5-level building with 8 lots. Units 1 to 6 each share a level and have 10 contribution schedule lot entitlements. Units 7 and 8, however, take up a whole level for themselves. Because they’re twice as big, they each have 20 contribution schedule lot entitlements. At the AGM, all 8 lot owners vote in relation to the audit. The owners of Units 1 to 6 vote ‘YES’ to not have an audit. The owners of Units 7 and 8 vote ‘NO’ to require the audit.
As the votes are 6 to 2, the motion has more than two-thirds support. Further, the ‘NO’ votes to require the audit were only 25%, not more than 25%. However, the contribution schedule lot entitlements are not equal. Those who voted to skip the audited total 60 out of 100. The ‘NO’ votes to require the audit total 40 out of 100. As more than 25% of the total contribution schedule lot entitlements voted ‘NO’, the audit must proceed.
If the vote fails and an audit is required to be done, the body corporate must also make sure to have a motion to appoint an auditor. This only needs to be done by ordinary resolution, but it must be included in the AGM after the motion regarding the audit.
The finances of a body corporate are very important, and a failure to comply with the requirements to undertake an audit will involve further cost in potential applications to the Commissioner’s Office.
This article is intended as general information only and should not be relied upon as legal advice. For specific legal advice please contact us here.