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Monday May 27, 2013

Cape Royale's body corporate goes under administration

The body corporate of one of Cape Town's top five-star hotels has been placed under administration because the trustees failed to fulfil their fiduciary duties.

Handing down judgment in the Western Cape High Court last week, Judge Vincent Saldanha placed Cape Royale Body Corporate under administration in terms of section 46 of the Sectional Titles Act and appointed Nolands Forensics as the administrator until May 30, 2014.

The application to place the body corporate under administration was brought by Andries Botha, who is a part owner of one of the residential units in the luxurious hotel in Green Point.

Botha's unit and 81 others (out of a total of 127) are in a rental pool, in terms of which the owners enjoy limited rights of occupation for part of the year, while for the rest of the year their units are let to tourists and business people on a short-term basis. The net income is divided between those owners whose units are in the rental pool. An owner's percentage of the total income is based on a formula and is paid after the deduction of the levy and the rental pool costs.

Botha claims the trustees are guilty of gross neglect and incompetence in the management of the body corporate's financial and general affairs.

The first respondent in the matter was the body corporate; Paschal Phelan, the chairman of the body corporate, was the second respondent; trustee Bettina Heiberg was the third respondent; and Cape Royale Luxury Residence (Pty) Ltd was the fourth respondent in the matter.

In addition to chairing the body corporate, Phelan is the sole director of Cape Royale The Residence, the developer of the hotel, and the sole director of Cape Royale Luxury Residence, which performed some of the functions of a managing agent for the body corporate.

Judge Saldanha found that Botha had proved that Phelan and Heiberg have failed to carry out their fiduciary responsibilities to the body corporate. Phelan, in his capacity as the chairman of the body corporate, also failed to ensure that his interests - in the development company and in Cape Royale Luxury Residence - did not compromise or affect his financial duties to the body corporate, Judge Saldanha says.

In terms of the court order, the administrator will perform all the functions entrusted to the body corporate until May 30 next year. In addition, it will be empowered to:

  • Collect and retain all body corporate documents;

  • Operate a bank account in the name of the body corporate; and

  • Institute legal proceedings on behalf of the body corporate.

    When the administrator's term expires, it must file a report to the High Court for its period of administration, as well as for the 2009, 2010, 2011 and 2012 financial years.

    Judge Saldanha also ordered the administrator to draw up a proposal for the future financial administration of the body corporate.

    The papers before the court included a letter from Standard Bank that rejected a prospective buyer's application for a mortgage bond over a unit at Cape Royale because of "unsatisfactory financials". The letter also listed "long-outstanding arrears, long-outstanding municipal payments and insufficient cash resources" as the bank's reasons for rejecting the application.

    Botha's attorney, Alec Geldenhuys of Michalowsky Geldenhuys & Humphries, represents 27 owners, but brought the application in Botha's name only.

    Geldenhuys says the appointment of an independent third party to manage the scheme should be of comfort to members of the body corporate who are concerned about the security of their investment.

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