Compliance with the law–Do it the right way from the onset

By THE NATIONAL HOUSE BUYERS ASSOCIATION (HBA)

Office bearers and committee/ council members elected to serve the management bodies should indulge themselves; to educate and equip themselves with the intricacies of the legislation governing strata management vis-à-vis Strata Management Act, its Regulations and the usage of the related Forms as well as understand the scope of jurisdiction of the Strata Management Tribunal and the role and power of the Commissioner Of Buildings.

Dealing with the maintenance charges and sinking fund is one of the most important and yet contentious functions of developer, Joint Management Body or Management Corporation (collectively ‘Management Bodies’) in a stratified development. In order to ensure that accountability and integrity are constantly upheld in the Management Bodies, the Strata Management Act 2013 (‘SMA’) has criminalized a host of non-compliances with the SMA in particular financial provisions. In other words, failure to comply with certain provisions in the SMA may attract not only financial penalty in the form of fine but may also land the unwary in jail.

In this article, we will examine some of the provisions in the SMA vis-à-vis the issue of criminal liability:

  • Duties of Managing Bodies in relation to accounts

Sections 14, 26, 54, 62 provide that the Management Bodies shall during their respective managing periods ensure that accounts and financial records of the Management Bodies are properly prepared, audited on periodical basis and led with the Commissioner of Building. This is important to ensure that the money collected from the purchasers or proprietors are handled in a transparent manner.

Section 62 of the SMA is as follows: Sec. 62(1) A management corporation shall in respect of the maintenance account and the sinking fund account-

  • cause to be prepared such accounts and records of accounts as will sufficiently explain the transactions of the accounts and enable true and fair balance sheet, income and expenditure statement and pro t and loss statement to be prepared for the period starting from commencement of the preliminary management period;
  • appoint an approved company auditor to carry out the audit of the accounts annually;
  • file with the Commissioner a certified true copy of the audited accounts together with the auditor’s report within fourteen days of the accounts being audited; and
  • permit the Commissioner or any person authorized by the Commissioner in writing to act on its behalf full and free access to the accounts and records of accounts and to make copies or extracts of those accounts and records of accounts
  • Sec.62(5) if the management corporation fails to comply with subsection (1) … every member of the management committee commits an offence and shall, on conviction, be liable to a fine not exceeding two hundred and fifty thousand ringgit or to imprisonment for a term not exceeding three years or to both.
  • Handling Over During the transition from JMB to MC

Section 27 of the SMA set out the things that a joint management body ought to do within 1 month from the date of first annual general meeting of the newly established management corporation. The duties relate mainly to handling over of all balances in the maintenance account and sinking fund account, audited accounts of the maintenance account and sinking fund account, all assets and liabilities of the joint management body etc.

  • Sec.27(2) The joint management body shall, not more than one month from the date of the first annual general meeting of the management corporation-
  • transfer all balances of moneys in the maintenance account and in the sinking fund account, after payment of all the expenditure which have been properly charged to the accounts, to the management corporation;
  • hand over to the management corporation-

(i) any additional by-laws;

(ii) the audited accounts of the maintenance account and the sinking fund account or, if such accounts have not been audited, the unaudited accounts;

(iii) all the assets and liabilities of the joint management body;

(iv) all the documents delivered by the developer to the joint management body under subsection 15(3); and

(v) all records relating to and necessary for the maintenance and management of the building or land intended for subdivision into parcels and the common property.

Sec. 27(3) If only unaudited accounts have been handed over under subparagraph (2)(b)(ii), the joint management body shall hand over to the management corporation the audited accounts of the joint management body not more than three months from the date of the first annual general meeting of the management corporation.

Sec.27(4) If the joint management body fails to comply with subsection (2) or (3), every member of the joint management committee commits an offence and shall, on conviction, be liable to a fine not exceeding two hundred and fifty thousand ringgit or to imprisonment for a term not exceeding three years or to both.

• Prohibition on Collection of Moneys

Sections 13 and 53 of the SMA are similar to each other save that the former is applicable to buildings and land which have not been subdivided into parcels and common property while the latter is relevant to subdivided buildings. We reproduce Sec. 53 of the SMA as follows:

Sec. 53(1) at any time collect any Charges, or contribution to the sinking fund, from any proprietor for the maintenance and management of any subdivided building or land and the common property unless-

• a maintenance account and a sinking fund account have been opened in the name of the management corporation; and

(b) vacant possession of the parcel has been delivered to the proprietor.

Sec. 53(3) fails to comply with subsection (1) … commits an offence and shall, on conviction, be liable to a fine not exceeding two hundred and fifty thousand ringgit.

(d) Non-Compliance with SMA may attract personal liability

Majority of the duties and obligations set out in the SMA are imposed on the Management Bodies as corporate bodies. However, this does not mean that a committee members of the Management Bodies are shield from all liabilities in the event of non-compliance or default. The SMA has gone further to state that a committee member of a management bodies may be personally liable for default or non- compliance under the SMA. Section 140 of the SMA is reproduced as follows:

Sec.140. If a body corporate commits an offence under this Act or its subsidiary legislation, a person who at the time of the commission of the offence was a director, a member of the management committee, a member of the subsidiary management committee, a member of the joint management committee, chief executive officer, manager, secretary or other similar officer of the body corporate or was purporting to act in any such capacity or was in any manner or to any extent responsible for the management of any of the affairs of the body corporate or was assisting in such management-

(a) may be charged severally or jointly in the same proceedings with the body corporate; and

(b) if the body corporate is found guilty of the offence, shall be deemed to be guilty of that offence unless, having regard to the nature of his functions in that capacity and to all circumstances, he proves-

(i) that the offence was committed without his knowledge, consent or connivance; and

(ii) that he had taken all reasonable precautions and exercised due diligence to prevent the commission of the offence.

The SMA has recognized that sometimes non-compliance to certain provisions in the SMA committee members in the Management Bodies is done without knowledge and intention. To address this issue, certain provisions in the SMA which make it a crime for not complying with certain obligations or duties contain defence provision which the public can rely upon. In the same Section 140 of the SMA, a committee member can argue as a defence that the offence committed by the Management Bodies was committed without his knowledge, consent or connivance and he had taken all reasonable precautions and exercised due diligence to prevent the commission of the offence.

Similar defences can be also found in Sections 26 and 52 (duties in relation to accounts) and Section 27 (handling over during transition from joint management body to management corporation).

However, it appears that it is not easy to rely on the defence as pleading ignorance alone on the commission of offence is not sufficient. The existence of the word ‘and’ between the 2 limbs of the defence provision means one must also prove that he or she had made effort to prevent the commission of that offence.

Conclusion

While the laws address the need to prevent abuse in the Management Bodies to safeguard the interest of all the purchasers and proprietors in stratified developments, it must also recognize that the public’s understanding on the relatively new SMA is still very limited. Until the day when there is better understanding among the public over the SMA, perhaps we have to reconsider whether it is reasonable to impose such a heavy burden on the committee members in the event of bona de non-compliance with the SMA. After all, being a committee member in the Management Bodies is a voluntary service.

  • This article is written by Koh Kean Kang, a practicing lawyer and it has been contributed to National House Buyers Association (www.hba.org.my) towards Education, Information and Empowerment