Reserve Fund Investments in Saskatchewan

There has been some buzz lately in the local condominium scene about a news article by various news outlets about the use of Bitcoin as an investment vehicle for reserve funds.  I have been reached out to in a number of ways to get my thoughts on this as an approach.

As always, the first step when you are having questions about your responsibility as a board of directors’ member, especially with something that is as important as your reserve fund, is to get some legal advice on the matter.  Advice can be very fact specific, and without an understanding of a specific condominium corporation’s circumstances, it can be difficult to comment or provide advice.

Reserve funds are intended to be stable sources of funds for future improvements and repairs.  The appeal of Bitcoin has been based on the significant gains in that it has experienced over a short period of time.  However, there is a significant amount of volatility and risk that comes along with such growth, and the question remains as to how an investment with those characteristics fits in the portfolio of a reserve fund.

There are some key questions I would suggest that you ask from your relevant advisors before you go ahead with any investment for your reserve fund:

• Is this an investment that we are able to make under the relevant legislation, bylaws and policies?
  1. Does this meet the “reasonable and prudent investor” test in the Trustee Act?
  2. Do your bylaws tie your hands in terms of the types of investments that you can make beyond that?
  3. Are you inside the scope of an investment policy passed by board describing the types of investments that you can make?
• How would this impact our reporting as a condominium corporation? For example, what, if any, changes are needed to:
  1. Our estoppel certificates? Is this a significant enough change that needs to be highlighted in your estoppel documents?
  2. Our financial statements?
  3. Our insurance?
• If this investment is seen in a negative light, what kind of effects could it have on:
  1. Our resale value – Could this impact how lenders perceive our condominium development?
  2. The liability of our corporation or the directors personally?
  3. Our insurance, and especially the D&O provisions therein?
• If the investment goes really well – how, if at all, could this impact our status as a not-for-profit corporation?

If the answer to the first bullet is no, then that should end the matter for you until some modification of the impacting restriction is changed.  Beyond that, the condominium corporation should assess the risk that an investment would have on the organization, and whether the chance of growth is worth the risk associated with it.