Resident Management Company Directors
All Resident Management Company Directors (whether they own the freehold or not) take on the same level of responsibility as their commercial counterparts under the Companies Act 2006. The reason for this is that the Health and Safety Executive see all residential companies in the same light as commercial properties because they can make money but there is a significant difference: commercial Directors are paid and RMC Directors are not (at least not usually).
RMC Directors often employ the services of a managing agent (unless they self-manage) and whilst it is often tempting to sit back and let the agents get on with it, the sector is fraught with so many problems that this is not a good idea, as the buck stops with the Directors. So not only do they need to be able to relate/refer to the 5 key Acts of Parliament specifically concerned with leasehold block management but also abide by the RICS Service Charge Residential Management Code (3rd edition).
WHO CAN BE A COMPANY DIRECTOR?
In general, any individual can hold the position of Director: there are no age limits, and no statutory limitations as to nationality or residence, etc. It would be possible to include these in a company’s articles, but this is very unusual. At common law a company may be appointed as a director of another company. Since the 1st October 2008 under s155 of the Companies Act 2006, all companies must have at least one natural person as a director.
There are however exceptions:
- If they have been disqualified under the Company Directors Disqualification Act 1986 or by being an undischarged bankrupt;
- If a director or shadow director of a company which has gone into insolvent liquidation they are prohibited for five years from being a director or shadow director, or being involved in the formation or running of a company which has the same, or a very similar, name to the liquidated company under s216 of the Insolvency Act 1986 (restriction of re-use of company names);
- A minimum age of 16 is imposed under s157 of the Companies Act 2006 (minimum age of the appointment of a Director) and s159 of the same Act (existing under-age Directors) states that the directorship ceases where a company has an under-age director on the implementation date (1st October 2008) and the necessary changes must be made.
Although it is unusual in the articles of modern companies a share qualification may nevertheless be imposed. If such a provision exists in the articles then the shares must be acquired within 2 months of appointment
SMALL BUSINESS, ENTERPRISE AND EMPLOYMENT ACT 2015
Corporate directors were abolished by the Small Business, Enterprise and Employment Act 2015, a provision which came into into effect in April 2016.
Under this new legislation and in terms of the Directors Disqualification Register there has been a number of changes:
- The grounds for making a directors’ disqualification order or accepting a disqualification undertaking under the Company Directors Disqualification Act 1986 are extended to include convictions abroad;
- Someone who has had influence over a disqualified person can also be disqualified;
- The matters to be taken into account when a court is determining unfitness to be a director to include conduct in relation to one or more overseas companies;
- A new Schedule of matters for determining unfitness;
- The period in which an application for a disqualification may be made is extended from 2 years to 3 years;
- The court may make a compensation order against a person who is subject to a disqualification order or disqualification undertaking and their has caused loss to one or more creditors.
Annual Returns, Confirmation Statements and Statutory Registers
The legislation has also moved away from the need to file Annual Return on a set date each year to making a confirmation statement at least once every 12 months. This is known as the Persons of Significant Control register. The requirements to keep a PSC register are set out in the following regulations:
- The Register of People with Significant Control Regulations 2016;
- The European Public Limited-Liability Company (Register of People with Significant Control) Regulations 2016;
- The Limited Liability Partnerships (Register of People with Significant Control) Regulations 2016.
Additionally, companies can now choose to maintain their statutory registers at Companies House rather than at their registered offices. This should remove some of the duplicate filing for those companies electing to choose this option.
Improved Dispute Processes
It will be easier for individuals who have had their details sent to Companies House stating them as being a Director of a company without their authority, on application to Companies House stating that they did not consent to to have their details submitted, they can have their details removed from the register.
It is s171-s177 of the Act which governs how all company Directors carry out their duties which are:
- Duty to act within powers;
- Duty to promote the success of the company;
- Duty to exercise independent judgment;
- Duty to exercise reasonable care, skill and diligence;
- Duty to avoid conflicts of interest;
- Duty not to accept benefits from third parties;
- Duty to declare interest in proposed transaction or arrangement.
Statutory Accounts and Service Charge Accounts
When they own the freehold, RMC Directors are responsible for two sets of accounts: the statutory accounts consisting of money from lease extensions and ground rent payments and the service charge account. The latter don’t belong to the company but are paid by leaseholders, mainly for the maintenance and repair of the block structure and common areas (which are areas not owned by individual leaseholders).
The company statutory accounts are filed in two main parts: the Balance Sheet and the Profit and Loss Account under s396 of the Companies Act 2006 (Companies Act individual accounts). There must also be a directors’ report and the auditors report.
Directors and Officers Liability Insurance
It is therefore essential that RMC Directors are insured through their Directors and Officers Liability Insurance which protects them in regards to decisions they make that they may be held responsible for. Such policies should also contain a Legal Expenses component (or a separate policy) to cover First Tier Tribunal proceedings should they ever occur.
Taking my block as an example, our freehold company Directors have never been taken to court. However if leaseholders were to challenge the reasonableness of the service charges that have been collected over the last few years and issue legal proceedings at the FTT, our Directors would need to submit their response within a strict deadline.
They would also contact their insurer for assistance under their legal expenses policy which may require a solicitor to review the claim, collate the relevant paperwork and write a response to the FTT.
Such a policy would provide further funding for any experts reports into all aspects of the service charges over those years.
Again, suppose our Directors were successful at the FTT hearing but leaseholders appealed parts of the decision to the higher Upper Tribunal (Lands Tribunal). The legal expenses policy would continue to provide cover for the Lands Tribunal hearing and leave the Directors on course to successfully defend the collection of service charges which are essential to the repair and maintenance of the block. The combined legal costs of both the LVT case and the Lands Tribunal appeal would be covered by the policy.