RMC Directors are expected to work within the RICS Service Charge Residential Management Code (3rd Edition), specific legislation relating to block management and where they are the freeholders, they will also be responsible for two sets of accounts. These are the statutory accounts (consisting mainly of money from lease extensions and ground rent payments, both of which belong to the company), and that of the service charge accounts, monies which belong to the leaseholders. To that end RMC Directors also need to abide by the ICAEW Technical Release Tech 03/11 Service Charge Accounts Guidance and Reporting.
They will also be required to carry out their duties under s171-s177 of the 2006 Act which obligates them to :
- Act within their powers;
- Promote the success of the company;
- Exercise independent judgment;
- Exercise reasonable care, skill and diligence;
- Avoid conflicts of interest;
- Not accept benefits from third parties;
- Declare any interest in proposed transactions or arrangements.
Directors Duty to Shareholders
Their duty to the shareholders is mainly to appoint the company accountant and prepare annual accounts and Directors reports. When it comes to appointing the Company Secretary, legislation has removed the need to appoint such a person or company but it is not generally advocated where the management of residential properties is concerned. There are no specific qualifications for the role but the Company Secretary is required to carry out the following:
- Act as the registered office;
- Secure the holding of the statutory books and registers and their ongoing maintenance;
- Receive and re-direct post received at the registered address;
- Monitor official correspondence received from Companies House to ensure compliance with statutory deadlines and any other matters that may arise;
- Prepare and file the Company’s annual return each year;
- Deal with the Persons of Significant Control Register.
- Give notice to shareholders of any AGMs and EGMs.
Directors Duty to Leaseholders
Their duty to leaseholders is to:
- Administer the property subject to the wording of the lease, the Landlord and Tenant Acts and the Housing Acts;
- Consult any Residents Association;
- Carry out external repairs;
- Provide services;
- Instruct a qualified accountant to provide service charge accounts;
- Informing/consulting leaseholders either individually and/or via the residents association.
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 company has gone into insolvent liquidation, its director (or shadow directors) are prohibited for five years from holding the role 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.
No More Corporate Directors
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.
DIRECTORS AND OFFICERS LIABILITY INSURANCE
Most Resident Management Companies appoint a managing agent (unless they self-manage). It might be tempting to sit back and let them get on with it but this is not a good idea because the Directors are the employers and must act as any other employer and a) take action if required and b) be able to query any action that they don’t understand.
Because of all the responsibilities an RMC Director takes on, it is essential that they are insured through 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 part (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 First Tier Tribunal our Directors would need to give their response within a strict deadline.
They would also contact their insurer for help under their legal expenses policy which may need a solicitor to check the claim, collate the relevant paperwork and write a response to the FTT.
Such a policy would give 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 give 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 joint legal costs of both the LVT case and the Lands Tribunal appeal would be covered by the policy.
Very careful consideration should be therefore be given when volunteering to become an RMC Director!