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I had already attended a number of meetings held by various leasehold organisations and the one that was the turning point for Wellington Mansions was held by the Campaign for the Abolition of Leasehold (CARL) in 2006. I had already been on their panel a couple of times but this time  I was an audience member. I took my partner to this one and we were both impressed by the talk about buildings insurance given by guest speaker Roger Southam, CEO of Chainbow. At the end of his talk he asked the audience if they had any questions and jokingly my partner asked ‘will you come and manage our block please? He invited us to come and chat to him at the informal drinks that were held after the meeting and to our complete surprise he agreed to take us on.

Not only that, but shortly afterwards we met the criteria for the Right to Manage, the second major right granted to leaseholders under s71 of the Commonhold and Leasehold Reform Act 2002 and hailed as a great right as it was the most radical attempt at addressing the problems caused by negligent and incompetent managing agents. It is a ‘no-fault’ process allowing leaseholders to either replace their own managing agent with one of their own choosing or self-manage. Or in our case, to actually get an agent!  No premium is payable and there is no need to go to court to prove ‘fault’ on the part of the freeholder. Establishing the company (which is used as the vehicle to excercies the right under s73 of the Commonhold and Leasehold Reform Act 2002) started with a meeting at the offices of our new managing agent. At this stage not all qualifying leaseholders were required to attend, just enough to provide a minimum of 2 directors and a company secretary. We had 5 qualifying leaseholders attend with three of those five agreeing to act in the capacity of two Directors and the agent as Company Secretary. All were formally appointed by Board resolution and their details and signatures entered onto the application form for registering a new company.

COMPANY LIMITED BY GUARANTEE

On fiing the above details with the Registrar of Company at Companies House, the company was also registered as a company limited by guarantee.

This is because this type of company was thought to be the most apropriate vehicle when the right was created because companies who use it don’t trade and it can’t be formed by share capital under 5 of the Companies Act 2006. This renders it unsuitable for commercial enterprise, and makes it less likely to become insolvent. The incentive for members to become involved is commitment to the company’s objectives rather than profit as with shareholder companies.

Like a company limited by shares, a company limited by guarantee also has its own clear and separate legal identity. It is controlled by membership, and it’s members can be issued a non-transferable certificate of membership (which automatically lapses when the unit is sold). This makes making them guarantors, again with ‘limited’ liability for the company’s debts and usually up to a fixed sum of £1. So, should the company be wound up whilst people are still members (or within one year of their ceasing to be a member) their personal liability is guaranteed to that specific amount.

Details of Membership

  1. Unit holders apply to become members (membership form needed);
  2. Directors pass (written) resolution to admit unit holder as member. An entry is made in the register of members of the date of cessation of membership and the name of the new member;
  3. No share certificates are issued but a certificate of membership could be, which would be surrendered for cancellation on sale of the unit. However, there is no legal requirement for a certificate and as the member’s name would have been removed from the register the certificate has no value;
  4. Usually one member has one vote. Not all articles are clear on this and problems could arise should one member own two units.
  5. No requirement to submit details of members with annual return (which has been abolished and replaced with the confirmation statement) to Companies House.

There are however exceptions to personal liabiliaty being guaranteed to a fixed sum:

  1. If the memorandum states their liabilities to be unlimited;
  2. If they have been guilty of acting in a wrongful way;
  3. If directors exceed the powers conferred on them by the company Articles they can be liable to recompense from the company for any loss incurred;
  4. If a director gives a personal guarantee;
  5. If any director enters into a contract in their own name and not “for and on behalf of”;
  6. If a director misleads a supplier as to whom the true customer is to be;
  7. Issues a cheque, upon which the company name is not clearly stated, and which the bank refuses to honour;
  8. If found guilty of fraudulent or wrongful trading, the court may instruct a director or shadow director to contribute to the assets;
  9. A person who has been disqualified from acting as a director under the Directors Disqualification Act 1986, or another person who knowingly acts under instruction from that person.

Profit Distribution

Whilst the company is not prohibited from profit distribution (should it make any) by the Companies Act (or any other law), or it chooses to keep them for use elsewhere, it is commonplace for restrictions to be put on profit distribution in the company’s Articles. These will not only apply to any profits while the company is running but also to the distribution of assets (after paying creditors) should the company be wound up. Sometimes the restrictions are also reinforced by the prevention of payment of salaries or fees to the directors but not all the time.

Securing an agent and the right to manage didn’t mean to say that we were out of the woods. Many of the flats were sublet and with an absent freeholder there was no one to ensure that the covenants to sublet were being adhered to.

 

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