Anyone can become an RMC Director unless they have been disqualified under the Company Director Disqualification Act 1986, where the courts may disqualify persons who are found unfit to act as Directors under various circumstances:
- Conviction of criminal offences in relation to companies;
- Responsibility for wrongful or fraudulent trading in the insolvent liquidation of a company;
- Repeated defaults in filing documents with, or reporting matters to, the Registrar of Companies;
- Being an undischarged bankrupt.
Disqualification can be for periods up to 15 years during which time a person cannot act as a director without leave from the court.
If a person is not listed on the Disqualified Directors Register this can mean one of the following three things:
- The person is not and has not been disqualified;
- The person was disqualified in the past but the disqualification order has since lapsed (a register of lapsed disqualifications is not maintained);
- The person is disqualified but Companies House have not yet received official notification from the courts.
There is no maximum age limit but s157 of the Companies Act 2006 (minimum age for appointment of director) imposes a 16-year old minimum and s159 of the same Act (existing under age-directors) states that directorship ceases where a company has an under-age director on the implementation date (1st October 2008). Also there are no statutory limitations as to nationality or residence so whilst it is possible to merge these into the company Articles it rarely happens. It is unusual for modern company articles to impose a share qualification but if they do then the shares must be acquired within two months of the Directorship appointment.
Despite being governed by the same laws and legislation that govern commercial companies, RMC Directors are not only usually unpaid volunteers but they are also subjected to the same penalties for failure to adhere to their legal and fiduciary duties under common law, which have legal force. Fiduciary duties are those which involve trust and the precedence created is that directors ‘are bound to use fair and reasonable diligence in the management of their company’s affairs and ‘to act honestly and implicitly to the benefit of the company’s shareholders, creditors and employees’.
In other words, the directors will act in the best interest of all concerned parties.
These fiduciary duties include:
- Prohibiting loans to directors;
- Restricting other credit to directors;
- Disclosing details of loans and other transactions in which a director has an interest in the accounts.
Additionally they also have to be familiar with the following:
- Legislation specific to block management;
- The leases, (which ideally should be reasonably uniform throughout the block;
- The RICS Service Charge Residential Management Code and Additional Advice to Landlords, Leaseholders and Agents;
- The ICAEW Tech 03/11 Residential Service Charge Accounts as they will be responsible for signing off both the service charge accounts (monies paid by leaseholders and held in trust) and the statutory accounts of the company. This is also a ‘best practice’ guide.
In addition, most RMC Directors (and definitely Right to Manage Company Directors) use the services of a managing agent, due to the logistics of self-managing anything larger than 4 flats or so but even unpaid volunteer Directors must resist the temptation to sit back and let them get on with it. Why? Because they actually employ them! They must therefore be prepared to act as any other commercial employer would, which includes questioning any action taken on their behalf by the agent that they do not understand.
Something else to bear in mind is that RMC’s can be prosecuted under both criminal law and health and safety law such as under the Corporate Manslaughter Act of 2007, and the Health & Safety Offences Act 2008 which raised the maximum fine for offences in the lower courts from £5,000 to £20,000! It also increased the number of offences for which an individual can be imprisoned! It is therefore vitally important for RMC Directors to be aware that it is they who keep overall responsibility for the health and safety of their block, regardless of whether they delegate to others or not.
So whilst adherence to the codes are necessary they are not legally binding. This makes breaching them a) not a criminal offence and b) doesn’t create any civil liability. There also doesn’t appear to be any routine checks made on managing agents to ensure they are even abiding by them!
The contents of the code can be used as evidence in court and tribunal proceedings where freeholders or agents have failed to comply with them but in essence the codes are little more than best practice guides.
So how can RMC Directors protect themselves against someone making a claim against them? The answer is that of having Directors and Officers Liability Insurance and more on this can be read here.