The cover protects the Directors and Officers of Right To Manage leasehold/freeholds or residents associations. It will be individuals that administer and make decisions for their block of flats. They are usually unpaid volunteers that administer and make decisions that relate to the running of their flat block. These often include decisions on maintenance issues, planning permissions and company bank accounts. Also, parking, noise disputes and even on occasions how to interpret leases. They are not limited to these items as their roles can be wide-ranging and must follow company law as well as Landlord and Tenant Law.
If a Director or officer makes a negligent decision that causes a financial loss. Those Directors and officers may find themselves being personally sued by a resident of the block of flats or a third party. It is rare but it does happen.
Did you know there are statutory duties required by each Director of a Company and it is something that you must be aware of?
Your Companies Constitution
This is one of the very first duties a Director must act within their powers under the Companies Constitution. The most important part of the company’s constitution is the Articles of Association. This sets out important rules of what your company can and cannot do. They are individual to the type of situation i.e. if you were managing your own freehold etc.
When you register a company you are asked what type of articles you need and we would suggest that you speak to your legal advisor to discuss this.
It is your responsibility as a Director to be familiar with the Articles of Association. As they constrain you on making any decision you may wish to do in certain areas. If you exceed these powers then these decisions can be reversed and you might even have to compensate the company for any financial losses.
Promoting the success of the Company
We know it sounds funny but you have to promote the success of a company. From the beginning of 2019, a reporting requirement means that larger companies have to explain how they have fulfilled their duty in the annual report. It is unlikely that this would happen if you are managing a block or not. But, you need to be aware. It states that the Director has a duty to act in a way that they consider in good faith and would be the most likely to promote the success of the company for the benefit of its members. Members are known normally as shareholders.
When making a decision Directors have to take into account any likely consequences for the shareholders, employees, suppliers, customers and any communities they may be involved with. They have to take into account the impact on the Environment, the reputation of the Company and the company’s success on a long term basis. A duty to promote the company might not seem like an obvious task for a Director but it does some with complications and implications. If a board makes a decision that can only be justified by links to the company but not on the basis that works best for everybody else such as particular executives, shareholders or other entitlements. Directors should be broad-minded in the way they check those interests taking into account other people’s financial perspectives.
A third duty requires the Director to exercise independent judgment. Directors are meant to develop their own informed view on the company’s activities. They should not literally be delegates for someone else i.e. a major shareholder who tells you what to do. They should also avoid responsibility for independent decisions by relying on the knowledge and judgment of other Directors or experts. A Director needs to form their own view and this may require some research if they are not familiar with the companies activities.
Exercise reasonable care skill and diligence
Directors have to exercise reasonable skill, care and diligence in their role. There is no point just being a Director in name only. The benchmark is a responsibility as a diligent person with general knowledge, skill and experience that could be expected from a person carrying out the Directors function. Directors with specific professional training or skills such as a lawyer or accountant are held to be of a high standard in relation to those issues that they are more qualified than their colleague.
Conflicts of interest and personal benefit
Directors need to avoid or manage conflicts of interest which may affect their objectivity.
If a situation arises which imposes multiple claims on the Directors attention or loyalty it is essential that they disclose them to the fellow board members. You must not be in conflict with your other directors or shareholders of the company and if you have a personal interest you must disclose this.
An example of an interest is where the Director has relationships of a business or personal nature with persons that are affected by the Companies activities. It can also relate to them being able to take advantage on a personal basis of property, information or an opportunity that belongs to the company. Gifts and benefits from third parties are also items that Directors should disclose.
Keeping a record
This is one of the most important activities for a Director. They have to keep minutes of board meetings to provide a record of the board’s decision in making the process.
Did you know by law that these minutes have to be kept for up to a period of ten years? This is because years from now you might find it difficult to remember what and why a key decision was made. The minutes give you evidence and cover you.
Do I need to take out additional insurance?
It is a personal choice. Some policies will already have a level of cover within them. Therefore it may not be necessary to take out an additional policy.
Most managing agents won’t get involved in company decisions and therefore this is what insurance is for.
Can I be personally sued?
Yes. Directors and officers liability insurance can seem expensive because claims are rare. However, when they do happen they can be very expensive. It is important to consider the potential saving in the case of a claim. As instructing a solicitor, even for an error or omission of a previous director can be very expensive. As the liability can be personally directed there are big potential downfalls.
What does my policy cover?
Your policy will cover the items listed below:-
- Legal costs of a claim or investigation incurred by you or your organization
- Any award or settlement made
- Employment, regulatory pensions, cyber, contractual, pollution and employee dishonesty claims
- Can include contract dispute and debt recovery pursuit
- Negative social media
- Public relation cost
- Circumstances related to investigation costs
Examples of what can happen: –
HM Revenue and Customs prosecuted a property investment company. The reason being that they were alleged to have made false statements in earlier tax investigations. Legal fees in the case came to more than £50,000
The directors of a property management company were called to give evidence following a pollution leak into a local river. The legal fees for the represented company were £10,000.
Breach of duty
Shareholders of a family-run property group made a claim against the company and its Directors. They accused the property group of acting unfairly and breaching their duties. The property group seeked an investment which reduced the value of the shares. The legal costs in the case were more than £150,000.00. A minimum settlement was eventually agreed.
What else will I get as part of my cover?
- There will be free access to a comprehensive range of specialist advisors, and advisory services. Offering support to help customers minimize risk and promote growth if required.
- There will be a team of experts working with customers to develop their business sustainability and responsibility for providing design innovation and ethical solutions.
- Knowledgeable and experienced legal teams available when customers need it most. The policy will provide full professional representation to help customers succeed and manage claims successfully.
Other such incidents include:
- Human resources and employment
- Health and safety
- Waste and environmental regulations
- Money laundering, fraud, bribery and corruption, anti-competitive practices.
The cover with respect to intellectual property covers:
- Data protection and cybercrime
- Legal advice on a range of areas including Directors and shareholders duties, contract disputes, financial crime, motoring and criminal offences.
It is easy to overlook the importance of Directors and Officers liability but it can be vital if the need arises. The truth is that the individuals that volunteer for those positions are taking on a big responsibility. One that will affect the lives of everyone else that lives in the flat block. Therefore the potential financial liability is huge.
If you would like to discuss any of the above then request a call back to discuss your options. We can provide a separate policy or include the cover in a building insurance quote.