Did you know whether you are a right to manage or resident management companies Director you need to be aware that you have a large amount of duties and liabilities under Company law?
Most people don’t appreciate that whilst you are a director it does not limit your liability. Individuals appointed as Directors should note that their role is not just for the purpose of forming the above companies but it will be on an ongoing basis. The Directors responsibility continues until you resign and it is registered at Companies House.
All Companies must have Articles of Association which governs the purpose on the running of a company. The articles is prescribed by law. The company won’t be valid unless they are in the correct form, the procedure for appointing and the termination of Directors will also be within the article. Right to Manage Companies have Articles of Association that are specifically used for this type of property. If you are not sure you should either speak to your solicitor or Companies House that can help you. You will find that all RTM companies will always have the words RTM or right to manage in the name of the Company.
Do Directors have duties under different areas of the law such as health and safety, insurance and employment law?
Yes of course and they need to understand how they work in the context of a management of a building or even instructing a managing agent.
Do they have a duty to exercise their powers for their proper purpose?
You need to ensure that the company’s articles and constitution states that you are always acting within your powers and check if there are any limitations a Director can and cannot do. It is important that you understand your liabilities and whilst it may seem daunting in reading what limitations are they are normally well laid out within the Articles of Association.
Do you have a duty to promote the Success of a Company?
The duty of a Director is primarily for the Company. You have to assess what these duties include for example if the decision will have a long term consequence or impact on the community and/or the environment. The Company has been set up deliberately for the purpose of running a right to manage property and you need to understand that this is the number one though in dealing with a Director. You also have to ensure that the lease is adhered to as well as you cannot extend your powers over the contents of the lease even as a Director.
Do you have a duty to ensure that you exercise your independent judgement?
Directors need to make sure that they are not influenced by others and arrive at decisions on their own. Whilst you can take into account other people’s thoughts it is so important to ensure that you are aware that you have to be independent and separate. Even it is an emotional discussion. For example dealing with neighbour issues are likely to arise from time to time. In these situations Directors should ensure that their decisions are not influenced by their personal opinions. They should also refer to the contents of the lease.
Do you have a duty to exercise reasonable care, skill and diligence?
It is important to ensure that decisions are considered carefully. You should take your time in looking at the situation and if required, and you have one, take advice from either your managing agent or your solicitor on what you should be doing. If you are uncertain on the situation then professional advice is critical.
What happens if I have a conflict of interest do I have a duty on this?
Directors must not put themselves into a situation where their interest conflicts with those of the company. The Articles of Association will detail the procedure dealing with Directors conflict of interest. For example if the Right to manage company is in need of a plumber and the Director suggests using his brothers company, that Director should not take part in the decision making process. You have to ensure that any decision making process by the Director is a void of any financial gain.
Do I have duty not to accept benefit from a third party?
Directors should consider any offers of company hospitality. For example if a builder engaged in exchange for offering his services to a Director personally. You have to understand that not only are you looking on behalf of the company but also on the building overall. You have to have a clean conscience when making decisions as a Director that you have done this in the best interest of the Company.
Do I have a duty to declare an interest in a proposed transaction or an arrangement with a Company?
You are absolutely required as a Director to declare both the nature and extent of your interest to any other Directors. This is in writing or at a Board meeting where its recorded in the minutes before the transaction is entered into. It is critical for you as a Director yourself to ensure that if its put in writing that everybody is aware of it. For example if a Director works for a fuel company and the block is looking to change fuel suppliers and considers his company he or she must let the other Directors know and not take part in the decision making process. This is critical as a Director as you can be found negligent in the event that you do not.
It is very important that you bear in mind that Directors cannot avoid their duties by resigning, a Directors duty will still apply in relation to all actions taken whilst in the office. You have to take into account when considering recording in writing matters that have been and decision’s made so there is a proof of careful consideration that has been given to them. This would be in the minutes of a meeting. You can look to put these in an email as well.
There are more obligations as a director which you must consider. Directors have a duty to keep accounting records, file annual accounts and annual returns. In respect of a Right to Manage Company it is often misunderstood that if you do not collect ground rent then you need to do accounts. The money you collect i.e. maintenance money is held in a Trust account and is not the Companies money as such and so accounts aren’t required. If you need guidance on this we would suggest that you speak to Companies House who often will be able to help you as you may not need an accountant and you could be incurring a cost you do not need.
But, Company law requires that every company must keep adequate records to show and explain the company’s transaction and to be in a position to disclose the financial position of the company at any time. Please take an accountants advice in this regard but again make him aware that the maintenance money you are receiving is not the companies. These records must have entries of the day to day sums of monies received and expended and a record of the assets and liabilities of the company. This may be very little or nothing.
A company must keep the records at the registered office or a place a Director thinks fit and proper and this must be available for inspection at any time. Records must be kept for a period of three to six years on the date they were made.
Directors also have a duty to prepare accounts for the company for each of its financial years. In the case of the Right to Manage Company the accounts or balance sheet will be a true and fair view of the state of the affairs of the company in the last financial year. The Directors must approve accounts and these must be signed off by the Directors and filed at Companies House. But you will often find that these are zero accounts and a dormant company form can always be entered into via Companies House but you should speak to them. The returns must be filed at company’s house each year usually on the anniversary of the companies and corporation that they will contact you. But it is your responsibility to ensure that this is done. The annual return must state the date which the companies is made up. The address of the companies registered office, type of company it is and the officers of the Company. These types of records do change on a regular basis and you should keep yourself updated with the newsletter from Companies house in this regard.
Company law requires you to keep statutory registered recording the details of the officers and members (shareholders). They should be available for inspection at all times. These registers have to be updated to record events such as appointments and the resignation of Directors. The contents of the registers and what is showing at companies how should be exactly the same.
Failure to prepare and keep records and file accounts and returns and maintain them can result in a Director being held personally liable for penalties, prosecution and possible disqualification. If there is a persistent failure to file accounts and any returns Companies House may strike the company off the register of Companies. Companies House will normally give several warning letters giving notice of the failure to file these documents. If there is no response from the Company, the moment the company’s struck off all the assets of the company will become the property of the Crown and the company will no longer exist. In the case of the assets the building means which of the members own as a flat. It is so important so that you keep and maintain these documents.
If the company’s struck off the Director of the company should seek advice on restoration procedures whilst these procedures can be costly and time consuming it can be dealt with. There are professional advisors that can advise on fees as well as Company House fees and penalties. You may have to go through the Court or restoration process and it can take up to six months before the Company’s reinstated.
We can offer you Directors and officers insurance that can cover you for all these points. The insurance enables you to know that you’re covered but it still does not absolve you of any responsibility but will pay any fines and would help you in the event that you needed to resolve anything.
Don’t hesitate to contact us in this regard. Click here to get a quote.