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 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. Whilst it may seem daunting in reading what limitations are they are normally well laid out.
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. 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. They should also refer to the contents of the lease.
Do you have a duty to exercise reasonable care, skill and diligence?
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 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. 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.
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. 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. 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. 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. This must be available for inspection at any time. Ensuring records are kept for a period of three to six years on the date they were made.
Directors
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. As well as a fair view of the state of the affairs. The Directors must approve accounts and these must be signed off by the Directors and filed at Companies House.
You will often find that these are zero accounts. A dormant company form can always be entered into via Companies House but you should speak to them. The returns are filed at company’s house each year. Usually on the anniversary of the companies and corporation that they will contact you. 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. You should keep yourself updated with the newsletter from Companies house in this regard.
Company Law
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. As well as maintain them. Resulting 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. 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. 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. It can take up to six months before the Company’s reinstated.
The role of right to manage companies, directors and secretaries
You have now successfully formed the right to manage company and you are just at the beginning of your management journey.
It is important that being a director in a right to management company involves a number of responsibilities and you do need to be aware of these.
You may find that the day to day responsibility of the management of your block may require you to employ a professional managing agents to deal with the compliance and smooth operation. This would then limit your responsibilities but it doesn’t necessarily mean that they have gone away.
As a director of a right to manage company you will be responsible for dealing with a huge amount of issues on your block. Why not take out directors insurance? We can provide you with an insurance policy that covers directors in the event that there is an issue. It can give you peace of mind as well as the rest of the lessees.
Director duties
If you are now a company director you have a lot of responsibilities on your shoulders. It can be a full time job and you need to understand what can be involved.
- Sending invites to leaseholders to join the RTM company.
- Demanding and collecting and recovering service charge in accordance with legalisation in the terms of the lease.
- Dealing with the lease enquiries and complaints
- Exploring, reviewing and entering into service agreements.
- Paying of contractors, site staff and other suppliers.
- Placing of comprehensive building insurance/directors and offices liability.
- Health and safety inspections and assessments.
- Express management plans
- Submitting 5-10 maintenance plans and reserve fund monies.
Accounting duties
You also need to ensure that all the accounts are in order and a manging agent can deal with this on your behalf.
- Create budgets, income expenditure reports for shareholders.
- Filing of company accounts to companies house.
- Carrying out a section 20 process when there are major works or long term agreements.
- Ensure committed maintenance in common parts of buildings including gardens, drive ways, garages and roofs.
- Enforcing the terms of the lease this will often be against your neighbour.
- Employment and management of site staff.
- Attending/holding meetings
What are the legal obligations of a director?
- Duty of care and skills.
- Common law requires directors to act with the care of an ordinary man who would take in the same circumstances on his own behalf.
- They are expected to deal with the skills of someone with a particular knowledge and experience.
- Fiduciary duty.
- Directors must act honesty, in good faith and best interest in the company. They must ensure they don’t have any conflict of interest and make it known if they do.
- Statutory duty.
There are various things you need to be aware of such as companies Act 2006. Environmental act 1990. Health and safety of Work Act 1974.
It doesn’t matter whether the director is renumerated or not the responsibility applies regardless.
A duty to exercise their powers for proper purpose.
You need to ensure you are always acting within the powers you will need to check if there are any limitation of what you can or cannot do.
A duty to exercise independent judgement.
It is important you are not influenced by others and arrive at your own conclusion. This could mean if your neighbour approaches you in order to side with them you need to ensure your decision has not been influenced by them.
A duty to exercise reasonable care and skill.
It is important your decisions are considered carefully and properly. If you are not sure always speak to a professional.
A duty to avoid conflict of interest. For instance if you want to use one of your own contractors or a member of the family that has a business.
A duty not accept the benefit from a third party.
Directors should be carefully considered of any companies hospitality. For example if a builder is engaged in exchanged for his services to a director personally.
A duty to declare an interest for proposed transaction or arrangement with the company.
Directors must declare both the nature and extent of their interest to the other directors.
Should always look to a professional for advice in relation to becoming a director but why not contact us for directors insurance.
iInsure365
We can offer you Directors and officers insurance that can cover you for all these points. 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.
Click on the link here and this will help you in respect of any queries you may have, it is a fantastic tool to use.
Why do I need to become a director of the Right to manage company?
You would first need to ensure that you are aware of what right to manage is. Right to manage is a block management process that removes responsibility of the block management and maintenance from a landlord. To then place it into the hand of leaseholders.
Right to manage companies offer residents to manage their own property. There are multiple reasons for doing this including dissatisfaction of the management company and/or to potentially reduce the costs. Why not speak to us regarding your insurance on 01273 827090 or enquiries@iinsure365.co.uk we are more than happy to try and reduce your costs and improve your cover.
The right to manage company takes control of the management of the property without the position of their landlord. It is imperative that the process of forming the right to manage company is done correctly. Once the right to manage is in action, it is solely responsible for the delegated duties, managing the property and its up keep in maintaining communal areas and structural parts as well as collecting service charges.
It is important therefore that if you are going to become a director of the company you understand what your legal responsibilities are.
If you would like to discuss any particular property or would like a quote then please do call us on 01273 827090.
