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Right to manage


So you’re a director – now what?


Brethertons Solicitors and the FPRA offer Flat Living readers their simple guide to the director’s role


Achieving the right to manage your block is a little like organising a wedding – it is just the first step towards what you hope will turn out to be a beautiful relationship. But as with marriage, it helps to know what you are letting yourself in for. When setting up or running a residents


management company the role of director is often taken on by individuals with little or no prior knowledge of their duties, responsibilities and potential personal liabilities. In this article we spell out those duties and


explain the steps directors should take to protect the interests of their company and themselves.


DIRECTOR’S DUTIES


The Companies Act 2006 provides a descrip- tion of director’s duties, which are: • To act within the powers of the


RIGHTS As Shareholders


(Normally one vote per flat) At General (Shareholders)


Meetings – VOTE TO RIGHTS As Shareholders Appoint Auditors


(Normally one vote per flat) At General (Shareholders)


Meetings – VOTE TO Appoint Auditors Elect Directors DUTIES OF DIRECTORS


RESPONSIBILITIES To the Shareholders


Elect Directors


MUST administer the COMPANY (subject to the Memorandum and Articles of the Company and the Companies Act)


RESPONSIBILITIES To the Shareholders


Appoint Company


MUST administer the COMPANY (subject to the Memorandum and Articles of the Company and the Companies Act)


Prepare Annual Accounts and


Accountant Director’s Report Appoint Company


Give due notice to Shareholders of


Accountant Director’s Report Copies of Company Accounts


Give due notice to Shareholders of


Annual General Meeting To Shareholders Copies of Company Accounts To Shareholders


To Companies House


To Companies House


Annual General Meeting


Prepare Annual Accounts and


Appoint


Company Secretary


Appoint


Company Secretary


DUTIES OF DIRECTORS


RESPONSIBILITIES To the Leaseholders


MUST administer the PROPERTY (subject to the wording of the lease and the Landlord and Tenant Acts and Housing Acts)


RESPONSIBILITIES To the Leaseholders


MUST administer the PROPERTY (subject to the wording of the lease and the Landlord and Tenant Acts and Housing Acts)


May appoint


Managing Agent (must consult


Residents Association)


Association May appoint


Recognise Residents (must consult


Managing Agent


Residents Association)


External Repairs Provide Services Instruct Qualified


Recognise Residents Association


Accountant to produce Service Charge accounts


Inform and consult leaseholders individually and/or Residents Association


External Repairs Provide Services Instruct Qualified


Accountant to produce Service Charge accounts


Inform and consult leaseholders individually and/or Residents Association


Copyright - Martin Redman FPRA 1996 & 2004


Consult in advance about major works


COMPANIES LIMITED BY GUARANTEE


All these rights and duties apply. But: 1) Members have only one vote, even if they have a bigger flat or lease two or more flats.


to outsiders, or sale of an asset or building additional flats)


cannot be distributed to members two or more flats.


company – a director must act in accordance with the company’s constitution (ie, the Articles of Association) and exercise his powers for the proper purpose.


• To promote the success of company – a director must act in good faith in the way he considers promotes the success of the company for the benefit of its shareholders as a whole. If the company is not run for the benefit of its members (eg, a charitable company) then promotion is for the benefit of the company’s purposes.


• To exercise independent judgement - this judgement or discretion can be limited if this is in accordance with the company’s constitution.


RIGHTS AND DUTIES OF LEASEHOLDERS (AND DIRECTORS) When leaseholders own shares in the company, which owns the freehold of the block of flats


• To avoid conflicts of interest – a director must avoid situations in which he has a


RIGHTS RIGHTS AND DUTIES OF LEASEHOLDERS (AND DIRECTORS) As Leaseholders Residents Association To form a Residents Association RIGHTS To be advised As Leaseholders


and consulted as an individual


To be advised


Explain make-up of service charge


and consulted as an individual


Allow inspection of accounts and receipts


Explain make-up of service charge


Allow a challenge of the reasonableness of any charge


Consult in advance of any charge


about major works


Allow inspection of accounts and receipts


Allow a challenge of the reasonableness


When leaseholders own shares in the company, which owns the freehold of the block of flats To form a


DUTIES


As Leaseholders To comply with the


terms of the lease DUTIES


As Leaseholders To comply with the


terms of the lease Contribute to


Pay Ground Rent Pay Service Charge


Sinking Fund (if the lease


provides for it) Internal Repairs Other obligations


in the lease


Pay Ground Rent Pay Service Charge Contribute to


Sinking Fund (if the lease


provides for it) Internal Repairs Other obligations


in the lease


direct or indirect interest that conflicts with or may conflict with the company’s interests. However, there are limited situations where such conflicts can be exempted or authorised or where the constitution/Articles of Association allow the Board to authorise such situations.


• Not to accept benefits from third parties – a director must not accept any benefit (including a bribe) from a third party which is given because he is a director or because he does or omits to do anything as a director.


• To declare any interest in proposed transactions or arrangements with the company – a director must declare the nature and extent of any interest (direct or indirect) in a proposed transaction or


Continued page 47


COMPANIES LIMITED BY GUARANTEE 2) Profits (e.g. rents from garages


All these rights and duties apply. But: 1) Members have only one vote, even if they have a bigger flat or lease


2) Profits (e.g. rents from garages to outsiders, or sale of an asset or building additional flats)


cannot be distributed to members


Copyright - Martin Redman FPRA 1996 & 2004 www.flat-living.co.uk


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