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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