In this blog we explore what is to be Company Directors their appointment, role and responsibilities. Leaseholders who own or manage a block of flats or development can form companies typically called Residents’ Management Companies (RMCs) or Right to Manage Companies (RTMs).
What is a Directors Role?
Like other limited companies RMCs / RTMs need Company Directors, and just like other limited companies those Directors have the same legal and statutory responsibilities so taking on the role is no small thing. There are many advantages to being a Director however you can be held accountable for mistakes or oversights in the running of the Company, and the role is usually unpaid, time consuming and challenging at times.
Who can be a Director?
The Company’s Memorandum and Articles of Association will set out the minimum and maximum number of Directors allowed, their scope and powers, and any specific eligibility requirements e.g. owners only, minimum period of ownership, owner occupier. There are statutory eligibility requirements for instance Directors must be over 16 years of age; cannot have been previously disqualified from being a Director; must not have an undischarged bankruptcy (an ongoing bankruptcy). Directors do not have to live in the UK but companies must have a UK registered office address. The Directors names and personal information can be publicly available on the Companies House register since Directors must provide a service or correspondence address (home addresses can be removed upon request or it can be care of the managing agent if appointed Company Secretary).
What are a Directors duties?
The lease and Company’s Memorandum and Articles of Association (found in the Company’s filing history on the Companies House register) outline the Director duties towards leaseholders. Duties are typically split between contractual duties e.g. repairs, maintenance, insurance, and service charge accounting, and statutory duties e.g. limiting service charges to reasonable amounts and consulting on major works. All Directors owe general duties to their Company to conduct themselves in a certain way based on common law rules, equitable principles and as set down by the Companies Act 2006. The main seven duties include: –
Duty to Act within their powers and in accordance with the Company’s constitution and Memorandum & Articles of Association
Duty to promote the success of the Company acting in good faith making decisions for the benefit of the Company and its leaseholder members, rather than themselves or individuals. Alexandre Boyes recommend that a Directors and Officers Liability Insurance policy is taken out to protect the Company’s Directors against genuine mistakes. We are allowed to carry out insurance distribution activity work regulated by the Royal Institution of Chartered Surveyors (RICS) and can arrange this on the Directors’ behalf (read our insurance work blog here).
Duty to exercise independent judgment and not be swayed by a dominant Director, or leaseholders which is sometimes easier said than done. You can seek advice but the final decision must be independently yours.
Duty to exercise reasonable care, skill, and diligence and perform the role to the best of your ability. The more qualified or experienced you are, the greater the standard is expected from you, and you must use any relevant knowledge, skill or experience you have when performing your duties. For instance if you are a qualified accountant or surveyor that expert knowledge and experience will benefit the role and Company but it will place a greater expectation, requirement, and liability on you.
Duty to avoid conflicts of interest. Directors must avoid situations which may have a direct or indirect interest that conflicts, or possibly conflicts, with the interests of the Company, and must inform fellow Directors and members of such.
Duty not to accept benefits from third parties for example commission from a contractor you might nominate for major works, or a contract awarded for services for goods, works and services.
Duty to declare interest in proposed transaction or arrangement. You must tell the other Directors and members if you might personally benefit from a transaction the Company makes for example if the Company plans to enter a contract with a business owned by you or a member of your family.
You must not misuse the Company’s property and you must apply confidentiality about the Company’s affairs at all times.
Directors general duties include: –
Maintaining statutory company records, report any changes, and ensure all mandatory returns are filed with Companies House and HMRC, and pay any due corporation tax
Approve budgets and year end accounts, and ensure the service charge accounts present an honest and fair picture of the company finances
Ensure compliance with all relevant health and safety and fire risk legislation; that the necessary insurance cover is valid and appropriate
Be a signature on legal documents e.g. service contracts, accounts for filing, share transfers
Operate on a board with fellow Directors, attend Director meetings, leaseholder meetings, AGM and managing agent meetings where required
Work with the managing agent on the day-day managing and maintenance of the block or development, on expenditure and major works, leaseholder matters
Managing agents work for and on behalf of Directors and upon Director instruction. Typically there will be a lead Director, but not always, and the Director role involves giving clear instructions to the designated property manager and bookkeeper on a range of matters
How does AB support Directors?
Alexandre Boyes property managers and designated bookkeepers collaborate closely with Directors to support your many duties and responsibilities. Directors also have login access to Resident software for 24/7 access to: – service charge accounts; copies of insurance policies; download financial reports including debtors, expenditure, expenditure v budgets; risk assessments; view bank account information; meeting minutes; works orders and supplier invoices. The role of Managing Agent is varied and expansive and our blog on the role of your Managing Agent is useful for those of you who are considering volunteering to become a Director for the first time, and understanding how the two roles work together and separately.
This article is intended as a guide only and does not constitute legal advice. For more information, visit the Government website and seek independent advice. Posted 26 April 2022
