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What Are the Responsibilities of a Director of a Residents’ Management Company?

A residents’ management company is established as a non-profit entity to manage service charge funds collected within a development where communal areas or shared facilities need maintenance. These funds are held in trust by the company for the property owners within the development. Common areas encompass various elements such as entrances, hallways, gardens, fences, car parks, and more, with expenses covering maintenance, insurance, and lighting.

The ownership of the residents’ management company rests with the property owners, who serve as shareholders or members. Directors are appointed from among these shareholders or members, in accordance with the company's articles of association, which specify the procedures for appointing directors.

Typically comprised of property owners invested in the development's management and finances, the board of directors is composed of individuals willing to contribute time managing other residents and liaising with the managing agent. Although not necessarily professionals, directors may possess relevant skills and experience, including the ability to comprehend company accounts and budgets. Their services are voluntary and unpaid.

Directors are expected to attend regular meetings, usually up to four per year, as well as the Annual General Meeting (AGM). They are also required to be available via email for collective decision-making between meetings, such as approving maintenance quotations and works.

A key responsibility of directors is overseeing the work of a managing agent. Collaborating with the managing agent, directors establish and endorse annual maintenance priorities and budgets, as well as devise strategies for addressing issues like outstanding service charge payments.

Legal Obligations of Directors

In addition to their managerial duties, directors are bound by legal responsibilities outlined in the Companies Act 2006, which include:

• Acting within the company's powers: Directors must adhere to the company's constitution, outlined in its articles of association, and utilise their powers for legitimate purposes.

• Promoting the success of the company: Directors must act in good faith, considering and advancing the company's success for the benefit of its shareholders or members collectively.

• Exercising independent judgment: Directors should exercise their judgment independently, without undue influence from any dominant director or external party.

• Avoiding conflicts of interest: Directors must steer clear of situations where their personal interests, whether direct or indirect, conflict with or could potentially conflict with the interests of the company. For instance, a director cannot appoint a contractor or company in which they have a financial interest in.

• Declining benefits from third parties: Directors are prohibited from accepting any benefits, including bribes, from third parties as a result of their position or actions as directors.

• Exercising reasonable care, skill, and diligence: Directors are expected to carry out their responsibilities with a reasonable degree of care, skill, and diligence, commensurate with their position and responsibilities within the company.

Administrative Responsibilities of Directors

Directors bear legal responsibility for ensuring the completion of various administrative tasks, which are often delegated to a managing agent or a company providing secretarial services. These tasks include:

• Maintaining and submitting annual accounts to Companies House.

• Filing the confirmation statement with Companies House.

• Keeping the company's statutory registers current, including the register of members, share allotments, transfers, charges, directors, and secretaries.

• Issuing and cancelling share certificates for companies limited by shares, or membership certificates for companies limited by guarantee, upon transfer of shares or membership.

• Updating the public register at Companies House, which includes filing forms 288a, 288b, and 288c, especially relevant for non-resident directors.

• Conducting regular board meetings to facilitate effective company management.

• Convening annual general meetings (if mandated by statute) and extraordinary general meetings as necessary.

Failure to fulfil these obligations can result in fines for the company and potentially lead to its dissolution, posing significant legal challenges for leaseholders. Directors may also face personal liability and potential disqualification from serving as directors.

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Personal Liability of Directors

Directors can face personal liability, encompassing both civil and criminal repercussions, for their actions or failures in directing the company. Such liability may arise from various scenarios, including prosecution for shortcomings in health and safety measures or litigation initiated by dissatisfied leaseholders. Consequently, directors often opt to secure directors and officers’ liability insurance to mitigate potential risks.

Further Questions or Queries

If you have any questions or queries that are not covered by this guidance, please do get in touch.