RIGHT TO MANAGE
WhAt diRectoRs need to knoW
RTM companies are governed by company law but what does this mean for RMCs? A Right to MAnAge Company is set up, like any other company in accordance with certain rules and regulations. Under these rules, directors have duties that they must adhere to as outlined by The Companies Act 2006. The Act lists these duties as follows: n To act within the powers of the company – a director must act in accordance with the company’s constitution (i.e. the Articles of Association) and exercise his powers for the proper purpose. n To promote the success of the 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 (e.g. a charitable company) then promotion is for the benefit of the company’s purposes. n To exercise independent judgement - this judgement or discretion can be limited if this is in accordance with the company’s constitution. n To avoid conflicts of interest – a director must avoid situations in which he has a 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. n 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. n 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 arrangement with the company (the director need not be a party to the transaction for this duty to apply). n To exercise reasonable care, skill and diligence – a director must exercise the care, skill and diligence which would be exercised by a reasonably diligent person both with the general knowledge, skill and experience that may be reasonably expected of a person carrying out the functions undertaken by the director in relation to the company.
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Directors Duties
n All current directors should make it their business to ensure that they are aware of their duties under the Companies Act 2006 (see above). n On appointment, new directors should receive guidance on these duties. n A director should have a service agreement which should specifically refer to compliance with the duties. n Companies should review their internal policies in the light of the new duties e.g. HR, business sector compliance and corporate responsibility. n Decisions made at board level or at committee level should be supported by background information and thoroughly considered. n There should be written evidence of the reasons for decisions made. n Any minutes for meetings should be detailed and should clearly set out the evidence considered and produced. n For a company with a sole member who is also the sole director, written resolutions and evidence should still be produced. Any contract between the company and a sole director must be recorded in writing. n Management and project teams reporting to directors should prepare briefing notes and reports taking into consideration the duties which the directors are required to consider. This is a summary of a longer article first published in Flat Living, issue 7
a court. The prescribed form for the Notice of Claim is set out in the Statutory Instrument (2010 No 825) and a form can be downloaded from the website at www.legislation.gov.uk. LEASE explains that it is the Notice of Claim which brings the exercise of the right to manage into being and sets the date for the RTM company to take over the management. In being able to set their own date, the members of the RTM company are in a position to plan ahead and to prepare for the transfer. While the legislation provides a minimum period of three months (four months in total from the service of the claim, in order to allow for the opportunity to serve a counternotice) this need not necessarily be taken as a maximum; it may be prudent in some circumstances to provide a longer period in order to engage a new managing agent and to put other arrangements in place to ensure that the transfer of the management function is as seamless as possible. The next step is for the landlord to serve a counter-notice, no later than the date specified by the RTM company in the Notice of Claim The counter-notice can do one of two things:
The Notice of Claim... brings the exercise of the right to manage into being either agree to the RTM or allege reasons why the RTM company is not entitled to proceed. If the landlord agrees, the management will pass to the RTM company on the date specified in the Notice of Claim. Where the landlord does not serve a counter-notice, then the acquisition date for the right will be the date specified in the notice. Where the landlord disputes the claim, the grounds for dispute are limited to three issues: n the building does not qualify; n the RTM company does not comply with the legislative requirements; or n the members of the RTM company do not represent half the flats in the building. The counter-notice must specify the reason for the alleged non-qualification and must state that: n the RTM company may apply to the Leasehold Valuation Tribunal for a determination of the issue; n the RTM company will not acquire the right unless the LVT determines in favour of the company or the landlord subsequently agrees. The RTM company must make an application to the LVT within two months of the date of the landlord’s counter-notice. If the application is not made within this time, the claim is considered withdrawn. There is no prescribed form for this but an application form, with explanatory notes, is available from the LVT. ● For a more detailed explanation of the RTM process and a list of leasehold specialists go to the LEASE website at: www.leasehold-advice.org. For a list of ALEP-approved specialists, go to www.alep.org.uk
Summer 2012
Flat Living