Problems with "rogue" director

[stark77]

Hi,

I am a director of a limited company that owns the freehold to the building that contains my flat on a 999 year lease. The company has 5 directors, 1 per flat and is theoretically charged with maintenance of the building and arranging for buildings insurance.

A number of the other directors in the building are historically indifferent to how this management company is run, and as a result over the years all control has fallen into the hands of one person. She is company secretary, jealously guards access to the bank account, and basically acts as if she run the place.

Whilst we are making some progress in persuading other flat owners to take more of an interest in where their money is being spent (some of it in my opinion being fraudulently removed for massively overinflated estimates of heating/lighting costs etc.) we have a problem whereby the company secretary has filed accounts with companies house without having called a meeting to view/discuss them and therefore entirely without board approval. The accounts themselves clearly state that the board approved the accounts on some past date, even though no meeting took place at all.

What I really want to get a handle on, is has she committed a criminal offence by filing the accounts in this manner? I'm furious that she has done this, but discussions with companies house weren't able to clear up what sort of penalties might be imposed for this sort of thing. They simply stated "accounts must be approved by the board" and when I said "Yes, but they weren't" they just suggested I seek legal advice. Does anyone have any experience in this sort of area? Is it a civil issue or a criminal one? What sort of penalties can be applied to stop this sort of thing? It seems like fraud to me to sign a declaration like that when it's a complete fabrication.

I appreciate that for a full answer, I will need to seek legal advice on the matter, but I am curious for whether anyone has experienced anything similar.

 

[taxattack]

The question may be best in the legal section.

I assume the person is a director as well as company secretary. If not, it sounds as though they would be a shadow director.

The rules about directors are S154 onwards of the Companies Act 2006 (S270 for secretaries). The rules re approval and signing of accounts are in S414. These require approval by the board and signature on behalf of the board by a director.

http://www.opsi.gov.uk/acts/acts2006/pdf/ukpga_20060046_en.pdf

Ironically it may turn out that the other directors are at fault for not undertaking their own duties to exercise reasonable care, skill and diligence, and independent judgement. There is a specific offence of failing to declare an interest in a company transaction, if for instance the person had benefitted indirectly or directly from a contract for maintenance or repair.

With regard to the rules regarding management of flats, levying of service charges etc, you may find the website http://www.lease-advice.org/ helpful.

Chris

 

[frauke]

Depends.... I am Co Secretary for a Management Co and hold yearly meetings with the directors. One of the directors was not paying attention at the last meeting, and never attended any of the residents quarterly meetings, so when things changed afterwards based on what was agreed in these meetings, in a way he didn't like, he started saying things are not being done properly etc....

I ensure everyone gets the "Service Charges - Summary of tenants' rights and obligations" with their service charge statements. When he started telling me how he thought things should be done etc, I suggested he take a look at it. Its is now a legal requirement to give it with any Service charge bill. You should take a look at it, you would find it helpful.

 

[stark77]

Thank you very much for your response.

The company secretary is indeed also a director. So, with all this in mind, and having scanned over the Companies Act pdf you linked to (thanks again!) it would appear that we are now compelled to take some sort of action in relation to this. But what action can we take? The accounts are filed and we are automatically responsible for them as directors.

The amounts involved in terms of potentially fraudulent payments are relatively small (maybe up to £1000 over the last few years that we know of) but the whole thing is so cloaked in secrecy it's relatively hard to know.

How can we even approve accounts unless we have access to any of the underlying information? Do I have to take legal action against the company as a shareholder? As a director? Or as a leaseholder who has a contractual agreement with the freeholder that isn't being honoured properly?

What I want, is to report the actions of this director to whoever is responsible for investigating breaches of the companies act and have her reprimanded/fined in some way for taking such unilateral action to the detriment of all the other shareholders - but would they care? Would anyone care other than me?

 

[stark77]

Thanks Frauke.

The problem we have in our case is that meetings aren't even being called for various ridiculous reasons about people being ill/away etc. and this woman is just filing accounts and taking money out of the company account with impunity.

We called a meeting ourselves recently to try and address some of these issues, but she didn't attend and just went ahead and filed paperwork without consultation.

All the laws around this seem to work on the basis that everyone would be able to agree to have a meeting to discuss accounts before filing them - but with little to explain about what happens to someone who files accounts without such consultation. It's almost as if it's assumed that it could never happen, but it is happening to us.

 

[frauke]

Service Charges - Summary of tenants' rights and obligations -

"This summary, which briefly sets out your rights and obligations in relation to variable service charges, must by law accompany a demand for service charges. Unless a summary is sent to you with a demand, you may withhold the service charge. The summary does not give a full interpretation of the law and if you are in any doubt about your rights and obligations you should seek independent advice." "

 

[frauke]

Another extract:

You have the right to ask a leasehold valuation tribunal to determine whether you are liable to pay service charges for services, repairs, maintenance, improvements, insurance or management. You may make a request before or after you have paid the service charge. If the tribunal determines that the service charge is payable, the tribunal may also determine-
• who should pay the service charge and who it should be paid to;
• the amount;
• the date it should be paid by; and
• how it should be paid.
However, you do not have these rights where-
• a matter has been agreed or admitted by you;
• a matter has already been, or is to be, referred to arbitration or has been determined by arbitration and you agreed to go to arbitration after the disagreement about the service charge or costs arose; or
• a matter has been decided by a court.

 

[stark77]

Thank you. That is useful information.

In our case though, we have no problem paying the service charge. In fact, we want it to be higher, because it clearly isn't enough to pay for some larger expenses on the horizon (external painting of the building for example). What we can't seem to get is a very sensible and reasonable framework for meeting up to discuss what the level should be, and how it should be used. Nothing in the building is getting fixed that should be, but my only recourse on that seems to be to take legal action against the freeholder to adhere to the requirements of the lease - which means taking action against myself, as I am part of the freeholder, but can't affect any chage.

 

[frauke]

I have recently taken over another Management co, and the Directors (solicitors) had been filing dormant accounts!

Because of the penalties for not filing, it can be better to file them and sort out the mess afterwards. Especially as the costs to enforce the law can be huge.

There is nothing to stop you from calling a meeting to have the director/secretary removed (you have to give everybody, 14 clear days notice), etc,. All the members at the meeting have to sign the resolution and then they can be removed. I often find just doing this act, is enough to make the person resign before the meeting. You can then sort things out from there.

But be careful.... you may be taking on more than you realise.

 

[stark77]

Removing her as a director is a step beyond what I want to do. For one, she has one of the flats and I feel she should get a (proportional!) say in how the management company is run. I also believe from my understanding of the lease, that she is entitled to a place on the board of the management company, which rather seems to imply in combination that she can't be removed.

I appreciate this is potentially taking me down a long legal path which could prove expensive, but I increasingly don't see that I have an option. The alternative is to give up all control of the company, sign away my money, get nothing fixed in the building, and potentially be liable to god knows what because I am deemed in the eyes of the law to be responsible for the very company that I am giving up on. In fact, if money has been taken out of the company inappropriately, I'm already on the hook for it - and my only defence seems to be to demonstrate that I took reasonable steps to try and rectify the situation.

 

[frauke]

Another clause

If your landlord-
• proposes works on a building or any other premises that will cost you or any other tenant more than £250, or
• proposes to enter into an agreement for works or services which will last for more than 12 months and will cost you or any other tenant more than £100 in any 12 month accounting period,
• your contribution will be limited to these amounts unless your landlord has properly consulted on the proposed works or agreement or a leasehold valuation tribunal has agreed that consultation is not required

 

[frauke]

I've PM you.

 

[taxattack]

Thank you very much for your response.

The company secretary is indeed also a director. So, with all this in mind, and having scanned over the Companies Act pdf you linked to (thanks again!) it would appear that we are now compelled to take some sort of action in relation to this. But what action can we take? The accounts are filed and we are automatically responsible for them as directors.

The amounts involved in terms of potentially fraudulent payments are relatively small (maybe up to £1000 over the last few years that we know of) but the whole thing is so cloaked in secrecy it's relatively hard to know.

How can we even approve accounts unless we have access to any of the underlying information? Do I have to take legal action against the company as a shareholder? As a director? Or as a leaseholder who has a contractual agreement with the freeholder that isn't being honoured properly?

What I want, is to report the actions of this director to whoever is responsible for investigating breaches of the companies act and have her reprimanded/fined in some way for taking such unilateral action to the detriment of all the other shareholders - but would they care? Would anyone care other than me?

I think that looking backwards won't help. Retrospective action will be complex and expensive, and if not inconclusive, may even backfire.

Looking forward, you need to persuade 2 other directors (giving you a majority) to take an active interest. Call a directors' meeting, and pass a resolution changing the bank mandate, so that the person cannot sign cheques unilaterally, and other changes you may want. (A company secretary is no longer required for a private company.)

There are some helpful books on management companies such as Residential Leaseholders' Handbook by Charles Ward.

Chris

 

[stark77]

Thank you both for your advice, it's very much appreciated.

 

[thevaliant]

Situation is not uncommon.

A better forum to ask is:
http://www.landlordzone.co.uk/forums/

Try the long leasehold section.

Personally, I view Flat Management Companies, especially where freehold is held by this company, a nightmare. There is a VAST raft of legislation, extending way beyond just the Companies Act (Various property acts ranging from 1925 to 2002 - Various H&S at work acts etc) that make owning a flat a disaster start to finish when people start getting upset (which they inevitably do).

 

[mahutchinson]

You need to make sure meetings, or resolutions in writing signed by each director, are passed for all major decisions. To avoid argument afterwards the minutes need to be written up and signed by the chairman, having been agreed by the board. This woman needs to understand that she has no more authority to do anything than any other director. If the articles follow Regulation 81 of Table A (probably Table C actually as I expect it's a guarantee company but it follows the same text) you can remove a director for not attending a board meeting for six months. However I expect that the articles also require all the leaseholders to be directors.