QUESTION
I am the Chairman of a RTM Company.
We are experiencing difficulties from a group of Members who, having called one EGM for which there was no Motion proposed thus causing the meeting to degenerate into Anarchy, have now called another requesting the three Directors be removed from the Board but one to stay on adinternum to facilitate the co-option of additional Directors.
This has caused two of the Directors to resign with immediate effect thus leaving just myself.
I understand I must now call an EGM for the sole purpose of appointing Directors but what would happen if I resigned with immediate effect.
Your observations would be appreciated.
ANSWER
The Companies Act 2006 dictates that a private company must have at least one natural Director.
In direct answer to your question, the consequence of the sole natural Director of an RTM Company resigning, is that the company would fall foul of company law and if no Directors are forthcoming, could be struck off. However, there is no real risk to the existing Director once he has resigned.
Although the likelihood of the company being struck off is remote, it does have to born in mind – how would Leaseholders feel if RTM management reverted to the Landlord? RTM legislation allows this if the RTM Company ceases to exist.
The key document to refer to here is the Articles of Association for the RTM Company as it defines how official business should be conducted. RTM legislation requires that the Articles must follow a prescribed format; however, it is possible that changes have been made by the passing of a special resolution after the date of RTM acquisition.
There are a number of things to consider:
1. The Company, without correctly elected officers, cannot conduct official business.
2. The quorum for transacting official business (at a Directors or General Meeting) is two. A sole Director has no right to transact any official business other than to call a meeting to appoint further Directors or call a General Meeting for members of the company can appoint further Directors.
3. It is unlikely that a managing agent (if one is appointed) will continue to act for an RTM Company with no Directors to take instruction from.
4. If the Landlord of your property becomes aware that the RTM Company has ceased to exist, they are able, but not obliged, to take back management.
I am unsure of what has gone so wrong at this block to spur on this tricky situation - as someone who has witnessed his fair share of disputes between RMC/RTM Company members, it saddens me to think that situations can degenerate in this way.
However, it does happen and if anything this reinforces the need to adhere, absolutely, to the leases for the property in question. As long as the Lease is followed exactly for the management of the building, and the Articles are followed exactly for transacting company business, neither the RTM Company, it’s officially elected Board of Directors, nor the Managing Agent (if one is appointed) can be accused of wrongdoing.
In the first instance, I would rely on the managing agent (if one is appointed) to advise – any managing agent that knows what they are doing can assist in overcoming the proverbial ‘Boardroom-bust-up’ in their official role as Company Secretary.
Upon receiving an instruction from The Client, the Company Secretary will call the EGM to elect a new Board, advising those who are considering standing as a Director of the duties and obligations and then ratify these appointments at Companies House.
Stepping away from the Board may not be the answer, however tempting this may be. As a member of the Company, and therefore a qualifying tenant in the building the RTM was executed for, you are protected by Company Law in a constitutional sense and by Landlord and Tenant in a Lease owning sense and can therefore still influence proceedings with management at your block even after your role as Director has come to an end.
Liam Furr, Director of Property Management at PMS Managing Estates Limited
