QUESTION
To what extent are directors of an RTM company (with joint freeholder status and fiduciary/ duty of care obligations) be liable for ensuring that their formal duties are indeed carried out fairly, properly and in the best interests of the company as a whole, and not readily abused by colluding managing agents, solicitors etc.. Has this basic principle been tested within any civil framework that may prevail and, if so, could you please refer to precedents that may apply in this connection? The issues referred here are of particular interest in cases where the majority of board director may be holding the majority of voting rights which clearly subjugate those of minority shareholding directors who nonetheless will continue to retain their other individual civil rights, in such instances. We continue to read regular reports of such cases where discreditable (unlawful?) behaviour is left unrectified by "rogue'" managing agents and dominant, colluding client-directors holding the "operational keys" to their business activities for personal gain. This topic has formed the basis of much disquiet in the residential property management field for decades without clear guidelines being made available for those ignorant or disinterested enough to ensure justice is carried out forcefully by way of remedy. At worse, one presumes that a tort at law - in whatever shape or form it takes, may be capable of effective remedy by being matched by a set of remedial measures, at the very least!
ANSWER
The day-to-day management of a company is the responsibility of the directors. Some of the directors' key duties are as follows: Fiduciary duties: to act in good faith in the best interests of the company; to act for proper purposes; not to make secret profits; and to avoid conflicts of interest. Common law duties of: skill and care; and mutual trust and confidence. Statutory duties: to creditors and employees; to disclose any personal interest in contracts; to observe restrictions on, among other things, loans to directors and substantial property transactions; health and safety matters; procedural requirements; and to ensure that the company does not trade while insolvent. In addition to having the usual responsibilities as directors of regular limited companies, directors of tenant-owned companies are responsible too for maintenance of the building. Company law enables a leaseholder-shareholder to bring a derivative claim against any bad director(s) in the company's name, to recover the company's losses, with the Court's permission. Alternatively, you could seek to obtain an injunction against one or more directors. However, these remedies are expensive and most likely, it would be cheaper and quicker to orchestrate the removal or any 'rogue' director(s) by an ordinary resolution of the members at an EGM of the company. Ultimately, if leaseholders are not happy with the company's management of their building, they can apply to the First-tier Tribunal of the Property Chamber (Residential Property) for a manager to be appointed pursuant to Section 24, Landlord and Tenant Act 1987, to manage the building in place of the company.
Shmuli Simon, Consultant Solicitor at Integrity Property Management Ltd
