Who appoints the Directors of our Company (which owns the freehold)

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    Who appoints the Directors of our Company (which owns the freehold)

    Does anyone have any expertise on the appointment of Company Directors. We own (and rent out) one flat in a converted house of 5 flats. We and each of the other 4 flats owns one share in a company that owns the freehold.

    I am trying to confirm the process for appointing new Directors. I know that this will depend on the Articles of Association. These say that there must be at least one Director and there is no maximum. On the appointment process the Articles say:

    "The Company may by Resolution appoint a person who is willing to act to be a Director either to fill a vacancy or as an additional Director".

    I know there are 2 ways in which Directors are appointed - either 1. they can either be appointed by the other Directors or 2. they can be appointed by an ordinary resolution of the shareholders. My problem is that the Articles as above say 'The Company' appoints the directors. I don;t know if this means the Directors or the shareholders. I had assumed that it was the shareholders as elsewhere in the Articles it talks about 'the Directors' doing things, so I assume 'the Company' means the shareholders. Can anyone confirm this?

    We have owned the flat for 10 years and to be honest it has had little management. The Company was dormant and the shareholders were only in contact once a year to arrange the building insurance and collect payments for this. We received a notice last month from new management agents introducing themselves and issuing an invoice for the next 6 months and a Section 20 notice. for various works. We and several other shareholders have expressed concern over the proposed works. The costs of over £5,000 are mainly for surveys and reports that they will do. We all agree that there is work that needs doing but we want to have a say over what these works are - in particular what are the priorities.

    The managing agents are refusing to answer questions from the shareholders or provide us with more information (including a copy of their contract and the basis on which they were appointed.

    I have looked at the companies house records and it seems that there were 3 Directors but there is now only one Director of the Company (one of the other flat owners). I have contacted here and she is similarly unhelpful. She was apparently appointed in August this year but we were not informed of this or asked to vote on this. I have asked her what process was followed in her appointment. She said that one of the previous Directors (who has now sold her flat) "asked me to do it and I said yet". I have suggested that this does not seem to follow the terms of the Articles. I have therefore suggested that we need to hold and EGM so that the shareholders can vote to confirm her appointment and also vote on any other shareholders who may wish to put themselves forward as Directors. I suggested that we also discuss the managing agent's contract. All of the other 4 shareholders (including the Director) have agreed that we should hold an EGM next week, which they all agreed to and intend to attend (the Articles say that 14 days notice should be given but a shorter time can be agreed by a majority of members).

    I informed the Managing Agents of this and asked that they stop any further work until the shareholders have had an opportunity to discuss this next week. They have written back to me to say that the appointment of the current Director "was appointed in accordance with the Articles". They also said that "the Company does not recognise your meeting as an EGM.".

    I am absolutely fuming. We have a Director that we do not seem to have appointed. A managing agent that we have not agreed. And the managing agent now seems to be telling us as shareholders what we can and cannot do.

    Anyway, this all seems to go back to the Director's appointment and if she was appointed legally and therefore had the power to enter into this contract on our behalf. Also whether we shareholders can appoint other Directors so that we all have a say in the future. There are only 5 flats so ideally I think we should all be Directors so that everyone can be involved and agree things but I understand that not everyone may want this responsibility.





    #2
    Generally a Company is controlled by either its board or by a general meeting, so I would say that the director has probably been validly appointed. If you can get 5% of the voting rights, you can require an EGM to be called, and to appoint one or more additional directors.

    You can also call one to require the removal of a director, but that needs more than 14 days notice.

    Surveys and reports generally don't need section 20 consultations.

    You should ask the managing agents for details of their redress scheme, which they are legally required to provide, and their complaints procedure, which the redress schemes will require them to provide, then use them.

    Note that the managing agent should respond to enquiries from leaseholders, but not from shareholders, except in as much as they are leaseholders.

    Comment


      #3
      Originally posted by esgd27 View Post
      I informed the Managing Agents of this and asked that they stop any further work until the shareholders have had an opportunity to discuss this next week. They have written back to me to say that the appointment of the current Director "was appointed in accordance with the Articles". They also said that "the Company does not recognise your meeting as an EGM.".
      Hi,

      In your OP you don't say if the company is limited by guarantee or by shares?

      You say you have owned the flat for 10 years, has the company adopted Model Articles or is Table A applicable?

      You refer to a EGM, is there a specific requirement to hold an AGM each year?

      Lastly you don't mention if the managing agent is also acting as the corporate secretary?

      Comment


        #4
        Thank you for this. In answer to your questions:

        The company is a private company limited by shares. There are 5 flats and each flat has 1 share. So we have 1 share or 20%.

        There are articles, which I have a got a copy of from Companies House but I don't know if these are Model Articles or Table A. The company was set up in 2005, before we owned the flat.

        The Articles refer to the process for calling an AGM and EGM but it does not specifically say there should be an EGM each year.

        And yes the managing agent has been asked (by the Director - who we did not appoint) to be the Company Secretary.

        The articles do say how Directors are appointed. They say:

        "The Company may by Resolution appoint a person who is willing to act to be a Director either to fill a vacancy or as an additional Director".

        So hence my original question - who is 'The Company'?

        Elsewhere in the Articles there are references to The Director(s) doing things. So I presume 'The Company' here means the shareholders rather than the Directors. Also the reference to a 'Resolution' I thought meant something voted on by the Shareholders rather than the Directors. But I do not know enough to be sure and I can;t find anything by looking online.

        If the Directors are just appointed by other Directors, and not by the shareholders, I do not see how we (the other shareholders and I) can change the situation so that the shareholders are properly involved (ie by seeking election as additional Directors ourselves). There is only one Director and she does not seem inclined to allow any discussion or involvement by the other shareholders. Surely that can't be right?

        Comment


          #5
          I think the wording is badly done, but the Company is the corporate person and something that can be done by The Company can be authorised in any way that The Company can make a decision. Normally company decisions are delegated to the directors, who might not be shareholders. However, it is normally possible for a company to make a decision in a general meeting, where the shareholders vote.

          Both general meetings and board meetings make resolutions, so, whilst Resolution sort of hints at a general meeting, I'm not convinced it is limited to that. The bit about filling vacancies or adding directors is normally found under the powers of the board, so that hints that the directors have the power to appoint other directors. It would certainly be the normal case that they have that power.

          It is almost essential for them to have that power when a director's resignation would take them below the minimum allowed number.

          Typically with companies that require AGMs, an appointment by the directors needs to be ratified at the next AGM. It sounds like you don't have such a clause,and that you don't have one requiring an AGM. As such, since 2006, an AGM will not have been required, and its functions should have been replaced by circulating the accounts to the members.

          In terms of table A, etc. I think you actually have a completely custom set or articles, not one based on one of the models.

          As long as you can get a 75% majority, you can change the articles, although you should be aware that some changes could affect the tax status of the company.

          As long as you can get a 50% majority, you can force the removal of a director.

          The board is required to call a general meeting within certain time limits, if requested to do so by people representing at least 5% of the voting rights. In your case, that means any shareholder can force the calling of a general meeting.

          If they fail to do so, you can call it yourself, recover the costs from the company, and the company can then recover them from the defaulting director(s).

          Comment


            #6
            A majority of members can arrange a meeting and waive the notice requirement. You can appoint directors at the meeting and as long as you can outnumber the other director you need not remove her.

            Comment


              #7
              Originally posted by esgd27 View Post
              The Articles refer to the process for calling an AGM and EGM but it does not specifically say there should be an EGM each year.

              And yes the managing agent has been asked (by the Director - who we did not appoint) to be the Company Secretary.

              If the Directors are just appointed by other Directors, and not by the shareholders, I do not see how we (the other shareholders and I) can change the situation so that the shareholders are properly involved (ie by seeking election as additional Directors ourselves). There is only one Director and she does not seem inclined to allow any discussion or involvement by the other shareholders. Surely that can't be right?
              Hi,

              You and the other 3 shareholders can change the position you currently find yourselves in.

              Do not waste time concerning yourself that you believe the current director was not properly appointed.

              As you own 20% of the voting rights you alone can request that the current director call a General Meeting. The current director should then notify the company secretary. Look at sections 302-307 Companies Act 2006.

              In your OP you state the current director has agreed to a meeting. It is her responsibility to request that the company secretary calls the meeting in line with either the AoA or Companies Act 2006, whichever takes precedent. (You have not made it clear which articles the company is governed by, mention of 2005 would imply Companies Act 1985 and Table A)

              I am not legally qualified but I would ensure that any meeting is 'carried out to the letter' and that would involve the managing agent, acting as company secretary, in the first instance.

              If your proper written request to the current director is not acted on then you and the other shareholders can look at section 305 CA 2006, but I would advise to take proper legal advice.

              Comment


                #8
                I suggest that :

                1. You check the membership list of your company at Companies House correctly includes your name and names of other 4 leaseholders.

                2. Make a written proposal calling " for every shareholder to become a director so as able to attend the directors meeting and ask one other member to second your proposal " and propose a suitable meeting date ( giving atleast 21 days notice ) and meeting place to discuss the proposal and vote to pass the proposal. You can accept proxy votes from anyone not able to attend the meeting.

                Get yourself voted into post of director first.

                Comment


                  #9
                  Such a proposal needs to be in the form of specific wording changes to the articles of association, and you need a 75% majority, which, in your case, means everyone except the current director needs to vote for it, in person, or by proxy.

                  Note, in general it is not a good idea for everyone to be a director as you will be lucky to find anyone who understands the the responsibilities of being a director of an RMC, and you are likely to get decisions made that are in contravention of the lease and of statute law, because people think they are a good idea without understanding the legal constraints under which they are working.

                  Comment


                    #10
                    Definition of Extraordinary General Meeting (EGM)

                    An extraordinary general meeting refers to the general meeting that is held, to transact the matters concerning the administration of company’s affairs which requires the consent of the members concerned.

                    When it is not possible for the company to wait for the next AGM, the company’s articles of association provide for holding general meeting other than the AGM, to transact special business items, which are known as Extraordinary General Meeting. It may be called by:
                    • Board: Whenever the board considers suitable, it holds an extraordinary general meeting of the company.
                    • Board on the requisition of members: The board summons for an EGM, when it receives requisition from a sufficient number of members, on the date of receipt of the requisition.
                    • Requisitionist: When the board, does not call for meeting within 21 days from the date of receipt of valid requisition with respect to any matter, the requisitionist may call for EGM, within 45 days of such requisition.
                    • Tribunal: An EGM may also be called by the tribunal on the application of any member or director, who possess the right of casting votes if in case it is not possible to convene the member’s meeting.

                    Comment


                      #11
                      I suggest that you do not require 75% majority for a company owning the freehold of a converted house.

                      50% voting (by Resolution ) should be enough to get you in as a director of the company.

                      Don't bother to ask any questions about anything until after you see your name listed as Director at Companies House

                      Comment


                        #12
                        There is no need to complicate matters or change the Articles. A majority of members can call a meeting of members. You should invite all members and the company secretary and anyone else specified in the Articles eg accountant to attend. At the meeting a simple majority of members can waive notice if necessary and appoint directors. Have some AP01 forms available at the meeting (they can be printed off from the Companies House website). Ask the members who are willing to act as directors to complete an AP01 form. Send the completed forms to Companies House and keep copies. If the Company files documents electronically you may need to obtain passwords from the Company Secretary or remove the Company Secretary.

                        Comment


                          #13
                          51% will get you a director, but it will not change the rules to make every shareholder a director. They would have to be individually appointed, and this would need to be repeated when the share was sold.

                          You could make every shareholder at that point of time a director, subject to their all consenting and being old enough, not disqualified, having sufficient mental capacity, etc., but that would only be valid for the shareholders at that point in time.

                          Note you do not require a majority to call the meeting. With only five shareholders, any shareholder can request the meeting be called. You always need to specify the purpose of the meeting, and, if changing constitution, you need to specify the exact resolution to be passed.

                          Comment


                            #14
                            You have a majority so you can use it to arrange a meeting. There is no need to serve a notice and wait for the Company to arrange the meeting. Members can decide if they wish to be directors.

                            Comment


                              #15
                              You do need to prepare some Minutes of Meeting to inform everyone including your MA about what was decided and who was voted to become a director .

                              Comment

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