RTM Co Director Accused of Self Dealing

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    RTM Co Director Accused of Self Dealing

    Dear forum members, I joined the forum this morning after searching the internet for help with a problem. My partner is a director of a right to manage company - they took over the running of their building a couple of years ago - and he's getting hassle from the other directors.

    He had serious health issues which resulted in him giving up a profitable business and suffered financial difficulties, got behind with service charges but has since paid them and is up to date. The directors have written to him and accused him of "self dealing" by using his position as a director to grant access to running credit by not paying his account.
    Another example given was his use of the common areas. He has had a small, stand alone bbq set up in a quiet, out of the way are of the communal gardens, it has been there for at least 15 years, well before the residents began managing the building. Other residents also use the bbq and this space, so he isnt denying anyone else the use of it, yet he is being accused of self dealing and that he has assumed a personal right to common parts by using his bbq.

    I have googled the definition of "self dealing" and it seems to apply to particularly to the financial sector, making money for yourself instead of your clients, so it seems a highly exaggerated term to use in this case. This all seems very petty, almost bordering on harassment and my only assumption is that they want him to resign as a director and are using this as a reason.

    It is also possible that the managing agent - appointed by the members - is advising the directors. Would it be ethical for them to be assisting the possible removal of a director of the company that appointed them?

    I was wondering what other people who have experience of the obligations of directors think about this situation. Thank you kindly to anyone who has any advice.

    #2
    The normal term would be conflict of interest for such situations. He should declare such conflicts of interest in any meetings discussing those matters and not vote unless a general meeting of the company has voted to disapply the rule on conflict of interest. Article 19 of the model articles gives more detail. There is no formal requirement with regard to conflicts of interest in general meetings, but it would be best practice to declare them and abstain from votes. They must be declared in board meetings.

    Service charges are a priority debt, so, if they had a mortgage, they would need to be on the point of foreclosure, or bankruptcy, before they withheld them.. Bankruptcy or a general arrangement with creditors would terminate the directorship under article 23 of the model article for RTM companies. Insurers may not want anyone in financial difficulty to vote on anything to do with money. The credit rating of the RTM could be impacted.

    Barbecues can be nuisances and fire risks, and any exception made for one person would be a precedent for others, so I think those directors not involved in the conflict of interest should give serious consideration to its removal, although the length of time might be an issue. Removal could be on the basis of trespass as well as breach of explicit covenants.

    Comment


      #3
      Managing agents have been known to interfere with the appointment and removal of directors so that they may control the board, but the Articles of Association (paragraph 23) of a RTM list limited ways in which a director’s appointment can be terminated.

      Other directors must have been aware of all service charge arrears and either approved the debt or failed to take any action against your partner. If the arrears have been cleared, it is no longer a problem.

      The use of a bbq seems to be petty and again the other directors must have been aware of its use and presumably raised no objections before.

      The credit rating of the RTM would not be affected by a conflict of interest by one of the directors who did not have control of the company. Every director of a RTM has a conflict of interest because (s)he is required to pay service charges.

      Comment


        #4
        The credit rating might be impacted by having a director with a poor credit rating. Credit reference companies get the real home address of directors, and the law wouldn't provide for that if it didn't want the company and director credit histories linked. It wasn't the conflict of interest itself, but that a director was in personal financial difficulties.

        Comment


          #5
          There is no evidence of the credit rating being affected and there is no action which the other directors could take even if it were. The only grounds for removing a director would be 23(b) if a bankruptcy order is made against the director or 23(c) a composition is made with the director's creditors generally in satisfaction of that person's debts.

          Comment


            #6
            Whilst managing agents are ultimately the servants of the company,one of their big roles is to advise the board on the legal issues associated with block management. The board will typically not even be familiar with the legal issues about running a company.

            The agent should be advising the board, but the board should retain the ability to reject the advice. The managing agent should follow the board's instructions unless they result in the company or the managing agent committing an offence. However, if the board repeatedly refuses to accept advice, a principled managing agent would resign.

            The agent should certainly be advising the company that it should have chased this debt promptly, and that the director in question had a conflict of interest and should be excluded from any vote on the subject. . Advising their removal would probably be going too far (although would be appropriate if they were charged with or convicted of an non-motoring offence). Neither the board nor the managing agent can remove a director. Only a general meeting of the company can do that. That is a safety feature to stop a board removing dissidents from its ranks.

            Comment


              #7
              You are right that a directorship is not terminated by a poor credit rating, but the members could remove them because of that and it would be best if they resigned voluntarily, or avoided any decisions on money.

              Given that such companies generally have atrocious credit ratings in the first place, it may well be the case that a bad director credit rating may not make much difference. On the other hand, contractors are probably basing their credit decisions on their rating of the managing agent's ability to ensure that money is available when needed, so they would want a managing agent that advised, and a company that followed the advice.

              I'm not sure whether credit rating is a big thing for insurers, but some things, like convictions or open charges of directors for health and safety issues or fraud are likely to result in refusal of cover.

              Comment


                #8
                The RTM company is company limited by guarantee , non profit and non-trading company and does not require to have any credit rating.

                The managing agent is appointed to administer the service charge account and collects the service charge contribution from each leaseholder in the block of flats, according to the percentage in their lease.

                The obligation to pay service charge is in the lease and paid by the leaseholder of the flat. The RTM Director has no legal right to demand any waivers on paying service charge from the managing agent. The Managing agent must know there is no-self dealing..

                Comment


                  #9
                  Companies don't get to choose whether they have a credit rating. Every company has one and contractors that work for them may well check it. As I said, it may, in practice be the case that they rely more on the agent's rating.

                  Although they technically don't own the service charge, they are trustees for it and, in practice, credit decisions will be made as though the company had beneficial ownership of the service charges.

                  My understanding is that the service charge debt was built up before the managing agent came on board.

                  Whilst the individual director has no right to request a waiver, the company, as represented by the directors as a whole can do so, even it it does put them in a position where they don't have the money to perform their duties under the lease.

                  Strictly speaking this is a waiver of enforcement, not a waiver of the debt.

                  What isn't clear to me is how they influenced the decision not to enforce. The remaining directors should have insisted that they paid up. In fact, I would say that directors should be setting an example.

                  Comment


                    #10
                    Regardless of the strict legal position, this director is going to be perceived by ordinary members of the company as abusing their powers. A lot of the really acrimonious cases seen on these forums, heading for the FTT, are the result of such perceptions of abuse of power. Directors are very vulnerable to conspiracy theories.

                    I'd suggest an example of this is the thread that hinges on D&O insurance, but often people talk of "the directors" as though they are power unto themselves.

                    Comment


                      #11
                      I do not think that the credit rating of the Company is relevant here, the service charge funds will not be considered as they do not belong to the RTM. There is no evidence that the RTM is having difficulty entering into contracts.

                      The service charge debt is no longer an issue, it has been repaid. We have not been told if the managing agent was acting at the time of the debt, in which case it would have had a duty to advise all the directors and at least agree a repayment plan in respect of the arrears.

                      Comment


                        #12
                        Thank you kindly for your replies. It is quite enlightening to see things from several different perspectives, so I am truly grateful. I spoke with my partner this morning and he initially wasn't happy that I'd asked for advice on the forum, but I think it's had a positive effect as he's been a bit more open about past events... in fact I now can't shut him up!

                        I hadnt realised that the directors volunteer their time, I'd assumed he was paid for the hours he puts in attending meetings etc but he told me this morning that they all give their time for free. He's also acted as company secretary, filing annual returns and accounts and his personal address is being used as the registered address for the RTM Co. and he has never asked for reimbursement of the expenses he has accrued for this service. A year ago the managing agent was to take over secretarial services, yet they failed to act on instructions, didnt file the annual return and still have the RTM Co registered at his personal address, without his consent. It seems that the RTM Co has had the advantage of his good will, so all the more perverse that he's being accused of self dealing.

                        He also mentioned that there's been a bit of shennanigans from a few of the other directors that would also fall in the same category of what he's being accused of.

                        One director has had a sky dish installed. Apparently their policy had been that a communal service would be installed if there was sufficient interest but there were never enough residents who wanted to pay for it. One director was very pushy and so it was agreed on the condition that he paid for a communal rather than a single use dish, so that others could hook up to it later if they wanted. A few months after installation another resident asked to be connected and was refused on the grounds that the cabling would damage the building.

                        A previous director was using empty outbuildings (owned and rented out by the landlord) for personal storage, without the landlord's knowledge and without paying, with the collusion of the caretaker and other board members. This seems like self dealing.

                        Another director has taken complete control of the communal garden area, removing established plants and using personal funds to buy plants to replace the existing ones, installing trellises on the side of the building to encourage climbing plants and instructing their caretaker to maintain them. I've told him that surely everyone benefits from this, and he agrees, but he thinks this is also an example of self dealing as the use of personal funds to enhance common areas excludes the input and interest of other residents.

                        It's all getting a bit complicated and theyve asked him to consider his position as director, asking for a 'discreet' meeting. This seems to me like a veiled threat ("meet us, resign, and we won't tell everyone what a naughty boy you've been, having bbqs") and it's very troubling. These people are his neighbours and, although he won't admit it, I can see it's chewing him up and playing on his mind. He suffered from depression a few years ago and this whole affair is just the kind of thing he needs to avoid.
                        Last edited by Holy Cow; 11-08-2019, 12:50 PM. Reason: clarification of previous points

                        Comment


                          #13
                          Oh, my last post in reply to your responses was removed because of suspected spam as I edited it a few times. Will it get re-posted please?
                          Thank you kindly.

                          Comment


                            #14
                            Hello again. It seems the moderators reinstated my deleted post #12.
                            The use of common areas and gardens is enshrined in the lease and there is no mention of BBQs etc.
                            There has been a development since then: he met with the directors and agreed to resign - he has no enthusiasm now - and they agreed to having a BBQ and other caveats that are allowable under the lease. He asked them to confirm it in an email and agreed to respond offering his resignation.
                            He received an email this morning but it is missing half of what was agreed, so he was going to reply asking for clarification when an another email was received announcing to the managing agent that he had resigned. This is plainly not true, they seem to have resigned him themselves.

                            Can this be done?

                            thanks again.

                            Comment


                              #15
                              It is a matter of fact whether or not your partner has resigned as a director. You state that he agreed to resign so it would appear that he did or at least there is some confusion. If he is claiming that he has not resigned or his resignation was conditional on other matters, he should advise the managing agent before Companies House is informed.

                              Other directors cannot force a director to resign, they would need to call a meeting of members and include on the agenda a proposal to remove your partner as a director. They would also need to inform your partner and allow him to put his case to the members.

                              Whether or not your partner would wish to argue a case for remaining to be a director and whether or not he is likely to succeed at a meeting of members are matters which he should consider carefully, If he does not have the appetite to continue, it may be simpler to accept that he has resigned. It is worth noting that directors are jointly responsible for the actions of the entire board of directors so your partner may consider that he would prefer not to be a director considering some of the decisions being taken by the other directors.

                              Comment

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