Accounting for RMC

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    #31
    Thank you

    2016-2018 has been covered at a S27a hearing in 2019 and I have been awarded credits to my service charge account of £6,000 .

    My issue is the Appointed manager has now written to Tribunal proposing our accounts start from £0 so she can collect funds to start management.
    I don’t accept that my S.27A decision for the credit of £6,000 should be dismissed because the Directors have not complied with the S24 handover. There are a lot of unpaid service charges that should be recovered and my success from the S.27A hearing should not be removed from me to remedy the situation.

    Do you have any suggestions to what I could propose to Tribunal to resolve the stalemate. It is clear the Appointed Manager needs to find a way to start management but my S.27A Decision should stay intact.

    Enforcement of the order seems the only route but that will take months and the appointed manager will need money to fund it.
    I also do not accept I should incur further costs for an enforcement because of the Directors (who are also leaseholders) misconduct in breaching the order. I would argue that is not a reasonable cost.
    The Directors know the Appointed Manager has hit a brick wall.


    Comment


      #32
      It is a very difficult position you find yourself in. I know that others on here disagree, but I would always stop paying a RMC when there are serious deficiencies. The manager seems to be implying that you should take legal action against the RMC if you wish to recover monies but that is unlikely to assist you if the RMC has no funds and you are responsible for part of the RMC costs.
      The manager obviously needs funds in order to operate but if you are not careful all your contributions will be used on the management fee and any legal costs attempting to force the directors to pay their share of the charges and you will not see any benefit.
      In reply to your earlier question, your liability to the RMC is limited in the Memorandum of Association. It is usually a nominal amount and often it is only payable when the Company is liquidated.
      Your best option is to continue trying to remove the directors and hope that they will realise that they can no longer act.

      Comment


        #33
        One proposal could be.... the RMC (Respondent) borrow money (the AoA allows the RMC to borrow money) and use this to enforce the Tribunal order to handover the management information and bank accounts and then the Appointed Manager can have an audit of the accounts to determine the service charge arrears and recover the arrears from the guilty parties (leaseholders/Directors.)

        An order for costs for the enforcement through the county court will recover the costs for litigation and the RMC can then recover these costs through the service charges of the leaseholders who are guilty of the arrears.

        If the Directors refuse to authorise this they are demonstrating a conflict of interests, lacking in independent judgement and are in breach of their duties codified by CA 2006 and this will be further grounds for disqualification.

        I am assuming I ( as shareholder) would be protected from the RMC costs with the Ltd status? Is that correct? I suppose this also applies to the leaseholders who are also Directors and shareholders.

        Comment


          #34
          ......,If the Directors do not action this (which they won’t) then a shareholder could take Derivative action ?

          Comment


            #35
            The more the manager is involved with historical events, the more the costs will be, but she has the power to borrow money, enforce the FTT order and take legal action against the directors.
            The only advantage of the manager, which I can see, is that she is preventing the directors from acting against your interests.
            I cannot see how taking legal action against the RMC through the county court is going to assist you at this time. The manager could defend the legal action and argue that it is not in the best interests of the leaseholders.

            Comment


              #36
              Hi
              How long do accounting records have to be kept for? - Bank statements, service charge accounts, receipts and company accounts
              I am concerned that if the Appointed manager continues to delay enforcement of the Tribunal Order the Directors will destroy accounting records to hide the misconduct.

              Comment


                #37
                Originally posted by SHill View Post
                Hi
                How long do accounting records have to be kept for? - Bank statements, service charge accounts, receipts and company accounts
                I am concerned that if the Appointed manager continues to delay enforcement of the Tribunal Order the Directors will destroy accounting records to hide the misconduct.
                Business Records must be kept for 6 years under the Limitations act.

                If your appointed manager is assuming responsibility for service charge account going forward, then your £6000 (post # 31 ) is owed by the previous management of the service charge ( RMC and the Directors.).

                I suggest that you use the "small claims court procedure" to claim back your money from the "RMC and the Directors" ( claim "jointly" in case the RMC is insolvent ).

                Comment


                  #38
                  s388(4)(a) CA 2006 only requires a private company to keep accounting records for 3 years,
                  You may wish to consider s387 and s389 when preparing the list of the directors' failings.

                  Comment


                    #39
                    Thank you I thought it was three years which is not really long enough when it takes so long to get a case to a hearing.

                    Can you explain the following

                    Current assets
                    Cash at bank and in hand

                    Comment


                      #40
                      Current assets are any assets which should be capable of being converted into cash within 12 months. Apart from cash and monies held at the bank, they would include service charge debtors, other debtors and prepayments
                      Cash at bank is the bank balance and cash in hand is actual notes and coins.
                      I agree that accountants ought to define the terms which they use within the accounts.

                      Comment


                        #41
                        Sorry in advance for the long post - but basically it is a summary of your really helpful advice pulled together with a few extra questions to fill in the gaps.

                        Thank you for your assistance it has been incredibly helpful.

                        BALANCE SHEET


                        Current Assets

                        Cash at bank and in hand 1,639

                        Debtors 17,611

                        (19,250)

                        Creditors amounts falling due

                        within one year (19,250)




                        NOTES TO SERVICE CHARGE STATEMENT

                        Debtors

                        Service charges due from tenants 11,002

                        Other debtors 6,609

                        17,611


                        Creditors amounts falling due

                        within one year




                        Other creditors 14,670

                        Surplus to be credited to lessees 4,580

                        19,250


                        Questions


                        1. Service charges due from tenants -

                        -Service charges due from all tenants are paid 1/4 in advance total Service Charge Budget Estimate amount for year £11,325.

                        -The service charge budget is paid by 4 parties. The two parties that are not directors have paid all their quarterly in advance payments before year end 31 Dec evidenced by their Statement of Accounts.

                        - Service charges due from tenants 11,002 means the other two leaseholders acting as the Directors for the RMC have paid no service charges for the year or the previous year. Would that be your assessment? Service charges due from tenants from the previous year was 6,958.


                        2. Current Assets

                        Cash at bank and in hand is 1,639. why is cash at bank added to the Debtors 17,611 = (19,250) Cash at bank from the previous year was 605

                        - Why is cash in bank considered a debt owed to the company?


                        3. Creditors amounts falling due within one year on the notes is made up of (maybe Directors Loans ) (14,670) and surpluses to be credited to lessees 4,580 (previous year 2,436.) 19250

                        - Would you expect the current assets (19,250) and creditors of 19,250 , to be the Directors argument for a Directors loan?


                        4. There would be no need for a Directors loans if the leaseholders/Directors paid their arrears (A Directors Loan is the only explanation I can see for "Other creditors" 14,670) and as you have already said a Directors loan would not be necessary because there is a surplus.

                        - Would it be feasible to suggest the Directors are running Directors loans as a way to draw down money from the Company for themselves?


                        5. Surpluses If there are surpluses each year which have not be credited to lessees at year end and if the Company has enough funds the director can pay himself or herself back at any time. They would be considered a creditor to the business unlike other creditors they can draw money anytime. - The alleged surpluses have not been credited to lessees at year ends could the Directors be recording surpluses in the accounts and withdrawing them through Director loans?


                        6. Debtors on the Notes to the service Charge statement is made up of Service charges due from tenants 11,002 (leaseholder/Directors arrears) Other debtors 6,609 = 17,611.
                        • The Directors need to clarify what “Other debtors 6,609 “ relate to
                        • Once the available funds in the Directors loan are exhausted, the director is in default and, therefore, a debtor of the company. (Could this be an explanation for “ other debtors”)
                        • Why were the previous year “Other debtors 5,589” not settled as a balancing service charge at year end or
                        • Why was it not carried forward and included in the following year expenditure.
                        • Can you confirm this is how the accounting would normally deal with other debtors at year end.

                        7. In relation to the accounts there are a number of ways which misconduct can arise through Directors Loans:-

                        -For many small companies, the directors loan is unauthorised by shareholders and may not be accounted for in its books and records – it is merely something which is constructed to account for unauthorised drawings from the company by directors.

                        -If a loan has been made to a director from service charge funds, it will be contrary to s42 LTA 1987

                        -With the director’s loan account you do not have to put money into a bank account to be making a loan to the company. There may be situations when you declare to have personally bought some equipment for Company use; this is seen as you making a loan to the company, and the value of the equipment is added to your director’s loan account. (One Director has a vast property portfolio so could be using invoices from else where)

                        -If the business has enough funds the director can pay himself or herself back at any time. You’re considered a creditor to the business unlike other creditors you can pay money anytime. (The Director has off shore property businesses so If he was "loaning" the RMC money from an off shore business he could draw on this tax free.

                        -Often the loan is never repaid or written off via accounting entries (which are relatively easy to instigate in a small company) and thus the company is permitted to participate in a tax avoidance scheme.

                        -If a company has not accounted for the tax on the director’s Loan account balance as at the year-end, then this in itself can form grounds for a finding of misconduct.

                        -One way of clearing the director’s loan is by issuing a yearly dividend and using that to the balance of the director’s loan account.


                        8. Does any of the above apply for what appears to be misconduct on these Service Charge accounts - the accounts are clearly not transparent which I believe to be a deliberate attempt to deceive.


                        9. Boiling all this down, can you add any relevant points to the following which raises questions? :-
                        • All leaseholders apart from the Directors have paid their service charges before the year end and also for the previous year so Service charges due from tenants 11,002 must only relate to the Directors arrears.
                        • Clarification from Directors for “Other debtors” and to provide receipts to evidence this. Could "other debtors" relate to overdrawn Director loan accounts?
                        • Why are Directors loans necessary - if the Directors paid their arrears no loans necessary.(Legally, a directors loan is not available to a director unless s/he has the agreement of creditors (who may authorise a directors loan above a certain sum). Directors hold 75% of the RMC but, I have been excluded from meetings and voting for themselves creates a conflict of interests.
                        • If the director has a balance available on their director’s loan account, they can merrily draw down on their loan account with no tax implications or reporting requirements, provided the account remains in credit. This is open to abuse and could be disguised remuneration.
                        • Where are the transactions recorded for the Directors Loan account and are they required to disclose it in a service charge statement?
                        • What are the statutory requirements for Directors Loans - when does it need paying down to avoid Corporation tax charge - S455 and Beneficial Loan Benefit in Kind.

                        Comment


                          #42
                          sorry typo at point 3

                          14,670 not (14,670)

                          3. Creditors amounts falling due within one year on the notes to the service charge statement is made up of (maybe Directors Loans ) 14,670 and surpluses to be credited to lessees 4,580 (previous year credit 2,436.) 19250

                          Comment


                            #43
                            1 Yes, it certainly looks like the 2 directors have not paid service charges for approximately 2 years
                            2 Current assets = assets which are already cash plus other assets which are expected to be converted into cash within 12 months (see #40) = 1,639 + 17,611 = 19,250.
                            The assets appear in the order of liquidity. Cash is not considered to be a debtor, it is recorded separately.
                            3 Creditors – there ought to be more explanation regarding the creditors especially if they include directors’ loans
                            The other debtors of £6,609 appears to be the only reason for the RMC to borrow money. You could be right, it could relate to the insurance and if it is paid in say 2020 for 2021, the RMC would need to borrow monies until the service charges were collected in 2021.
                            4 There is no problem as long as the directors’ loans exceed their service charge debts. If the loans were repaid first, they would be effectively lending monies to themselves.
                            5 Depending on the terms of the lease, surpluses would normally be credited to the leaseholders when the accounts are completed in order to be offset against the following year’s charges.
                            6 The heading “other debtors” is unusual as explained at #12 and you should enquire further. I am assuming that you are right and that it relates to insurance. If it is, then the £5,589 would be included within expenditure for the current year.
                            7 The accounts do not record any loans to directors subject to further details of “other debtors” and subject to confirmation that loans from directors are included within creditors and those loans exceed their service charge debts.
                            If loans have not been recorded within the books, they would be difficult to trace other than by examining carefully all the items on the bank statements and checking them with the accounting records.
                            There is nothing wrong in directors lending monies to the RMC and drawing those monies out at any time. There would be no tax payable unless interest was being added to the loans and that would appear under expenditure.
                            A dividend would stand out and would appear under expenditure.
                            Invoices supplied by a director’s company could only be identified by inspecting the documents.
                            8 There is nothing obviously wrong with the accounts, you just need more information about “other debtors” and “creditors”.
                            9 If “other debtors” relates to insurance, it would be a proportion of the total insurance premium
                            If the directors have lent money to the RMC, no agreement with other members or creditors is necessary. The directors are entitled to withdraw their own monies at any time subject to para 4 above
                            The directors should disclose any balance on their loan accounts and the note regarding transactions with related parties should mention the loans.

                            Comment


                              #44
                              Another question

                              On the Notes to the Service Charge statement

                              Surplus to be credited to lessees - if money is to be credited to the lessees is the figure without brackets?
                              if there is an over spend would the same figure be in brackets?

                              What I do not understand is how can there be Debtors "service charge due from tenants" £11,002. and Creditors amount falling due within one year "surplus to be credited to lessees" £4,580. Surely if there are service charges due, there would be no credits to lessees.

                              If there are £11,002 service charges due and, "other creditors" (maybe directors loan) is £14,670, does that mean if one amount is taken from the other and if "Other creditors" is a Directors loan, it is then £3,668 in credit at year end?

                              Comment


                                #45
                                Surplus to be credited to lessees - if money is to be credited to the lessees is the figure without brackets?
                                if there is an over spend would the same figure be in brackets?

                                Yes
                                The debtors are amounts actually invoiced, whereas the surplus is yet to be credited. So the £11,002 owing by the directors should be reduced by their share of the surplus.
                                If there are £11,002 service charges due and, "other creditors" (maybe directors loan) is £14,670, does that mean if one amount is taken from the other and if "Other creditors" is a Directors loan, it is then £3,668 in credit at year end?
                                Yes, that should be the net position at the year end.

                                Comment

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