I am an equal shareholder in a (property) residents management company. The directors wanted to raise some funds to pay for a court case they lost. They simply demanded the shareholders pay £1000+ (each of the 26 leaseholders has a limited share of £1). Non payment of this demand was threatened with legal action (yes legal action threats are their go-to answer for everything!). 1. Were they legally able to raise funds in this way? 2. What are other accepted ways for a RMC to raise money, besides through service charges?
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It looks like you need to change the directors,
If the Memorandum of Association states that your liability is limited to £1, that is all you need pay. Even that is sometimes stated to be only payable when the Company is liquidated.
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Hi. Doesn't sound like a service charge but just to be logical: If the landlord under the lease (RMC in this case) believes there is a clause in the lease that permits it to claim back legal costs as admin fees or service charges it should be able to identify the clause(s). LLs in the past have tried to use 'sweeping clauses' that courts determined were not relevant. Legal charges are a well trod path in the courts.
It also depends on why the legal costs arose. As one example, in UC(LC) Fairborn v Etal Court, an RMC was left with unclaimable legal debts of around £25K generated defending court action against it. (I don't know if the UT was overturned at higher court but that case may be worth reading if not).
If the service charge is not available, then the RMC must turn to its members who may be the same people if all/most flats have shares.
As said, if the articles put no liability on members, the RMC will be in a bind. No directors should incur debts without knowing they can pay them. If the legal costs are not paid, I imagine there will be some rather knowledgeable in law and equally rather miffed creditors.
On the other hand, if nobody pays the debt off, all the lessees lose out. Shareholders should use their powers always to oversee and insist to have directors who act with reasonable care, skill and diligence.
Do not read my offerings, based purely on my research or experience as a lessee, as legal advice. If you need legal advice please see a solicitor.Comment
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The RMC may have a claim against the directors, who in turn, may be able to make a corresponding claim under the directors and officers insurance policy, The directors ought to be educated not to use the monies belonging to the RMC to embark on legal action if there is a chance of losing the case and not to expect others to pick up the costs of their actions.Comment
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