Request to inspect register of members ignored

[neil_f]

Hello,

We own a leasehold apartment in a block of around 140. The former managing agent seemed quite competent but was far from open and transparent with the lease holders. The company was sold and resigned the position of company secretary (and managing agent) in 2020. The directors appointed a new managing agent, who seems to me less competent and has increased the service charge 25%. I have complained to the managing agent about a couple of issues and been very unimpressed by their response.

After a resignation there are currently only 2 directors of the management company (the minium allowed in the articles of association). I applied to the company secretary to become a director and was told initially that I had been accepted and asked to complete the form for companies house. After meeting the directors and the owner of the managing agent company, I was sent an abrupt rejection. I believe they still wish to operate in the same manner the previous managing agent preferred, i.e. without the involvement of the leaseholders as far as possible. Requests as to how the directors become directors are routinely ignored on the residents facebook group for example.

I have told the directors that it is my intention to put myself up for election by fellow leaseholders and have been attempting to find out how the management company operates and have applied to become a member of the management company. The membership request was initially ignored. I sent a chasing email 2 weeks later and received an abrupt 'we will be in touch as and when' type response. It has now been almost 8 weeks and after emailing every two weeks or so I have now been told it's in hand with the lawyer and will be resolved soon.

This morning I sent a Section 116 request to inspect the register. I received a response from the company secretary saying it was already in hand as we told you last week. I also received an email from a lawyer saying they represent the management company and they had been instructed to add my wife and I to the membership of the management company and to reconstitute the statutory registers. They also said that I should not contact the company officers directly and only deal with the lawyer firm.

I am pleased that after 8 weeks of requesting it seems the membership request is finally being actioned. However I am concerned that my suspicions that the statutory registers have not been maintained appears to be correct. I believe it is quite possible that no directors have ever been elected by members and they have always just been appointed by other directors. It may even be possible that there have never been any members registered. The articles of association are clear that under no circumstances will anyone other than a member be a director, so I'm not sure where that would leave the two current directors if they are not members.

Much of this is not at all clear hence the section 116 request to inspect the register. So far that request has been ignored. I'm not sure that the company secretary or the directors understand the significance or the time limit for a request to inspect the register of members. They have probably have just passed the whole thing off to their lawyer and not explained that the later was a formal request to inspect the register.

If the statutory registers have not been maintained is this a criminal offence?

If they do not respond to a request to inspect the register I understand this is a criminal offence but who should it be reported to?

It isn't my intention to cause the management company or it's officers any issues but this situation has confirmed my worries that they are not running the company as required by the companies act and they do not want anyone questioning the way it is being run.

I'd be grateful for any advice or suggestions.

Thanks

[eagle2]

It is up to the solicitor to explain the limited options available to the Company under s117. If you do not receive a reply within 5 working days, your best option is to contact the breaches team at Companies House breaches@companieshouse.gov.org who will write to the Company and remind it of the need to comply with the legislation, The Articles will explain if the directors are allowed to appoint other directors and if the directors need to seek re-election. You may need to contact your fellow members and seek support for a meeting of members under s303 if the directors fail to arrange a meeting.

[Gordon999]

S117 Companies Act 2006 , says this :

117Register of members: response to request for inspection or copy

(1)Where a company receives a request under section 116 (register of members: right to inspect and require copy), it must within five working days either—

(a)comply with the request, or

(b)apply to the court.

(2)If it applies to the court it must notify the person making the request.

(3)If on an application under this section the court is satisfied that the inspection or copy is not sought for a proper purpose—

(a)it shall direct the company not to comply with the request, and

(b)it may further order that the company's costs (in Scotland, expenses) on the application be paid in whole or in part by the person who made the request, even if he is not a party to the application.

(4)If the court makes such a direction and it appears to the court that the company is or may be subject to other requests made for a similar purpose (whether made by the same person or different persons), it may direct that the company is not to comply with any such request.

The order must contain such provision as appears to the court appropriate to identify the requests to which it applies.

(5)If on an application under this section the court does not direct the company not to comply with the request, the company must comply with the request immediately upon the court giving its decision or, as the case may be, the proceedings being discontinued.

[neil_f]

Thank you both.

I had found the section 117 information but wasn't sure who to complain to so thank you eagle 2 for the email address of the breaches team at companies house.

I emailed the solicitor yesterday to explain the situation and to ensure he understood the company secretary was in receipt of a section 116 request. I'm still very much hoping that the solicitor will get back to me before 5pm on Monday to allow me to inspect the register of members and there will be no need to contact companies house. Although I suppose the fact the register has not been updated and is not stored at the company secretary's office is in itself a breach.

I have a strong suspicion that there may not actually be in any members or haven't been for many years. I also suspect the two directors may not be members themselves, which is a condition of becoming a director very clearly defined in the articles of association.

[neil_f]

I have received an incredible response from the solicitor acting on bahalf of the management company.

They are refusing to accept my complaint regarding their not responding to my membership request (it's been more than 8 weeks now) and not replying to my specific queries regarding the register of members etc. however they are also refusing the section 116 request on the basis that I am not yet a member and only members can access the register. I know this is incorrect however do consider that this letter is coming from their solicitor.

On the other hand, they have finally come clean and admitted that they have misplaced all the statutory registers and will need to try to recover all of them where possible or start new ones. This is the real reason for the delay, they can't add me to the register of members because the register of members doeas not exist. I doubt if one ever has existed.

I am planning to advise them that they are wrong regarding the section 116 request and as 5 days has already passed are now in breach. I will also let them know they are in default regarding all the statutory registers.

I'm not sure what to do about it though. If I report it to companies house will this not result in a lot of fines for both the company and it's officers? I can't really see how this would benefit the leaseholders. The leaseholders need to know that their management company has been run very badly though. I have yet to start making enquiries regarding the accounts and as they don't publish these, am seriously worried there will be a similar level of irregularity.

[eagle2]

On the positive side, the Company cannot now apply to Court to avoid disclosing the register under s117.

It looks very much like the solicitor does not specialise in Company Law. I suggest that you refer to the requirement to keep a register s113, the requirement to keep it available for inspection s114 and the right for any person, including non members, to inspect the register s116(1). I also suggest that you refer to the offences being committed under s113(7 and 8), s114(5 and 6) and s118.

The Company is probably also in breach of the lease and its Articles both of which should specify your right to be a member. The Company’s failure to keep proper records does not mean that you lose that right.

It looks like the Company is admitting that it has failed to keep proper records and that it intends to keep them now, so I suggest that provided it undertakes to complete the records, you allow it more time, say 10 working days, failing which you will take further action.

[Gordon999]

You can check "Companies House" for records of filings by the management company secretary and it should show the last filing of its members .

[fos333]

You can check "Companies House" for records of filings by the management company secretary and it should show the last filing of its members .

I note the use of 'should', my RMC who employs a managing agent, who also acts as company secretary, has not provided a list of shareholders/members for the last 2 years.

It states there is updates, however, the information is missing.

[neil_f]

I have sent a very strongly worded email to the solicitor today along the lines you covered eagle 2. I gave them 5 working days to sort out the register of members and our application as they have previously promised sending documents for approval this week. I really hope they do because I don't want to cause the company or it's officers to be receiving fines. Is it more likely that breaches team at companies house would contact them and instruct them to correct these issues prior to any fines or prosecution?

Regarding the filings at companies house there are no filings for members. There are for appointment and termination of directors but not for members, although they have filed confirmation statements confirming all required information has been filed. Incredible as it sounds I suspect there never have been any members of the management company.

The articles make clear that there are no circumstances where a person who is not a member can become a director. This means the position of the two directors could be disputed. At some point I intend to make a summary of the situation and post this on facebook where (some of) the leaseholders will be able to view it. I can imagine this would be difficult without offending the directors and causing bad feelings. It would be sensible to have the director positions up for election but I can't imagine the directors accepting this proposal.

[eagle2]

The breaches team would spell out the consequences to the Company if it does not comply with the s116 request. No penalties would be imposed at that stage, so it would serve to focus the minds of the officers of the Company if they fail to comply with your deadline.

Normally, you would become a member automatically when you become a leaseholder and cease to be a member when you dispose of your apartment, I am curious to know what papers they intend to issue you for approval at this stage, The Company must have members at all times and I suspect that each leaseholder is a member and the register should record each one as such.

I suggest that you enquire if the Company Secretary is charging any fees. It looks very much like it did you a favour by rejecting your application to become a director.

When the register has been corrected, I suggest that you ask the directors to call a meeting of members and politely suggest that they need some assistance.

[neil_f]

Thanks again. That's good to know. If they don't resolve the our membership issue within 5 days then I will contact the breaches team at companies house.

The articles require a written application to be a member and you are correct that a purchase agreement consititutes a membership request however they also require either a signed consent form or a signing of the register of members. Without either of the signature requirements fulfilled the leaseholder is not a member. I don't believe anyone has ever signed the register of members and suspect I am the only person to have submitted a signed consent to become a member. There certainly is no record of either.

The previous managing agent had been in place for many years, as has one of the directors and I believe they ran the management company in a secretive or at least non open and transparent way and very much were happy to keep the leaseholders in the dark regarding their rights to become members and how the directors were appointed. These questions have been asked many times on the residents facebook group and have always been ignored.

To be fair to the managing agent/secretary they inherited this problem when they took over from the previous managing agent. On the other hand they did not identify it as a problem and have not done anything to resolve it. My queries have been replied to but none of the queries answered. My overall feeling with both the management of the building and acting as company secretary to the management company is that they are out of their depth.

I also believe I dodged a bullet by having my director application rejected however I don't feel I can risk such a large investment to be poorly managed and want to be directly involved. The reason given for the rejection was they felt they already had my skillset covered by the two current directors. I am very doubtful of that and hope they may have formed a different opinion by now.

At our only meeting the secretary asked are you an accountant as a parting question. It seemed a very odd question as I had previously explained I had been technical director to several firms and never once mentioned being an accountant. My suspicion at the time was they were looking for a reason not to appoint me but now believe it more probable that it is because the accounts may also be in a mess. They did tell me that they were unable to move away from the previous managing agent's accountant because no one else understood the accounts. They also mentioned that the previous agent had been borrowing forward from the next years accounts and other odd practices that has been partially to blame for a sudden increase in service charges.

[eagle2]

I suggest that you ask your solicitor to disclose the information provided by the Company when you were acquiring your apartment. The standard enquiries form LPE1 contains a section regarding membership and that is when any forms would usually be supplied and completed.

A competent Company Secretary should have been aware of the need to keep the register of members but there is no excuse for failing to act when the problem was drawn to its attention.

I agree that you should enquire further regarding the accounting. It is unsatisfactory for an external accountant to be the only person who understands the accounts.

I suggest that you enquire what exactly is meant by “borrowing forward from the next years accounts”. Is the budget being prepared properly? Is there an annual deficit? Is there a reserve fund? Is it being used properly for the stated purpose in the lease? You should be provided with a breakdown of the service charge expenditure and you should be able to identify the specific cost headings which explain the increase in service charges.

[neil_f]

The solicitor and company secretary have not responded to my last email sent a week ago. I sent them a further email today pointing that fact out. I guess they are calling my bluff regarding taking further action. It's a bad situation and one that I was really hoping to avoid but unless they contact me tomorrow I guess the best way to get this resolved is to report them to the breaches team at companies house.

Once it is resolved an I am a member I will start to make enquiries about the accounts.

[eagle2]

I agree that it should not be necessary to involve Companies House but unfortunately, it is not unusual for the officers of a Company to ignore their duties until they are reminded by a 3rd party of the penalties involved. It will focus their attention.

In reply to a previous comment, s161 CA 2006 states that "the acts of a person acting as a director are valid notwithstanding that it is afterwards discovered -- (a) that there was a defect in his appointment ....".

[neil_f]

Thank you again eagle 2.

I did receive an email from the solicitor today requesting a phone call rather than email. I did call him and he explained the paperwork to become a member was almost complete and would be sent tomorrow. I explained that I didn't see the need for new paperwork as it was already well covered in the articles etc. He said the directors want to be able to minute that a membership request had been received and approved etc. I think I have an issue with this as I don't believe the directors should have any say on who becomes a member or not (as long as they are leaseholders who have applied to be members).

I told him I had prepared an email for the breaches team and he said it wouldn't be helpful and if there are no registers to inspect there would be no point to a section 166 request. I said I would wait until after I had received the paperwork before making any decision. I also queried how he could reconsitute the registers if they didn't exist. There must be some information somewhere and I would like to see it.

The s161 CA 2006 is very useful, thanks.