Guide to being a Residents Management Company (RMC) director

Why on earth would I want to do it?

Many an RMC director has asked this question when dealing with their fellow leaseholders!! On top of this, it’s usually voluntary and unpaid!!!

What you do get is decision making power over your building/estate. In all but the smallest buildings, management by committee simply wouldn’t work so directors are appointed by either fellow directors or leaseholders to represent their interests and make key decisions.

The responsibilities of directors

Whilst you have decision making powers, this comes with legal responsibility. Most notably, if the company becomes insolvent, your responsibilities as director will apply towards the creditors, instead of the company. i.e., you will be liable to pay this money.

We always recommend that RMC’s take out Directors and Officers insurance to cover this risk.

General duties of a director

As a director, you must perform a set of 7 duties defined under the Companies Act 2006.

1. Company’s constitution

You must follow the company’s constitution and its articles of association. These are written rules about running the company and can usually be downloaded from the Companies House website

https://find-and-update.company-information.service.gov.uk/

The constitution sets out what powers you have as a director, and the purpose of those powers.

In addition to this, you are also bound by the terms of the leases to the property. The RMC will often be a named party in a lease agreement and bound by the covenants of the lease. As an RTM or RTE company, you will take over the landlord’s covenants in the leases.

2. Promote the success of the company

You must act in the company’s best interests to promote its success. In the context of RMC’s, this will include

• Understanding the consequences of decisions, including the long term.
• Need to act fairly to all members of the company
• Ensure the company is financially solvent

3. Exercise Independent judgement

You must not allow other people to control your powers as a director. You can accept advice, but you must use your own independent judgement to make final decisions. This is particularly important in the context of making difficult decisions or dealing with the opinions of difficult leaseholders (who ultimately won’t be accountable).

4. Exercise reasonable care, skill and diligence

You must perform to the best of your ability. The more qualified or experienced you are, the greater the standard expected of you.

You must use any relevant knowledge, skill or experience you have (for example, if you’re a qualified accountant).

5. Avoid conflicts of interest

You need to tell other directors and members about any possible conflict of interest, and follow any process set out in the company’s articles of association.

This duty continues to apply if you’re no longer a director. You must not take advantage of any property, information or opportunity you became aware of as a director.

6. Third party benefits

You must not accept benefits from a third party that are offered to you because you’re a director. This could cause a conflict of interest.

7. Interests in a transaction

You must tell the other directors and members if you might personally benefit from a transaction the company makes. For example, if you employ a contractor on behalf of the company to improve an area of the estate that may benefit your flat but not others. A common example of this is a director that might authorise the internal re-decoration of an internal communal area where they have a flat but NOT extend this to other communal areas. This action would also breach the “fairness” requirement.

Companies House requirements

In addition to the day to day running of your company, you’ll need to file annual accounts and a confirmation statement with Companies House every year. You must also report any changes to your company when they happen and keep up to date with any changes in company law.

You can hire other people to manage some of these things day-to-day (for example, an accountant) but you’re still legally responsible for your company’s records, accounts and performance.