Residents management company off the rails

[Cogcog]

Anybody know the companies law and proceedure for when directors get a bit flash with the company cash?

( a few facts chaaged to protect identity)

I sit as one of 5 resident directors on a residential managememt company responsible for maintaining the grounds and common areas of a small estate of houses. We all pay £1k a year in charges( 5k PA overall) which covers the gardener for the shared grounds, electricty to the drive lights, sewage plant emptying and servicing, window cleaning, CCTV and alarm servicing etc and a reserve to cover repairs and replacement of the sewage system and the TV satellite system. All went well for 6 or 7 years and we built up a reserve of £16k.

Then a majority of the residents wanted to apply a fancy surface to the car park ( £10k) and install a new gate ( £2.5k). Fearful that we would not be able to cover our costs in the year ahead i suggested, and residents approved at the AGM, a reserve be kept of £5k at all times.

They sadly chose the wrong contractors, so 8 months on weeds are coming through the new drive and the drive contractor is nowhere to be seen to honour the 5 year warranty. ( I did warn them he lived on a caravan site). The gates have been left incomplete because, against the treasurer's advice, they paid the contractor upfront and he didn't fully pay a sub contractor who stopped work The contractor too is nowhere to be found. They had no written contracts.

Now it seems 3 of the 5 directors are having impromptu meetings to authorise more money to be released to beautify and finish the gates (now including £400 for a carved entrance stone, £400 of fencing and £1500 of gate pillar tops) and telling the other two (inc. me) that it is a majority decision and there is nothing we can do about it. They are also spending on other projects that improve the approach to one of the houses which is on the market ( thus the £10k weedy drive). Cash at the bank is now under £3k, despite us agreeing on a £5k reserve and we still have £1k this financial year in obligations for electricty, gardener etc.

The rules we are agreed and minuted after previous mismanagement of funds ( one director spent £1000 for a CCTV camera upgrade to cover his new car) was that anybody could spend £50, two directors in agreement could spend £200 but that anything else had to come back to the full group of five directors for a decision. What is happening is that we get an email saying they intend to spend the money, and if we object, they say it is a majority decision, despite no meeting being held or minuted.

I suspect their plan is to vote to hike the service charges at the AGM next month to cover the shortfall and to carry on spending. The management company is dormant on companies house as we sought a trust status, as we were only managing the money for the residents.

The only thing I think I can do is to vote not to increase the service charge, and/or refuse to pay any increase in service charges because of the previous financial mismanagement.

Does anyone with more experience know what the legal position is on service charges, and not paying an increases?

(lesson, never buy property which has shared grounds when one or more people want it to look like Versaiiles)

[Europa1]

Difficult to say without knowing the full facts, a copy of the articles etc, but as a starter for 10, if they want to pass things by written resolution instead of a meeting, the resolution requires unanimous consent.

How many residents are there and what is their view?

[C Lee Farquar]

I think the additional contributions will pale into insignificance against the unsaleability of your house if the minutes reflect significant discord.

As a case in point you are already advising people not to buy a house with a similar maintenance arrangement, and it hasn't got nasty yet.

[Cogcog]

C Lee Farquar said:

I think the additional contributions will pale into insignificance against the unsaleability of your house if the minutes reflect significant discord.

As a case in point you are already advising people not to buy a house with a similar maintenance arrangement, and it hasn't got nasty yet.

That was one of my thoughts. We have deliberately kepy any discord out of the public arena or minutes for that reason.

[Cogcog]

Europa1 said:

Difficult to say without knowing the full facts, a copy of the articles etc, but as a starter for 10, if they want to pass things by written resolution instead of a meeting, the resolution requires unanimous consent.

How many residents are there and what is their view?

Five. Two are only here for part of the year. it seems the one full time resident is playing a whispering game by telling us all that everyone agrees with his plans and therefore people individually go with the flow. But basically he gets the two absent residents to agree, tells us what is planned then crashes on and when we object he says it was a majority decision, although no meeting was held nor or vote was taken.

We rarely get all 5 people here together and one has to join by Skype or proxy for the AGM. The two on the 'wrong' side of the cartel would be quite happy if there was a costed project plan at each AGM so we know what is being spent and on what, that we have 2 or 3 written quotes which are selected from. Then we could make sure the reserve is maintained and not overspend.

I personally think the main protagonist is thinking about selling and is raiding the coffers to make his approach look at it's best for sale. Anything he can't see he fights.

As long as I pay my £1k, and get the services I need, and maintain a reserve i dont really care what they spend the rest on as long as it is done responsibly with competitive quotes and with an audit trail (lots of payments by bank transfer, rarely any receipts). My neighbout is the same. the otyher 3 are quite wealthy and obviously see the fund as money for nice things like wine evenings ( i refused to pay out)

[Cogcog]

Saw the main protagonists tpoday, he was very sheepish. Said he hadnt realised all the money was gone, but did ask when the service chrage was due to be paid by us all!

[0-100-0]

I would suggest that the main problem you have is who is on the bank mandate. If you resolve that you won’t have any issues with unauthorised expenditure.

[Cogcog]

0-100-0 said:

I would suggest that the main problem you have is who is on the bank mandate. If you resolve that you won’t have any issues with unauthorised expenditure.

The guy with the bank account control is one of those (2) with concerns. He gets a bill with a demand it be paid today. He raises his concerns but is told the majority think it should be paid.

[951TSE]

Cogcog said:

0-100-0 said:

I would suggest that the main problem you have is who is on the bank mandate. If you resolve that you won’t have any issues with unauthorised expenditure.

The guy with the bank account control is one of those (2) with concerns. He gets a bill with a demand it be paid today. He raises his concerns but is told the majority think it should be paid.

I'm no expert but isn't the simple solution that the guy with the bank account ask to see written agreements / resolutions signed by a majority (quorum) that the expenditure is approved as you said earlier individual directors can't authorise large payments on their own. I would have thought that he'd want to do that to cover his position should it all go wrong.

[0-100-0]

951TSE said:

Cogcog said:

0-100-0 said:

I would suggest that the main problem you have is who is on the bank mandate. If you resolve that you won’t have any issues with unauthorised expenditure.

The guy with the bank account control is one of those (2) with concerns. He gets a bill with a demand it be paid today. He raises his concerns but is told the majority think it should be paid.

I'm no expert but isn't the simple solution that the guy with the bank account ask to see written agreements / resolutions signed by a majority (quorum) that the expenditure is approved as you said earlier individual directors can't authorise large payments on their own. I would have thought that he'd want to do that to cover his position should it all go wrong.

I suggest you read your company's Memorandum and Articles or Association. They will set out what constitutes and quorum and whether decisions require a majority or a unanimous vote. Then (if it is not already in the documents) I suggest that you agree that expenditure can only be approved at a proper meeting of residents and hold all future meetings via a conference call (you can do this on your mobile) or skype so that all residents can attend.

You need to put past expenditure behind you as a lesson for the future. There is little point in arguing over it as it will only fuel discontent. In future contractors should be properly vetted - someone needs to check their track record (via references) and possibly they financial status (accounts at Co House if available). Maybe you should offer to do this.

If your whispering bullying neighbour continues in his attempts to cajole individuals in the group, then this needs to be addressed during one of your meetings where at least most of you are present. He will soon back down.

[stuartdenton]

Having been chairman of a residents management company. A total of 15 flat of which one is owned by me.
You clearly have no management procedures in place starting with a company Secretary who would be responsible for all logging of all finances. Also looking at the amount spent section 20 notice should have been triggered. This is a formal proceedure that must be followed if the amount to be spent is greater than 350 pounds per flat (this figure may have increaed).