What happens if the management company goes bankrupt?

rebeccak

I'm an owner-occupier of a long-term leasehold flat in a small block. The block has a management company (which all the flat owners are shareholders of and some are directors of). My lease is between the freeholder, myself and this named management company.

We have a history of one landlord (who unfortunately owns three flats in the block) not paying his service charge and at one point this resulted in the management company going bankrupt. Companies House then allowed them to re-establish the management company in the same name but I've been informed that it is extremely unlikely that they would be allowed to do the same again if there was a second bankruptcy.

I found this all out after purchasing the flat and, at the moment, we aren't in the position of being at risk of bankruptcy (touch wood!) but what would happen if the company did go bankrupt again?

The lease specifically names this management company (stating that the lease is between the freeholder, named management company and me) so does that mean the lease would be invalid and, if so, what would that mean in practical terms for me?

G_M

A lease can only be between 2 parties, so you need to get a better understanding of the set-up.

Why did/might the ManCo go bankrupt? What is it doing (or not doing) so badly?

If the issue is the non-paying leaseholder who lets his property, why
a) is the ManCo or Freeholder not enforcing the lease
b) are the Manco's finances so precarious that defaulting 3 leaseholders can result in bankruptcy?

Actually it sounds like the ManCo IS the freeholder, correct? If so, who are the Directors? Have you been attending meetings as a shareholder? Been to an AGM? Applied to become a Director so as to manage it better? Read the last 5 years accounts?

rebeccak

The first page of the lease states 'this lease is made [date] between [names freeholder] (hereinafter called 'the Vendor') of the first part, [management company name] (hereinafter called 'the Company') of the second part and [names flat owner] (hereinafter called 'the Purchaser') of the third part' - so it sounds like it is a lease agreement between three parties.

All flat owners are shareholders of the management company and some are appointed to be directors. The freeholder is a separate person who the ground rent is paid to but otherwise has no involvement.

I am getting involved and, as I've said, I don'tbelieve there is a current risk of bankruptcy but I'm the kind of person who just likes to plan for every eventuality and so I wondered if anyone knew the answer to what would happen if the management company no longer existed - in the situation where it is named in the lease like that.

eddddy

G_M wrote: »

A lease can only be between 2 parties, so you need to get a better understanding of the set-up.

There is type of lease called a tripartate lease - as rebeccak describes.

What is a “Tripartite Lease”?

A tripartite or tri-party lease is, quite simply, a lease made between three parties: (i) the landlord (ii) the leaseholder and (iii) a management company.

http://www.flat-living.co.uk/advice/505-what-is-a-tripartite-lease

m0bov

If the manco and freehold company go bust then the freehold goes to the crown. It means your property is un saleable. I would be speaking urgently to the directors. I would also seek legal advise in case of mal practise by the directors for letting the situation go unresolved.

eddddy

m0bov wrote: »

If the manco and freehold company go bust then the freehold goes to the crown. It means your property is un saleable. I would be speaking urgently to the directors. I would also seek legal advise in case of mal practise by the directors for letting the situation go unresolved.

That's unlikely to happen.

A freehold is an asset which would be sold to somebody else by the administrators.

Similarly, a management company contract would normally be an asset which is sold.

It sounds like last time the administrators sold the management contract back to the directors...

rebeccak wrote: »

...at one point this resulted in the management company going bankrupt. Companies House then allowed them to re-establish the management company in the same name but I've been informed that it is extremely unlikely that they would be allowed to do the same again if there was a second bankruptcy.

... but perhaps next time it would have to be sold to somebody else.


Edit to add...

And the leaseholders could compulsorily purchase the freehold through collective enfranchisement, if they wanted to.

G_M

Thanks for the correction edddy.

I still think the first step is to fully understand what the Manco is doing/not doing. Read the last few years' financial reports and AGM minutes (and any other meeting minutes), talk to neighbours, talk to Directors.

Attend next AGM and become Director

Richard_Webster

Does the management company that exists now have the same company number as the one that "went bankrupt"? There are two different scenarios:

1. Old company is "resurrected" - you can apply to reinstate a company but this is usually because someone slipped up and didn't file the annual returns. if it owed money and was liquidated for that reason then you are unlikely to have had this happen.

2. New company set up with same name but different company number. This is a separate legal entity and any obligations the old company may have had under the terms of the lease are not enforceable against it! Neither can it enforce any obligations lessees may have had on the original company's favour, to pay it money etc, unless each lessee has entered into a deed of covenant to do this.

rebeccak

I've looked up the records that are freely available at Companies House - I can't see whether it has always had the same company number but the whole history of the management company is under the one record on their website.

It says 'Final Gazette dissolved via compulsory strike-off' and then (a few years later) 'Restoration by order of the court', with a court document ordering that the company 'be restored to the register of companies' and that it 'be deemed to have continued in existence as if its name had not been struck off'.

Looking at the dates, this all happened about 15 - 20 years ago but I've only fairly recently bought the flat, found out about this and am hearing accounts of what happened and the possible implications from other flat owners who wouldn't have been around at that time and aren't experts on this type of thing.

Like I said, the company's current financial position is okay but, having heard about this history, and knowing about the ongoing arrears issues with one landlord (who unfortunately owns multiple flats in what is only a small block), I just want to understand the risks a bit better.

deFoix

What do the Articles of Association of the ManCo say about who can be a Director? As a leaseholder you may find that you automatically qualify. Who are the other Directors? Ask for a meeting to discuss these issues.

Seach for the Articles (incorporation documents here: https://www.thegazette.co.uk/companies )

Btw it sounds like the Freehold is not owned by the ManCo so this is not your concern. I'd be supprised if the lease didn't provide for a situation of which you discribe. What is the ManCo actually required to do under the lease?

deFoix

And just to be clear (and a bit pedantic) the ManCo went bankrupt not because Mr Landlord of 3 flats failed to pay his service charges but because the Directors wholly failed in their duty to collect the said service changes (using whatever legal means necessary) and to otherwise properly manage the finances and running of the company.

Although depending on the total number of leases? he may have a majority of voting rights which might slightly complicate things