Dormant freehold property company - what duties are permitted by Directors/shareholders

leafy211

 Im an equal shareholder (and leaseholder) of a company which owns the property freehold. The Managing Agency has recommended the freehold company becomes dormant and they will manage all the service charges/invoices etc.  However, the Directors of the freehold company would still need to approve the invoices and oversee the day to day management of the freehold property etc. And shareholders would still be able to vote on the odd items that come up throughout the year, as well as at the AGM.  Would that all be permitted I wonder? 

greatcrested

What do they mean by 'becomes dormant'?

I suspect they mean just leaves everything up to them, freeing them from oversight, hassle and potentially limiting what they choose to charge for.

It is certainly important that the Freehold Company continues to operate as a legal entity, thus holds AGMs and files annual reports and elects Officers.

The extent to which the FC decides to employ a Managing Agency is a matter of choice. A MA will have experience of managing buildings, and some are very efficient. Some however are appalling. They can also be very expensive. But relying on the FC to manage the building is very dependant on the skills, and time, of the Officers and other volunteer shareholders. It can work well, or can spiral into chaos and apathy.

* how large is the building? How many flats?

* who are the Directors of the FC (I don'tmean names, I mean are they sensible? Active? knowledgable?)

* Does the FC hold AGMs? Other meetings? How involved are shareholders? Would you/others prefer different Directors? Why?

* how long has the MA been employed? Are they efficient? Good value?

* are ground rent and service charges collected properly or are there non-payments that are ignored?

* what state are the finances in?

* is the building properly maintained?

leafy211

Hey Greatcrested - apols Ive left so much information out!  
So what they are referring to is that, as far as companies house is concerned, the freehold company becomes a dormant company.  This is due to no money coming in or going out of the company via invoices etc, as this would all go through the managing agency.  And as service charges are effectively held in trust for the leaseholders, the agency would also naturally manage that anyway.
The freehold company does normally have AGMs however the one due to be held in March 2020 was cancelled due to covid, and the directors havent yet set a date for 2021 (if indeed they ever get round to it!).  I have asked about this already, possibly through zoom etc, but was told not everyone has internet access (???) so it wouldnt be fair to use an online medium. Im assuming covid is allowing some stretch on AGMs taking place, but not sure.
The filing would be as a dormant company, as no money coming in or going out of the company account. I think any change in Directors would also need to be advised to HMRC, even for a dormant company possibly?
The agency of course does the minimum it can get away with .. standard behaviour Id guess.  And as the Directors dont want to create work for themselves, the agency apparently does very little.
There are two buildings, totalling 26 flats. 
The two Directors havent got a clue, even though they have been in situ for 5 years (its too scary sometimes), but the leaseholders living in their flats (a fair few are now let), arent keen on joining on the board.  One of the Directors (the Chairman) is a forthright salesman who lets his flat (he lives in another town) and the other is a timid construction guy. Neither are IT-savvy nor have a clue about how leaseholds work. 
I have asked several times for them to set up some sort of forum/online group for leaseholders to be able to communicate between themselves etc, but of course this is simply ignored - the idea of transparency would freak out both the Directors and the managing agents :-).  (The current directors turned down my offer of joining the Board as frankly, id simply show them up! :-).  And as i am in the separate building of two flats, me and my neighbour upstairs who is in the process of selling, I dont know the other residents and dont have access to their building, to try and get nominated/seconded etc).  
We have used this agency for 5 years and during that time, there have been a huge amount of complaints about them (raised at AGMs). But the directors are reticent to find another agency - that would mean some work for them.  And the apathy of other leaseholders means things remain as are, unfortunately.  Their basic charges are competitive, however the add-ons invoices have grown and grown, so costs are now double the basic rate.
There is no ground rent to pay.
The Chairman (the sales chap), at an AGM, advised that he isnt too worried about shortfalls in unpaid service charges (which are of a very small value), as people will have to pay up when they sell their property.  
Finances are, I think, mostly fine, though the financial reporting at the AGM is always very confused and illogical.  Without fail there are always many questions about the finances taken away by the Chairman to find out the answers (he clearly doesnt even understand the question being posed at the time).  Unfortunately he has shown time and time again that he cant add up, its that simple.  This frighteningly means he doesnt have a clue about what he is signing off when putting his signature to the accounts. 
And do we ever receive an update on the AGM actions? No, not until the next AGM.  Absolutely crazy!
My building is properly maintained as all costs (external) are paid 50/50 by me and the guy upstairs. So we have just got on with any repairs as they have come along.  The other building is a different matter and hence the major repairs schedule I mentioned.
Soo .. getting back to my query after that very long rant (apols) :-).  If the freehold company is listed at HMRC as a dormant company, can the Directors and leaseholders continue ticking along in the same way, as if an active freehold company.  AGMs being held, daily decisions being made, authorising payments from service charges, having final sign off on accounts, 3rd party contractors etc?
thanks a million in advance for any thoughts you might have.
(apologies again if its a bit of a ramble .. )
take care
Louise

greatcrested

Sorry - I'm not very up on company law, so can't answer you query about a dormant company, filing accounts at companies house etc.

I can only really comment on the more practical side.

Seems to me the set up is far from ideal on 2 fronts: a) the Managing Agency and b) the Director of the Freehold Company.

There are two options.

a) leave well alone. Don't make work for yourself. Rely on the fact that things tick over, albeit not ideally.

b) get involved. Try to make improvements. To do this you will have to get into the other building and communicate with other shareholders. Gather support. Then either take over at the next AGM (having garnered enough votes), or get motions passed, again with enough votes, to force the Director to do.... whatever needs doing eg

* better communication with shareholders/more transparancy

* change of Managing Agency or bringing the work in-house

* etc

leafy211

thanks Greatcrested.. Ill have a mull

anselld

https://www.gov.uk/set-up-property-management-company
Becoming dormant seems to be at the discretion of HMRC and it seems to save very little work other than submitting a CT return.  Which makes one suspicious of the motives of the management company in suggesting it as a good idea.  What's in it for them?

leafy211

Hmm indeedy, i cant think why there is a benefit to the company, as the service charges have to be presented by an accountant anyway..  Is there something I could be missing?   And could it possibly reduce the power legally, of the directors (and shareholders, who are the leaseholders)?  Im struggling to understand how a freehold company can function as normal, with all the decision making and meetings etc, but be classed as dormant ... even if money isnt going through the freehold company's bank account .. 

Nicked_Name

I'm a Director for a Residents Management Company (14 flats) - we have been declared as dormant, this is for corporation tax purposes only as we are considered to be "not trading" - this was agreed direct with HMRC.  Practically it means one less piece of annual paperwork.   Our only income is from service charges and any annual surplus goes to the sinking fund.  All other aspects of the Company business carry on as normal such as: decision making, accounts, insurance, repairs and AGMs etc.
It's the least of my concerns - shareholder apathy, for the reasons you have touched on, is causing the Company to crash and burn....

leafy211

Thanks a million for your reply, thats very much appreciated.  And good to know that whatever way things go, control stays with the company.  I did have another line of thought .. if for example a tenant took the freeholder to court over not maintaining the building etc .. how would that be possible if the freeholder was a dormant company?  The managing agents would run a mile for sure! :-)

anselld

I feel you are not grasping what has been stated that "dormant" in this context is purely a status with regard to Corporation tax.  It doesn't carry most of the normal meanings that word would have in plain English.  Unlike being dissolved the Company can become active again if circumstances change or indeed if HMRC dictate.

Dormant does not stop many (most) of the activities and responsibilities of the Directors and it does not prevent the company being held accountable for any liabilities. 

Which is why I asked the question earlier, what exactly is in it for the management company that motivates it to recommend dormant status?  I really don't know the answer.

leafy211

Indeed i wasnt then grasping what a dormant company means .. but i think i do now, with your clarification. Thank you for that.