Residents Management Company (Property) - raising money

leafy211

I am an equal shareholder in a (property) residents management company. The directors wanted to raise some funds to pay for a court case they lost and simply demanded the shareholders pay £1000+ (each of the 26 leaseholders has a limited share of £1). Non payment of this demand was threatened with legal action (yes legal action threats are ​their go-to answer for everything!). 1. Were they legally able to raise funds in this way? 2. What other options for raising money, might be available (not including through service charges), bearing in mind each shareholder must remain an equal shareholder?

Titus_Wadd

We are members of dodgy management company and were presented with a bill for the legal fees of the building company as part of our estate rent change.  We refused as the action was made in the name of one of the directors in their private individual capacity.  It was a risk, as the ERC has to be paid on demand, when demanded but this was taking the p!ss!  Curiously they haven't pursued us for the balance. 

Our solicitor was cautious though, because the articles of association of the Management Company and the covenants tying us to being shareholders do require us to indemnify them for legal fees (amongst many other things).  Were the shareholders in your case consulted about the legal action proposed?  Could they propose future legal action is presented to a vote at a shareholders' meeting in future?

I'm laughing because this assumes you have an AGM or any sort of real Management Company!  We don't!

I suspect that if they love a threat of court action they'd find another way to pay for it; maybe save up a sinking fund in advance of their next claim.  It's a terrible system!  You would not believe the sh!te we've been asked to pay for!

leafy211

hi!  I would indeed believe it .. Im constantly in a state of incredulousness.  I wish the action had been made in the name of one of the two directors .. we might not have him in situ still, if that had been the case.  We did have an AGM before covid - March 2019.. average attendance of 6, out of 26 .. apathy of the other leaseholders doesnt help, thats for sure. No sign of another AGM yet (even though the managing agent bragged about the zoom AGMs he was holding, when he was touting for the business back in September).
The two Directors called it a cash call as per the articles, but then demanded the money through tenancy demands, put the money in the service charge bank account, and accounted for the money with the service charges (taking some of the existing service charges to pay the shortfall).  Couldnt organise a p.. up in a brewery! :-)
Id still be very interested to know if a limited company is able to force shareholders, who own limited shares, to simply give them money (no new shares issued, nada) under threat of legal action etc.   They explicitly didnt want to use service charges as a method of collection as there are differing % paid by the leaseholders for their service charges, and these two directors would have to pay more.  Not that Im saying they behaved this way for their own gain ... 

anselld

If this was any maintenance or repair bill there would need to be a section 20 consultation prior to incurring costs in excess of £250 per leaseholder.  I am not sure if there is a route to challenge this charge via the First Tier Tribunal but you could get advice on that from https://www.lease-advice.org/

leafy211

indeed maintenance and repair bills have also had 'cash calls', which are clearly just wrong.  But as for how company money can be raised, that is really my question.  (I have asked lease advice for guidance but they dont advise on company/business law)

Titus_Wadd

Leafy, I sincerely hope you find an answer and would be very grateful for an update, even if it's at a much later date.  Our situations differ because we are freeholders.  I also don't have any real understanding of company law and there are many questions I would have asked, with hindsight, before we bought this house had I appreciated how vulnerable our position would be.  Sending positive vibes to you.  Equally if I unearth anything that might be useful to you in the course of my own research I'll post it here.

user1977

leafy211 said:

indeed maintenance and repair bills have also had 'cash calls', which are clearly just wrong.  But as for how company money can be raised, that is really my question.  (I have asked lease advice for guidance but they dont advise on company/business law)

There's no general obligation on shareholders to cough up money for the company, if that's your question.

leafy211

Hi 1977 - yep indeedy effectively that is one of my questions ..
So what is it that stops there legally being a general obligation?
And if there is no way to enforce a shareholder to chip in more money, how could a RMC raise money from its shareholders, bearing in mind each shareholder must have an equal amount of shares (currently one each)?

NameUnavailable

Right to manage companies don't trade, they aren't there to make a profit.

Most leases will have a clause that allows the freeholder to charge legal costs back via the service charge, which is probably what they're trying to do. You need to read your lease to see if they can do that.

user1977

leafy211 said:

Hi 1977 - yep indeedy effectively that is one of my questions ..
So what is it that stops there legally being a general obligation?
And if there is no way to enforce a shareholder to chip in more money, how could a RMC raise money from its shareholders, bearing in mind each shareholder must have an equal amount of shares (currently one each)?

Why would they want to though? The proper way of getting this money is to charge everyone qua leaseholders rather than as shareholders.

leafy211

Hiya
As mentioned in my original posting, the charges are NOT through service charges, but through shareholder cash calls. 
Why they want to?  Because the liability for the flats differs on service charges but doesnt on shareholder's equal contributions.  
Doing things the proper way doesnt come into the equation with these two Directors.
So im still keen to learn (see my original post)
1. Were they legally able to raise funds in this way? 2. What other options for raising money, might be available (not including through service charges), bearing in mind each shareholder must remain an equal shareholder?