Management Company Board Directors conflict of interest.

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em_cat

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If anyone can shed some light on this situation I would be really grateful.

We have 3 directors on our Management Co Board, 2 Developer Directors and 1 Residential Director. The issue is this, the 2 Developer Directors are also Directors of a leisure centre that is located in a building on the estate that does not have a building lease binding them to the OMC, thus meaning they are not liable for management fees.

However the 2 Directors have included for the leisure centre a balance of unpaid fees in our budget, we are now at the point where if we don't come to some resolution our OMC will become insolvent.

My question is this, how can the 2 Directors knowingly make sure that no building lease binding them to the OMC exists, but at the same time say that it owes the fees and forcing the OMC is to such debt that will make us insolvent?

Any help will be greatly appreciated, em_cat
 
That's a total contradiction. They cannot claim it is both not part of the OMC and also due fee's. Get a solicitor and get the lease. Do you have anything in writing with the two contradictory statements? You could try contacting the ODCE and see if they can help even if you dont.

Next thing is to 'remove' these two vultures. Developers don't make good company directors. Your company is being destroyed because of them and your property value and future sale is dependant on it. Don't let them ride over you.
 
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Firstly, many thanks for your reply. Indeed it is completely contradictory. We do have proof that no building lease exists for the building that 'houses' the commercial unit' so as we have been advised, a normal process of recouping the outstanding fees through a debt recovery process doesn't come into play, this is on advice from a legal team.

There is a plan to get in touch with the ODCE regarding the behavior of the 2 Dev Directors, however we are concerned that doing so would result in an immediate insolvency situatuation. What I can't get my head around is that the debt is listed as part of our current assets, however the debt is not disclosed in the Third Part transactions according to FRS8 section 17.2(i). From what I understand, no disclosure is because of the building lease issue, but how can they include the debt, but not disclose?

On the issue of getting the 2 Dev Directors removed, unfortunately it would take intervention from the ODCE as they have the majority vote.
 
em_cat said:
On the issue of getting the 2 Dev Directors removed, unfortunately it would take intervention from the ODCE as they have the majority vote.
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How come they have the majority vote? Do they own the majority of properties?
 
Yes the 2 Dev Derectors own a majority of the residential units, this does not include for any of the commercial units as there is no building lease binding them to the OMC so they don't have votes for those properties. As it stands, the privately owned residential units only make up appx 30-35% of the votes.
 
em_cat said:
Firstly, many thanks for your reply. Indeed it is completely contradictory. We do have proof that no building lease exists for the building that 'houses' the commercial unit' so as we have been advised, a normal process of recouping the outstanding fees through a debt recovery process doesn't come into play, this is on advice from a legal team.

There is a plan to get in touch with the ODCE regarding the behavior of the 2 Dev Directors, however we are concerned that doing so would result in an immediate insolvency situatuation. What I can't get my head around is that the debt is listed as part of our current assets, however the debt is not disclosed in the Third Part transactions according to FRS8 section 17.2(i). From what I understand, no disclosure is because of the building lease issue, but how can they include the debt, but not disclose?

On the issue of getting the 2 Dev Directors removed, unfortunately it would take intervention from the ODCE as they have the majority vote.
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The ODCE wont make a company insolvent, far from it in fact. The law is on the side of the directors until you can provide verifiable proof of wrong doing. That affects the directors and NOT the company in the first instance.

What proof do you have regarding the leases? Do you have the leisure centre lease? This would show that this building is not part of the OMC.

em_cat said:
Yes the 2 Dev Derectors own a majority of the residential units, this does not include for any of the commercial units as there is no building lease binding them to the OMC so they don't have votes for those properties. As it stands, the privately owned residential units only make up appx 30-35% of the votes.
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Majority vote was quashed in 2011. Today we work on a one member one vote as per the MUD act 2011 so each director will have one vote regardless of how many units they own. Of course they will know this but why tell you eh? Education is the key to success in management company operations.

The ONLY properties that are counted are those which have leases binding them to the company and the only members are those who own such a unit. If there are 100 houses in your development then there could be 100 members and 100 votes. If one person owns 50 of those houses then there is 51 members and 51 votes. No majority.

You need all director positions to be held by the residents to control your company. You do this normally at the AGM where you give written notice or an existing director can appoint new ones. The current crop may just resign willingly but if they have a financial incentive to keep hold and defraud you then they will fight to stay in control.

Normally you wont see which units are in debt on accounts so I am not sure how debts are in the account? They may be on the proposed budget for future years but that would be highly unusual. Mainly because such a disclosure is in breach of data protection if the person is a member.

Has everyone else paid their fee's? Normally units that have not paid have no voting rights as per your articles of association. You can get these plus your accounts off the cro.ie for 3quid each once you know your company number.
 
lantus said:
Majority vote was quashed in 2011. Today we work on a one member one vote as per the MUD act 2011 so each director will have one vote regardless of how many units they own.
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According to Section 15 (2) of the MUD Act it is one vote per residential unit, not one vote per member. So in our case, the Dev Directors own 60-65% of the residential units, which they do pay mgmt fees for and are settled up on that account.

We do have proof that no building lease exists for the leisure centre, as we also have proof of the Dev Directors ownership of the leisure centre, via the cro, and we also know that it is listed for a strike off as they are heavily in debt, again info obtained from the cro.

Another question is how serious is it if one of the Directors failed to include his directorship relating to the OMC on the B1 Annual return, however he has signed off on our budget submissions for the last 4 years?

I have a copy of the Company Law Handbook on Residential Properties, which has been very helpful, but can also be rather confusing.
 
em_cat said:
this does not include for any of the commercial units as there is no building lease binding them to the OMC so they don't have votes for those properties.
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That's not necessarily true. The lease just gives each member rights and responsibilities in relation to the OMC. Being a member of the company is what gives them voting rights. As far as I know, there's nothing stopping them holding votes but not having a lease.
 
em_cat said:
According to Section 15 (2) of the MUD Act it is one vote per residential unit, not one vote per member. So in our case, the Dev Directors own 60-65% of the residential units, which they do pay mgmt fees for and are settled up on that account.

We do have proof that no building lease exists for the leisure centre, as we also have proof of the Dev Directors ownership of the leisure centre, via the cro, and we also know that it is listed for a strike off as they are heavily in debt, again info obtained from the cro.

Another question is how serious is it if one of the Directors failed to include his directorship relating to the OMC on the B1 Annual return, however he has signed off on our budget submissions for the last 4 years?

I have a copy of the Company Law Handbook on Residential Properties, which has been very helpful, but can also be rather confusing.
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Your right on that, apologies as I was thinking back to golden shares. You should check your articles of association. Ours says one member per vote which is the companies rule book.
 
Our Articles of Association, are really out of date and we have been told by our solicitor that they don't really apply as they where not updated as per the Mud Act, but will be once transfer of ownership of the common area take place, I don't want to go into that situation at present though b/c the Dev has been instructed to make good on some structural issues so the transfer is not an issue at the moment.

I want to go back to my original post relating to the fact at hand, we don't have a legal recourse for normal debt recovery procedures due to the leasing issue. So I really want to know simply how the same 2 Dev Directors can knowingly include the unpaid mgmt fees in our budget as a current asset, but not disclose in the Third Party transactions according to Section 17. 2 (i) of the Mud Act considering they are also both Directors of the leisure centre.

I am also of the opinion that the ODCE will not put us into insolvency, but if the accounts are incorrect and the Directirs are failing in their duties as per Section 150 of the Companies Act 1990 by not acting in the best interest of the OMC as per Section 18.04 - 18.19 of the Company Law Handbook relating to Residential Properties, if we complain to the ODCE under these sections, we are more concered about the future of our OMC than anything else.
 
Is the leisure centre located in or adjacent to the development. I think that the key.
If the centre is part of lands that belong to the management company then the lease if drafted incorrectly and the MC should have some recourse but if it's on land adjacent then the directors may have made a contribution despite not being required to do so.
Only an observation not a legal professional.
 
em_cat said:
We do have proof that no building lease exists for the leisure centre, as we also have proof of the Dev Directors ownership of the leisure centre, via the cro, and we also know that it is listed for a strike off as they are heavily in debt again info obtained from the cro.

.
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Just FYI The CRO don't strike companies off for being heavily in debt unless in liquidation. More likely for failing to file annual returns.
 
Joe, you raise a good point. Our development is a PPP mixed use, the leisure centre is housed within a different block, but does also include residential units, I can't go into much more than that though because it is a very complicated messy situation and is being looked at with a legal team.

I have been advised by a solicitor, however that w/o a building contact binding them to the OMC, there is a possibility that it be that we could argue a right of way and effectively barre them from operating or selling / leasing the residential units within that building, but then again that would have to be decided amongst level eagles and I am not one either.

anyway, that is still not the question here, simply how can the Directors be on either side of the fence at the same time and what consequences could be faced if we, members of the OMC, complain to the ODCE?
 
It would be normal practice for the directors of the development company to be the directors of the OMC.

When the collapse happened the development companies were left with apartments they could not sell. Also residents were not that willing to get involved as directors.

I think that your best bet is to try to force the issue re rights of way ect. If the solicitor who acted for the OMC drafted a different lease for one tenant than all the others then there may be a case against them.

I'm not sure that the ODCE will be of much use to you to be honest.
 
em_cat said:
Joe, you raise a good point. Our development is a PPP mixed use, the leisure centre is housed within a different block, but does also include residential units, I can't go into much more than that though because it is a very complicated messy situation and is being looked at with a legal team.

I have been advised by a solicitor, however that w/o a building contact binding them to the OMC, there is a possibility that it be that we could argue a right of way and effectively barre them from operating or selling / leasing the residential units within that building, but then again that would have to be decided amongst level eagles and I am not one either.

anyway, that is still not the question here, simply how can the Directors be on either side of the fence at the same time and what consequences could be faced if we, members of the OMC, complain to the ODCE?
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Just to clarify are there residential units attached to the same block as the leisure centre? Are these residential units part of the management company? I cannot imagine a situation where one unit in a block was not part of the OMC. Blocks of units require block insurance which can only be purchased as a single product. If the leisure centre is not part of the block legally they cannot be covered by buildings insurance or make a claim. Have you written to the directors formally outlining all your questions and concerns and request an answer?

Also, on your last post. Debt is never included within a budget. You cannot make such an allowance. Do you mean the past years accounts?

These would show assets and liabilities and the total debt figure would be shown however it will never disclose debt from any one person/unit as this would breach data protection by disclosing personal financial information.

Accounts generally never have that much detail in them. Some may show expenditure as a summary but these are headline figures only. Can you show a picture of the document where it occurs?
 
Let me simplify. Directors for the developers framed a property contract for the leisure centre. The same directors run the leisure centre and say that they are not part of the management company and so do not have to pay management fees. These same directors are also directors of the management company, whose accounts show the leisure centre owing unpaid fees. These same directors have signed off on these accounts and so can be deemed to agree with the position of the management company. So, remembering that in each situation, the directors are the same people;Is there an actionable conflict of interest occurring?
 
em_cat said:
Let me simplify. Directors for the developers framed a property contract for the leisure centre. The same directors run the leisure centre and say that they are not part of the management company and so do not have to pay management fees. These same directors are also directors of the management company, whose accounts show the leisure centre owing unpaid fees. These same directors have signed off on these accounts and so can be deemed to agree with the position of the management company. So, remembering that in each situation, the directors are the same people;Is there an actionable conflict of interest occurring?
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You CANNOT show unpaid fees from a unit which identifies it. This is a data protection breach and if you pass this onto the commissioner they will take it seriously.

It I not unusual for the developer to be the first director but also separate directors of a building they manage? I wouldn't see this as a conflict per se. Remember that lots of residents are directors and also own a house/apartment/shop in the estate where they live.

The issue is whether the centre is part of the OMC which you state is not the case. If this is true and the centre is showing up on company accounts then this could be evidence of fraud or accounting mispractice which the ODCE would be interested in reviewing. You will need to present all the proof and documents to them and the form to fill in is on line.

Odd they would be so stupid to mention the centre by name though when there is no need to.
 
lantus, you raise some very good points about Data Protection and I will be honest, it is very surprising to me to how many OMC and Managing Agents who are unaware of such policies, especially as the managing agent would be considered a data controller.

On that, our most recent AGM was facilitated by our MA, who did not discreetly check in the attendees, but rather checked them in at a table which could be clearly overheard by others in the queue and by the reception staff in the place that we held the AGM. They issued voting cards, only to those who where up to date with their fees, printed with yes/no on either side, the green being yes and the red being no. Not only did this clearly identify the people who where late or did not pay, they also made sure to vocalise whether someone would be allowed to vote at the same time. Anyway, this will be delt with along with the odd accounting and possible conflict of interest.
 
Just to clarify, I am pretty well aware that Developers usually are the Directors of the OMC to start with and generally pull out once all units are sold, but in our case they will always be 2 of the Directors because they have a fairly large financial interest in the development even when the last residential unit is sold.

The reason we are all aware that the Leisure Centre has never paid fees is because it has been orally disclosed to both our Residents Association Committee and at all of our AGM's also it is done in front of the Dev Director that is present at our AGM as well as being included in our minutes.

In relation to the Leisure Centre not being part of the OMC, our MA confirmed such in our committee meetings and they keep proposing different ways to deal with it and one has been to take monies from our sinking fund, which they have been very clearly made aware of the MUD Legislation that covers the sinking fund, but then again so has the DOJ.

For example, in our Report and Financial Statements that is handed out at every AGM, under the heading of Current Assets: Debtors, they include a total of €200,000.00, and at the AGM before anything is signed off/voted, a resident asks "why is that figure so high and getting higher each year?". The ma facilitator who is acting as Chair responds with a breakdown of figures attributable to residential owners who have not paid and then the stakeholder in question who has not paid. That is how we know. This is also why some of us are so confused.
 
Well if the director signed accounts that they knew to be incorrect then they have breached the companies acts.

The auditor has failed to bring the fact that the debtors are not correctly stated to the notice of the members.

The solicitor who drafted the lease with the Leisure Company which is different to all the rest of the tenants has at the very least been negligent, but as the management company probably have not paid them for a service then I'm not sure that there is any action.

You could report the directors to the ODCE but are the ODCE going to launch an investigation into this I'm not sure.

Have your legal team suggested a course of action that would get the OMC mentioned in the lease for the Leisure Company. That is the outcome that you want isn't it rather than just having an action taken against the directors.
 
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