QUESTION
I am wanting to ask for some advice as I've been approached by members of a Management Company who want to remove the sole Director of the Right to Manage Company. This Director is also a member as he owns a house on a housing Estate. This sole Director refuses to allow any member to become a Director and the members want him out, but he refuses to step down and allow other Directors to be appointed. He has control of the bank account and refuses to allow anyone to see where the Money is spent and refuses to hold an AGM. How do the members remove him, appoint Directors themselves and get control of the bank account as he just refuses any request?
ANSWER
Thank you for your enquiry.
We are assuming from your enquiry that there are two separate companies in this scenario, namely a Management Company and a Right to Manage Company.
It would be for the members of the Right to Manage Company to address this issue rather than the members of any other company.
As with all companies the details on how the RTM company conducts its business are set out in its memorandum and article of association (Mem and Arts).
The Mem and Arts are the starting point in respect of addressing this situation.
The prescribed form of Mem and Arts for RTM Companies however offers very little in respect of the removal of directors by the members of the RTM Company, but this does not mean that no action can be taken.
It should be remembered that the contents of the Mem and Arts do not override the provisions within the Companies Act 2006 (CA 2006) and this provides a mechanism for company members to remove a director. There are however special notice requirements set out in the act that must be followed but if followed, the director can be removed by ordinary resolution.
Appointing new directors
The appointment of directors is covered in the Mem and Arts.
In short, ‘any person who is willing to act as a director, and is permitted by law to do so, may be appointed to be a director.’
The Articles provide two ways that a director scan be appointed the first is by ordinary resolution and the second is by a decision of the directors. For the purposes of this answer, the second method is not going to be viable.
An ordinary resolution is passed at a general meeting by a simple majority of members entitled to vote.
Calling the General Meeting
While directors will typically call general meetings, this is clearly not happening here. This does not however mean that these meetings cannot be requested by members of the RTM Company.
Under S.303 of the CA 2006 the members of a company can request that a director calls a general meeting. The CA 2006 does set out how many members are required to make a valid request and therefore this should be considered prior to any request being made.
This meeting can be called, and the special notice given allowing a director to be removed and new directors to be appointed.
Summary
It is not uncommon for RTM Companies to have difficulties with directors. It should be remembered that an RTM Company is a company like any other and directors owe duties to act in the best interests of the company and its members. If this is not happening there are mechanisms in the CA 2006 to assist. Once new directors are appointed then the new directors will take over the running of the company including having access to and control over the bank accounts.
Elizabeth Rowen, Head of Residential Property Litigation at Realty Law
