Even though directors and officers of Residential Management Companies perform their duties voluntarily, they are held legally accountable for any decisions made on behalf of their company. Moreover, they are personally liable, implying that their individual assets may be at risk if legal action is pursued against them.
As well as covering legal costs and emergency defence costs, Directors & Officers Liability Insurance also extends towards the entity company itself (i.e. the Residents’ Management Company or the Right to Manage Company) or anybody named in the proceedings, ensuring incredibly comprehensive cover for those managing blocks of flats.
Directors of Residents’ Management Companies and Associations can be held liable for any acts which are:
- Negligent
- Outside of their authority
- In breach of duty or trust
Liability can arise under contractual or company law. The potential for claims is wide-ranging and can be from internal or external parties.
Examples Include:
Claims for Unfair Prejudice pursuant to s. 994 of the Companies Act
These are allegations that company affairs are being, or have been, conducted in an unfair manner, and which is prejudicial to the residents’ interests, i.e. attempted exclusion from management and/or abuse of power/breach of Articles of Association).
- A claim for unfair prejudice relating to a former director’s exclusion from management, contrary to the Articles of Association, resulting in his resignation. Defence costs were in excess of £5,000.
Defamation in respect of statements made by the directors:
- A claim by a member/resident alleging that the directors had defamed his character at a meeting of shareholders. Damages for injury to feelings and defence costs amounted to over £15,000
Breach of lease provisions (by landlord or residents/tenants):
- A claim for breach of lease provisions relating to the alleged failure to maintain the property, and in respect of steps taken which had a detrimental effect on value
- A claim alleging the over-charging of service charge. Reimbursement was sought
Breach of Companies Act 2006:
- A claim for disregarding the Companies Act 2006, in that the directors allegedly passed resolutions (removing the Claimant as a director) at an EGM contrary to the provisions of the Act and the company’s Articles. Damages in the sum of £25,000 were claimed.
- A claim for the unlawful amendment of a company’s Articles, such that the directors contravened the Companies Act 2006. It was alleged that there had been a failure to pass a special resolution with the requisite number of votes.
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