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Alex J.
Alex J., Solicitor
Category: Law
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Experience:  Solicitors 2 years plus PQE
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A block of 14 freehold flats (not leasehold flats) with a residents

Customer Question

A block of 14 freehold flats (not leasehold flats) with a residents association company which has 4 directors.
Do the directors have a legal duty (fiduciary duty) to act in the best interests of the flat owners and what sanctions can be applied against them if they fail
Submitted: 3 years ago.
Category: Law
Expert:  Alex J. replied 3 years ago.
Hi,

Thank you for your question and welcome. My name is AJ and I will assist you.

The general law on director duties is contained within S.172 -S177 of the Companies Act 2006. This contains general obligations such as the obligation not to act in conflict of interest, promote the success of the company and act in the best interests of its members as a whole.

In theory if they breach this section the members can bring a "derivative claim" under s260 or of the action unfairly prejudices a minority of members then they can bring a claim for unfair prejudice under s.994. The court then has wide powers to sanction the directors or order then to repay into the company the damage caused.

In all likelihood this would be a last cause of action and if the directors are only serving their interests then you should look to either vote them as members or change the articles of association to restrict the powers that they have. To remove a director requires an ordinary resolution (51% of the voting members) and a change in articles requires a special resolution which requires 75% of the voting members.

Kind regards

AJ
Customer: replied 3 years ago.
Thank you v much for your comprehensive and v informative reply.
As I am concerned about the potential cost of bringing a Derivative Claim and assume that no lawyer would handle it on a no win no fee basis, could one bring this action oneself in the small claims court?
Even if the compensation were small the very fact that one was going to bring a case might persuade the directors to take their responsibilities more seriously

David
Expert:  Alex J. replied 3 years ago.
Hi,

Thank you.

The best way to approach this is to inform the directors of a) what you believe they are doing wrong and b) invite them to propose a way of resolving the issue.

You are correct a derivative is expensive but it is one of the few minority shareholder protections and really all you have to fall back on legally. The alternative is to rally the support of your fellow members force a general meeting to be called and confront the directors with your agenda. If you get enough support you can vote them off the board.

Kind regards

AJ

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