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Joshua
Joshua, Lawyer
Category: Law
Satisfied Customers: 25426
Experience:  LL.B (Hons), Higher Prof. Dip. Law & Practice
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I wonder if someone could give me an overview on

Customer Question

Hello, I wonder if someone could give me an overview on the following situation. I am a director in an RTM company. Before I became a director, the RTM company entered in a litigation with one of its members (we can call this Case 1). On a separate issue (Case 2), this member was claiming an amount between £15k and £20k in compensation from the RTM company. The result of the RTM company suit on Case 1 resulted in a settlement agreement in Case 2, in favour of the RTM member. The agreement as well as the reasons why a case that should have been won by the RTM company have been sealed by the court. I do not understand exactly who asked for the agreement to be sealed, whether it was the member or the RTM company's directors, however we are now in a position where we have a settlement bill in excess of £40k and are unable to verify whether the directors acted in the genuine interest of the RTM company or if there has been some sort of cover-up for something else - or some wrongdoing. Me and other directors who have been recently elected by the RTM members would like to clear the fog surrounding the RTM company's operations over the period 2013-2014 and would like to know if 1) it is possible in principle for new directors to access the sealed documents and 2) if a settlement that was finally fixed to about £40 for a demand that was originally in the region of £40k can be evidence that the directors in charge at that time have not acted in the interest of the RTM members and all leaseholders in general, causing them substantial losses. Finally, if we managed to gain access to this information and considering that the RTM company is a non-profit organisation acting in the interest of the development and its members, would all the RTM members be entitled to know what caused such a loss?

If we were to file a case against the directors who took part in that litigation process what would be the chances of success and the potential cost?

Submitted: 2 years ago.
Category: Law
Expert:  Joshua replied 2 years ago.
Hello and thank you for your question. I will be very pleased to assist you. I'm a practising lawyer in England with over 10 years experience.

May I clarify that your enquiry is in relation to case 1 and that the position is clear in respect of case 2 please or is the position unclear in respect of both case 1 and case 2?
Customer: replied 2 years ago.

Case 1 relates to the member altering the company records at the Companies House, appointing himself and removing other people. I think this was a provocation as the appointments happen during the AGM and the Companies House keeps records of what is communicated to it. In answer to your question no alterations have been made by the member since that time so I believe that Case 1 is no longer an issue. The striking thing remains that the RTM company sued him for this matter and ended up paying him in a settlement agreement.

Expert:  Joshua replied 2 years ago.
Thank you for the clarification so we are just dealing with case 2 from what I understand. As a newly appointed director of the RTM company you have full authority to review documents relating to the company including company minutes and court orders, accounts and so on. Initially you could ask that the company secretary who should hold copies of the consent order (an settlement agreement sealed by the court is known by this term) and minutes associated with the decision making process leading to the decision to offer settlement on these terms.Failing this you can request a copy from the court of the sealed order which it can supply for a nominal fee.It can be very difficult to overturn a consent order - if the company was represented it can be next to impossible. If it was unrepresented it can be possible to overturn a consent order but only with substantive difficulties. However if you can show that one or more directors offered settlement without proper authorisation from shareholders under the constitution or that they acted contrary to their fiduciary duties to the company then the members may have a potential claim available to them against those diretors for breach of fiduciary duty but that is skipping several steps ahead and it wold be first necessary as you suggest to understand the decision making process. All company documents and resolutions must be made available to the directors and the directors must direct that they are stored safely as such documentation forms part of the company constitution. I hope the above is of assistance? If you have no further questions for now I should be very grateful if you would kindly take a moment to click to rate my service to you today or just reply back to let me know if the above is helpful. Your feedback is important to me. If there is anything else I can help with please reply back to me I'd be very grateful
Customer: replied 2 years ago.

Thank you Joshua,

Let me review and I'll come back to you. If I have further questions, would I incur in extra costs? I am a volunteer in the RTM company's board and am doing this with my personal money.

Regards

Raul

Expert:  Joshua replied 2 years ago.
Thats fine. If you have no further questions for now I should be very grateful if you would kindly take a moment to click to rate my service to you to date. This will also save the thread and you ar welcome to return to it should you have any further follow up questions which I am happy to assist with without further charge on a loose "fair use" basis if that makes sense. I hope that helps.
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Customer: replied 2 years ago.

Thanks Joshua.

I have a few questions but can you please answer only if you can do this without making me incure in further charges? I promise I will not take advantage of your goodwill.

We will probably proceed as you suggest, through the company secretary. If we have to ask the court, what would the supplied information contain? Also, being a "sealed order", how would the court disclose it?

I think we may in fact be in a situation where the members were not asked for consent; in fact they are not even aware of how much it was spent. It will soon become clear to them however as we are about to release copy of the accounts but we are reluctant to approve them as approving them might mean we accept that what was done is justified - am I correct by saying this?

Most important of all: what if they either haven't kept records of the minutes and/or if the secretary does not hold copy of the consent order? What action could be taken against them if that was the case?

Expert:  Joshua replied 2 years ago.
No problem. There may be a misunderstanding of what is meant by a sealed order. It is not sealed in the sense of being sealed away from view. It is sealed in the sence of bearing the courts seal. Sealing an agreement reached by consent is a very common process. It is known as a consent order and is a process where dring litigation parties decide to settle, and not proceed, rather than agreeing settlement and then notifying the court they do not wish to proceed any further (this allows one party to renege after proceedings have been withdrawn), they put the settlement agreement to the court jointly and ask the court to seal the order making it a a consent order which is enforcable as a court order meaning that one or both parties can enforce it.You should not approve accounts until you are happy with the answers to any queries.The consent order will be held in the courts files as well so this is not a problem. Failure to keep minutes properly can in its own right lead to personal liability on the party(ies) who have failed to do so as it is a breach of the Companies Act. There is a strict requirement to keep an adequate record of company proceedings.
Customer: replied 2 years ago.

Thank you Joshua.

By 'sealed' I meant that the court ordered that the terms and contents cannot be revealed to other parties, including the newly appointed directors apparently - I don't know the technical terms to describe this but it is essentially confidential to the parties involved. In light of this, does all of the above still apply?

Expert:  Joshua replied 2 years ago.
Who has told you that?
Customer: replied 2 years ago.

The directors who have settled, and the member who also received the money say it. Apparently none of them can discuss or disclose it.

My suspicion is that the RTM company asked for this to be kept secret to cover something and basically "bought everyone's silence". This is what we need to untangle and find out if the old directors used the leaseholders funds inappropriately, by deliberately choosing, for whatever reasons, to engage in a costly exercise to settle a matter that would have cost half the money, without consulting the members.

Expert:  Joshua replied 2 years ago.
Thank you. I have never heard of such a situation as regards ***** ***** new directors. Now it is quite possible that this is a legitimate process which I am not awawre of as I am not a corporate litigator but generally it seems to me to be comtrary to 1) a directors right to all information regarding the company generally and 2) a member/shareholder right to accounting accountability and I would wish to independently confirm the position with the court intiially and the company secretary as this appears to be potentially suspicious. If you do find that the above position is correct I should be interested to know if you have a moment to let me know as I am not aware that such an arrangement can be valid as regards ***** ***** of the company.
Customer: replied 2 years ago.

Thanks Joshua.

In this case can I use my credit to have my question diverted to someone who is familiar with these types of situations?

Many thanks.

Raul

Expert:  Joshua replied 2 years ago.
I am afraid I do not think we have a specialist corporate litigator operating on this site. Your first port of call would appear to be with the court to confirm the position independently.
Customer: replied 2 years ago.

Thank you Joshua.

Can you in this case confirm I will not be charged the £37 that was originally requested?

Regards

Raul

Expert:  Joshua replied 2 years ago.
I am afraid i cannot assist with account queries as I have no access to your account.
Expert:  Joshua replied 2 years ago.
RaulI have taken the liberty of carrying out some reasearch to confirm the position and the position is as I understood it that a company director has the right to be informed and inspect all company records and documents relatng to the company affiars - provided for by s386 and 388 Companies Act 2006. This was also confirmed in a legal challenge Oxford Legal Group Ltd v Sibbasbridge Services plc (2008). This right cannot be restricted and a court has no power to override statute. The only caveat to the above is that a director must exercise his above rights for a proper purpose - namely to discharge his obligations towards the company and his statutory obligations.Accordingly as above it appears a previous direcotr or memeber is attempting to mislead you either honestly or for another purpose into not pursuing the matter and you can exercise your right as a director under the above legislation to obtain the information you require.I hope that is helpful.
Customer: replied 2 years ago.

Thanks a lot.

And supposing we were, at some stage, able to demonstrate that the directors have not acted in the interest of the RTM company and the leaseholders, effectively committing to large expenditure in legal fees and settlement without members authorisation, what are the chances we would be able to access the settlement details that according to them have been made secret by the court?

Expert:  Joshua replied 2 years ago.
If you can demonstrate the directors acted contrary to the fiduciary duties to the company and/or in a conflict of interest or fraudulently then those direcors may be personally liable to the company for loss.
Customer: replied 2 years ago.

Thank you very much Joshua, this does bring me a step forward. I appreciate your help!

Expert:  Joshua replied 2 years ago.
A pleasure. I hope you make some swift headway in piecing together what took place.
Customer: replied 2 years ago.

Well I don't know... it's a long way to go but this is now a good starting point. Thank you again.

Expert:  Joshua replied 2 years ago.
Best wishes

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