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Alex J.
Alex J., Solicitor
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Articles of Association of Right-To-Manage (RTM) Companies

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Articles of Association of Right-To-Manage (RTM) Companies in England.
Our RTM company was set up in 2004, using the model M&As of Association (for RTM companies) that were in force at that time. In April 2009, the then directors passed a resolution attempting to amend our Articles to prohibit non-resident leaseholders from becoming directors. This resolution was filed at Companies House in June 2009.
It is my belief the legal standing of this resolution can be questioned on two grounds, as follows:
1. My understanding is that changes to Articles of Association need to be supported by 75% of the members at a General Meeting. The subject has never been raised at a General Meeting and the resolution came from the directors acting on their own, so it’s my belief the resolution never had any legal status from the outset.
2. Regarding the RTM Companies (Model Articles) (England) Regulations 2009, during the transitional period from 09/11/2009 to 30/09/2010, our RTM company did NOT voluntarily adopt any new Articles, which I understand means the new 2009 model Articles (for RTM companies) would have automatically replaced our existing M&As with effect from 01/10/2010. The 2009 model Articles do not prohibit non-resident leaseholders from becoming directors so, even if the April 2009 resolution was effective at that time (which I question), it is my belief that it would have ceased to have any effect from 01/10/2010 because it was not contained in the new model Articles.
Given these considerations, I would be very grateful for advice on the legal standing of the April 2009 resolution.
(For information, we no longer wish to have the restriction on non-resident directors. If the resolution no longer applies, it would save us from having to pass another resolution to reverse it.)
Submitted: 1 year ago.
Category: Law
Expert:  Alex J. replied 1 year ago.
Hi, Thank you for your question and welcome. My name is ***** ***** I will assist you. You cannot amend articles of association without a special resolution. A special resolution requires 75% majority of the voting members or share capital. S.21 of the Companies Act 2006. Was the resolution passed as a special resolution of the members/shareholders? Kind regards AJ
Customer: replied 1 year ago.

Hi AJ,

As explained in my question, the resolution came from the directors acting on their own. There was never any resolution passed at a general meeting. For your information, I've attached a copy of the resolution, as filed at Companies House.

Regards,

Mike

For some reason, the image upload feature on the JustAnswer website doesn't seem to be working. If you want to look for yourself on the Companies House website, it's company number 05024183 and the resolution was filed on 18/06/2009.

Expert:  Alex J. replied 1 year ago.
Hi, Thank you. So this was a board resolution not a shareholder resolution. Quite simply the change of articles is not valid at all - if it does not have a special resolution approving it then the old articles still apply. The directors are in breach of their duties under the Companies Act 2006 (S.172 - S.179). Do you have the support of enough shareholders/members (more than 50% of the votes) -to remove the existing board of directors? Kind regards AJ
Customer: replied 1 year ago.

The directors were acting under the advice/coercion of our managing agent, who was company secretary at the time and was the instigator of the action. I don't think any of the members would want to hold the directors responsible for acting in good faith on the incorrect advice they received.

Only one of the directors who were party to the resolution is still in office, and he wants to resign as soon as replacement directors can be found. The only two people prepared to stand as directors are non-resident leaseholders, which is why this issue has come under scrutiny. If the resolution has no legal standing, then the remaining director can appoint two new directors straight away.

Could you also comment on my analysis of the effect of the 2009 model Articles?

Expert:  Alex J. replied 1 year ago.
Hi, Thank you. The main issue here is that the directors tried to amend the articles under the advice of the agent. This amendment is not valid - accordingly there should be no restriction on who can be appointed as a director. In relation to the Articles - you are correct after 30 September 2010 (the end of the transition period) the new articles automatically apply to all companies - unless properly amended.
Customer: replied 1 year ago.

Thank-you very much. It sounds like we can proceed to appoint two non-resident leaseholders as directors, without any further concerns.

Expert:  Alex J. replied 1 year ago.
Hi Thank you. You will still need to make the appointment in accordance with the valid articles. I would also ensure that you have a proper company to show that the articles with the restrictions are invalid. Kind regards AJ
Customer: replied 1 year ago.

As I understand from the 2009 articles 16(3)(a), a sole director is empowered to appoint new directors, who will subsequently have to be re-elected at the next AGM of members. Is this correct?

Can you please repeat your last sentence above - I think one or more words are missing.

Expert:  Alex J. replied 1 year ago.
My apologies this is done in real time - I would also ensure that you have a proper company record to show that the articles of association with the restrictions are invalid.Normally directors can appoint other directors at board meetings.
Customer: replied 1 year ago.

Would minutes of a directors' meeting, acknowledging that the 2009 resolution was invalid, be OK as a "proper company record"?

Expert:  Alex J. replied 1 year ago.
Hi, Thank you. Make mention of the fact that the articles were not properly adopted in accordance withe the provision of the Companies Act. You will then need to file the correct articles at Companies house. Kind regards AJ
Customer: replied 1 year ago.

Is that necessary? From your earlier answer, the model 2009 articles are already in effect and we're quite happy for that situation to continue. Why would we need to file another set of articles which would be identical to the 2009 model articles already in place?

Expert:  Alex J. replied 1 year ago.
Hi, Thank you. When the invalid articles were incorporated into the company constitution, were they filed at companies house? If so then you need to inform companies house of the correct articles. Kind regards AJ
Customer: replied 1 year ago.

First, I'm confused by your words "when the invalid articles were incorporated into the company constitution". As the correct process was not followed, surely the amendment to the articles never became legally incorporated into the company constitution?

Second, there's an added complication here (or maybe not). When the directors' resolution was filed on 18/06/2009, a set of articles was filed alongside them on the same date. However, those articles appear to be identical to our original M&As from 2004 and do not contain the amendments specified in the directors' resolution.

Third, I still don't understand why we need to inform CH of the correct articles, when the correct articles (in the form of the 2009 model articles) are already in place, by default, as of 01/10/2010.

Expert:  Alex J. replied 1 year ago.
Hi. Thank you. Can you confirm were the invalid articles ever actually filed at Companies House? If the answer is no and Companies House have the correct articles the you do not need to make any further filings, you just need to record what has happened in the company books. If the invalid articles were filed - Companies House will not know they are invalid will just file them - therefore if Companies house has the invalid articles on file you will need to update them to the correct articles. Kind regards. AJ
Customer: replied 1 year ago.

The answer is no. Only 2 sets of M&As have ever been filed at CH. The first was on 23/01/2004 when the company was first incorporated. The second was on 18/06/2009, supposedly in support of the directors' resolution that was filed on the same date. However, this second set of M&As was identical to the 2004 M&As and did not contain the amendment specified in the directors' resolution.

I still don't understand why this is relevant, though. We've established that, on 01/10/2010, the new model articles replaced our existing articles by default, as if we'd filed them ourselves. Even if invalid articles had been filed at an earlier date, surely they would have been superceded by the new model articles?

Expert:  Alex J. replied 1 year ago.
Hi,
Thank you.
It is relevant because the directors are under a legal obligation to inform Companies House of any changes to the constitution of the company. S.26 of the Companies Act 2006.
If Companies House has the correct set of articles, then you only need to place a set of minutes recording what has happened on the company books.
I am happy to assist with any follow up questions but would be grateful if you would rate my answer in the mean time.
Kind regards
AJ
Customer: replied 1 year ago.

But I thought we established that no changes to the constitution of the company ever legally took place.

Expert:  Alex J. replied 1 year ago.
Hi,
Thank you.
Correct - if no changes have actually been made to the constitution then you do not need to up date Companies House. If Companies House has the incorrect articles then you do need to let them know which are the correct ones.
As you have explained, Companies House has the correct articles, therefore you do not need to up date them.
Kind regards
AJ
Alex J., Solicitor
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