Flat Management Company Directors Conflict of Interest

Flat Management Company Directors Conflict of...

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One of our fellow directors of our residents management company has been carrying out the cleaning at our block for around 18 months as a self employed contractor who is not VAT registered. We have only been directors for a year so we were not involved in the decision to let her take on the cleaning. We have asked for a copy of the contract and been told that there isn't one and that the work is being done on a rolling contract (I assume this was done verbally).

The Managing Agent is receiving invoices in the name of the cleaner/directors son. He is also a Director and the invoices ask for payment to be made direct to his mum.

We have expressed our concerns about the way he is presenting his invoices i.e. dates of work completed missing, invoices dated before work completed, no description of what work has been done and how long it took and duplication of invoice numbers.

We have asked for invoices to be corrected before we authorise payment, siting the fact that as a Director his dealings with the company are open to the scrutiny of all members whose money we are spending, but the Managing Agent has informed us that as the Contractor is a Director he has been allowed to authorise the payment of his own invoices.

The articles of association state that a director can receive payment for work carried out but makes no mention of whether or not they can do what they have done.

We are concerned about any legal implications for us of allowing him to continue authorising his own invoices as I know we are jointly responsible for the actions of all Directors.

Any advise on this.

Replies (8)

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By Tim Vane
25th Mar 2015 19:15

Are the flats cleaned properly, and is the amount being paid commensurate with market rates?

At the next board meeting, you could remind the director that he has a duty of responsibility to the company that are just as real as if an external contractor is being used. You could consider asking him to resign as a director because of the apparent conflict of interest. If he resists you could have an unpleasant time ahead.

You could, presumably, threaten to require an audit, but as the other directors and members are presumably your neighbours then you may not get much thanks and, if the flats are being cleaned properly at a reasonable price, who really cares?

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Replying to Duggimon:
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By georgina01
25th Mar 2015 19:55

Thank you for your prompt reply Tim

We have no problems with the way the flats are cleaned, but I would question whether the amount is commensurate with market rates as we are being charge £50 a month for around 2 hours work, plus we are paying for the cleaners trades insurance.

The articles of association state that at each AGM a third of the directors must resign in rotation and although he is the longest serving director, having been appointed since 2003 he has been able to continue because throughout that time there have only been the 2 directors i.e. him and his mother.

The articles of association also state that an audit is required every year, but our accountant advised that the cost of this would be disproportionate and the annual accounts state that the company has small company exemption and that the members don't require an audit, in spite of them not being asked.

Although no-one has complained about the standard of work the owners I have spoken to are unhappy about the way the company has been run prior to our election and with careful monitoring of expenditure we have turned a bank deficite into a surplus and been able to start a sinking fund.

The question I really have is the legality of self authorisation of the directors invoices, especially when other directors are disputing them.

The fact that the directors are also personal friends of the Property Manager is also getting in the way of getting things done properly.

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paddle steamer
By DJKL
25th Mar 2015 19:44

Notwhat you asked but areas of concern

Is the cleaner really self employed?

Does the cleaner (whoever it is) carry public liability insurance?

Does the management company carry public liability and employer liability insurance?

Appreciate this is not really your question but having had a slip incident on a wet stair of a property we manage it is important to have covered the, "if something goes awry" scenarios.

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Replying to Southwestbeancounter:
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By georgina01
25th Mar 2015 20:05

DJKL

Correspondence between a previous Property Manager and the Agents Insurance Broker state that the cleaner is self employed.

The cleaner does have public liability insurance.

The only insurance the company has in place is block insurance and directors insurance.

We did have an issue last year with the same director taking a decision to employ the OAP living across from the block to do the gardening. This was done without consulting with us and he had been working for a month without insurance before we discovered by chance that this was happening and stopped him working until he was insured.

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Teignmouth
By Paul Scholes
25th Mar 2015 23:58

Treat them as external contractors

I've dealt with several cases like this where a resident is only too happy to carry out cleaning or repair work for a modest sum and it's worked fine.  In this case however, there's obviously friction and I also say that the managing agent should really have asked that another director OK the bills.

So you (and the other directors) have to look on this as if you were dealing with an outside contractor and, if you think you are being over charged, get agreement to get a couple of quotes from other external firms.

Whatever happens though, if it continues as it is, there is no way the director should be self OKing the bills, they need to be OKd by another director.

The audit issue is a potential nasty, I had exactly the same with a flat management company, where the 1960 memo & arts required an audit and they paid me over £3K pa to do it, whereas the accounts on their own may well have cost £1K.

Unless things have changed, the memo & arts are king and so the only way to avoid having an audit is to get them rewritten and OKd by the shareholders.  You should ask the accountant to put in writing why the memo & arts can be ignored, but if you all agree I would certainly get them rewritten, there's a bit of legal stuff involved but you do not want to be a director who has failed to arrange for accounts to be audited.

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Replying to legerman:
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By georgina01
26th Mar 2015 08:53

Thank you for your comments Paul.

 

Do you agree that as a contractor he should include in his invoice details of the work done, the date and time taken to do the work and using unique sequential  reference numbers. I have seen conflicting advice about the requirement of the reference numbers when the contractor is a self employed person who isn't VAT registered, but he has already taken the decision to use reference numbers, just not in a sensible way. He has repeated the same reference numbers several times with the effect that after 18 months of work his last invoice for February is numbered number 8.

When we came on board as Directors we asked to see copies of any contracts in place and where told by this Director that we had to remember that we were only dealing with a Management Company and not a multinational.

We definitely need to get the articles changed, but as they stand at the moment they give us what we need to force him to resign at the next AGM i.e. a third of the board have to resign on a rotational basis. He's had 12 years in office so its his turn to go.

 

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By cbp99
26th Mar 2015 11:17

Landlord and Tenant law, and provisions of the lease

There may also be issues with landlord and tenant law, for example to do with the reasonableness of service charges, see

http://www.lease-advice.org/publications/documents/document.asp?item=14 

There may also be relevant provisions in the leases.

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Replying to Jimess:
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By georgina01
26th Mar 2015 11:35

Although you are quite right here. The reason they give for taking on the work is that they are saving us money because previous contractors charged more.

Until recently they were also cutting the grass and argued that they were saving us money there too and challenged me to find someone who could do it cheaper. According to him it's not the agents job to source contractors, even though the contract says different.

 I gladly rose to the challenge and succeeded on saving the company around £150 a year.

I am a woman on a mission and intend to stop the gravy train.

 

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