Management Companies are becoming a major issue
– Paul Appleby, Director of Corporate Enforcement
The proliferation of property management companies in recent years has fundamentally altered
what is involved in being a homeowner. Residential purchasers now not only become the owner
of their chosen property – in most cases they also become the owner of a share of an associated
management company (i.e. become a ‘member’ of the company). These companies are usually
responsible for such activities as the provision and maintenance of common areas of the property
(e.g., entrance areas, gardens, lifts, etc.) and joint services (e.g., security, cleaning, etc.).
Under this relatively new model, home ownership and membership of the management company
have become inextricably linked. As a result, the ability of the homeowner to sell their property in
the future and its value are dependent both on the financial health of the management company
(which requires the members to pay the agreed fees and charges) and on management
companies discharging their obligations to invest in the property and in the required services.
Accordingly, the participation by members in their management company (as a director of the
company, or otherwise) is vital in protecting their investment. It is also highly desirable that
management companies communicate regularly with their members on their ongoing work and
future plans. I believe that developers of the property have a role to play in explaining to
purchasers the implications of becoming a member of a management company and in
encouraging their participation in the company.
In order that homeowners’ ability to sell their properties is not in any way adversely affected, it is
imperative that those persons charged with governing and managing these companies do so in a
diligent manner and in accordance with their legal obligations. I regret to say that the number of
management companies coming to my Office’s attention recently is showing a discernible
increase. In the company law area, which is our particular responsibility, the complaints received
typically allege failure by the directors to discharge their legal obligations and to respect the rights
and entitlements of companies’ members.
These complaints have tended to exhibit common themes and include:

failure to file statutory returns with the Companies Registration Office (e.g. annual returns
and audited financial statements);

failure to report to the members on companies’ financial and operating performance by
providing them with copies of unabridged (i.e. full) audited financial statements and a
Directors’ Report;

failure to account to the members for their stewardship by means of convening the
required Annual General Meetings of the company;

failure to provide members with the required 21 days’ advance notice of such meetings;

failure to adequately disclose to members potential conflicts of interest in circumstances
where the directors also provide services to the management company;

failure to provide members with membership certificates.
The failure to file returns with the Companies Registration Office is potentially very serious as it
can lead to a company being struck off the Register of Companies. Where this happens, the
company ceases to exist as a legal entity. The seriousness of strike-off for homeowners should
not be underestimated – my Office is aware of cases where, due to the company having been
struck off, homeowners have been unable to complete the sale of their properties. While it is
possible to restore a company to the Register, this generally involves legal and other expenses.
Regrettably, having investigated a number of management companies and their directors, we
have found that the non-compliant directors involved were usually the developers of the property,
or representatives of the developers. Clearly therefore, developers have a significant part to play
in ensuring that where they, or their nominees, act as directors of management companies, they
adequately discharge their legal duties as company directors and fully respect their members’
rights. Non-compliant behaviour on the part of the directors of management companies is not
acceptable at any time, but particularly in circumstances where it has the potential to seriously
damage the interests of other parties. All instances of non-compliant activity coming to my
Office’s attention will be thoroughly investigated, and where warranted, appropriate enforcement
action will be taken against those responsible. The consequences of enforcement action include
criminal prosecution and, potentially, disqualification (i.e. the withdrawal of the right to act as a
company director).
I want to see management companies work better for the benefit of all concerned. Further to our
general remit to encourage and facilitate compliance with company law, my Office has published
a suite of general Information Books, which set out, in clear and non-technical language, the
principal duties of company directors and the rights and entitlements of members. These Books
are available on request, and copies can be obtained free of charge from the following contact
points.

Office of the Director of Corporate Enforcement,
16, Parnell Square,
Dublin 1.

01 858 5800
Lo-call 1890 315 015

01 858 5801
@
info@odce.ie

http://www.odce.ie