Management company insolvent

Newbee012

Hope I am posting in the correct forum.
Our management company is insolvent and on the brink of receivership.
Can anyone tell me what will happen if it is to enter into receivership?
Can anyone give examples of estates-do they look like they are in dire straights/unsellable?
For people who have been in this position how have you rescued the company?
The main issue is nonpayment by some residents since day one, and then genuine arrears when people lost employment.
Thank you in advance.

jd

Is the development houses, apartments or a mixture of both?

FishOnABike

The biggest concern I would have if it is a multi unit development is whether the block insurance is up to date.

Sinking fund would be my second concern as the only way to catch up on underfunding would be to increase future management fees. You don't want to end up a few years down the road with significant work needing to be done (e.g. fixing faulty drains) and there being no funds for essential work.

Day to day maintenance like landscaping and window cleaning would be the least of my concerns.

April 73

Who are your directors? Are they property owners & has the development been completed & handed over?
It will create a huge mess if this situation continues. Making sure your insurance is valid is a key concern.

I'd recommend you join the Apartment Owners Network for advice.
http://www.apartmentowners.ie

antoinolachtnai

Why do you think it will go into receivership? Who is threatening to appoint a receiver?

Your property is unsaleable without a functioning and solvent management company.

You and the residents need urgent advice.

Ultimately you will need to raise money to prop up the management company and restructure it.

The_Conductor

Potentially directors of the management company could be held personally responsible should the company be held to have traded while insolvent. This may lead to personal fines, prohibitions and/or jail- in the event that it was deemed that the directors acted in a criminally irresponsible manner.

The Management Company itself- is a holding company in which all the properties in the Development are vested. If the holding company goes into receivership- good look trying to buy or sell anything in the development.

If the company is not reinstated within a set period (3 years) the assets of the company vest in the Minister for Finance- and having the company reinstated becomes horrendously difficult. It has been done- but it can take years to get it back to a normally functioning company again.

If it is possible at all- the current company directors need to bring in the required expertise to get them out of the predicament they are in. If there are people who have been freeloading by not paying their management charges- this means- bringing immediate legal action against them- having liens registered on the properties of any owners who do not clear their outstanding balances in a reasonable time frame (typically before the end of the current financial year). If an owner has a lien placed on their property in satisfaction of outstanding managment charges- they are then in breach of their mortgage agreements- if the properties are mortgaged- and stated policy of lenders is any buy-to-let properties in this situation would be repossessed- regardless of whether the mortgage is paid up to date or not- as the lender no longer has security of clear title to the property.

This is a major issue- with implications for the management company, its directors, all its shareholders, those with o/s debts to the management company, landlords, tenants and owner occupiers in the Development.

You *need* to grasp the mettle on this immediately- and get it sorted.

Lantus

Management companies don't get receivers appointed under normal circumstances. They don't have any assets or anything that can be sold and a receiver is appointed typically by a bank to recover debts.

The directors are responsible for the company but the members are responsible for paying fees.

A company that cannot afford to submit audited accounts is in breach of company law which is serious. The company could be struck off which would be bad for any directors.

Practically apartments and common buildings will lose insurance and pl. This means if someone sues for damages the members will have to pick up the tab personally. If a block burns down its gone and apartments will be unsellable.

The cost to recover a struck off company can be easily 10k. Houses can also be unsellable and obviously no maintenance or upkeep means a run down estate.

P. Breathnach

The_Conductor wrote: »

... If there are people who have been freeloading by not paying their management charges- this means- bringing immediate legal action against them- having liens registered on the properties of any owners who do not clear their outstanding balances in a reasonable time frame (typically before the end of the current financial year). If an owner has a lien placed on their property in satisfaction of outstanding managment charges- they are then in breach of their mortgage agreements- if the properties are mortgaged- and stated policy of lenders is any buy-to-let properties in this situation would be repossessed- regardless of whether the mortgage is paid up to date or not- as the lender no longer has security of clear title to the property....

It makes sense that the OMC can place a lien on a property on foot of unpaid management charges, and it also makes sense that a mortgage lender would cancel the mortgage agreement. I don't see why they should allow owner-occupiers any more latitude than BTL investors.

Am I right in supposing that the mortgage lender would have to pay outstanding management charges as part of the process of taking possession?

Marcusm

P. Breathnach wrote: »

Am I right in supposing that the mortgage lender would have to pay outstanding management charges as part of the process of taking possession?

Not in order to take possession but assuming that it is leasehold title (as would be most common for apartments) then any outstanding fees would have to be paid prior to completing any sale. It's quite common in the UK for banks to pay management charges when they are notified of delinquency of the "owner". Where a leasehold is in question, generally the lease would provide for forfeiture proceedings to be taken in the event of continuing non payment. The OMC then stands ahead of the mortgage holder for payment.

Lantus

I'm not aware of a lien being used in any circumstances? Examples would be interesting if available. Typically you seek debt recovery first and then register a charge against the property on the title if needed.

That's an expensive process so it will be difficult for a company with no money.

What is breakdown of apartments vs houses? Can you limit access or other services.

People like the idea they can get away with not paying fees but once their property is worthless and uninsured they will be the first to complain.

April 73

Do you have any involvement with the management company Newbee012? Is there a management agent involved? What has been done to date to collect fees? Once the rot has set in people figure there are no consequences to not paying.

If things are so bad that the company looks insolvent then pretty immediate action will be needed.

An EGM should be called & strongly worded letters sent to all owners about the financial situation, including the possibility of insurance being cancelled & the company being struck off. No property will be able to be sold in that scenario & the banks will not be happy to have a mortgage on an uninsured property. People need to understand that there are serious consequences - a management company isn't a "them v us" issue. The management company belongs to the owners.

Immediate debt collection will have to start - difficult to engage a solicitor though if funds are low. But some solicitors will issue an initial letter for a relatively low cost. This is enough in a percentage of cases to get engagement from some owners. Costs are put back on the individual owners account. Could you limit access to services for owners with bills outstanding? No access to parking permits, bin sheds as an example? Tell people they are about to lose their buildings insurance & that the company will write to the mortgage holder informing them of that.

Lantus

Be careful how you write to people and third parties. Omcs are bound by data protection.

Possibly advise a bank that insurance has lapsed due to non payment if fees and they should contact the owner to get a statement of account if they wish which the omc would be happy to provide.

The difficulty is getting the banks to take action!

April 73

If the company can't afford to pay for insurance, won't everyone's insurance be cancelled? So you could write to everyone & the relevant banks outlining this without highlighting who the non-payers are. That wouldn't breach any data protection.

In a solvent company is it possible to cancel insurance just on a non-payer's unit while maintaining insurance for payers? I'd imagine this is difficult/impossible?

Lantus

April 73 wrote: »

If the company can't afford to pay for insurance, won't everyone's insurance be cancelled? So you could write to everyone & the relevant banks outlining this without highlighting who the non-payers are. That wouldn't breach any data protection.

In a solvent company is it possible to cancel insurance just on a non-payer's unit while maintaining insurance for payers? I'd imagine this is difficult/impossible?

Correct, you need to be generic. You cannot cancel one bit of a block policy as its a single policy. You can refuse to process a claim unless all arrears have been paid in full.

Given the rare nature of claims like this it probably won't instill too much fear in hardened non payers. Still worth doing of course. Id also raise the excess to ensure water damage claims are not abused for those who fancy a new kitchen.

The better soft options are removal if services like sat dishes, common door access and even parking if feasible and allowable in the lease.

After that target a few people you know have the cash and are ideally big mouthed with legal action. This should create enough gossip to get more paying.

antoinolachtnai

There is a thing you can get the insurer to do whereby you remove the owner of a particular apartment as a beneficiary of the insurance policy. The block continues to be insured, but the non-paying owner is no longer a beneficiary.

If this happens, the management company or the insurer will write to the mortgage bank, informing the mortgage bank that the apartment owners are no longer beneficiaries of the insurance policy. The bank is entitled to know this because the bank is registered as having an interest in the insurance as a condition of the mortgage.

The loan is then in default and the bank will call upon the apartment owner to sort out their insurance situation.

Removing common door access is not a great option if you ask me (even if it is feasible under the lease). It will just result in jammed and broken door locks.

The_Conductor

How does the Management Company know which lender a unit leaseholder has their mortgage with? I know our Management Company certainly don't. There has to be a better way of doing all of this........

Marcusm

The_Conductor wrote: »

How does the Management Company know which lender a unit leaseholder has their mortgage with? I know our Management Company certainly don't. There has to be a better way of doing all of this........

In multiple manners, if the OMC is properly formed and has the freehold for the development, your leasehold is carved out of that freehold and the mortgage charge is a burden on your title which in turn is a burden ont he freehold title. Secondly, when the mortgage was registered, the solicitor will have been required to obtain an undertaking from the OMC that the mortgagee (ie the bank) will be noted as an additional assured on the policy. IN the event of a full loss payout on the block insurance, the proceeds will first be applied in discharging the mortgage. This is exactly the same process as would apply should the OMC apply for forfeiture in order tp settle outstanding mortgage fees. The bank doesn't rely on the borrowers being honest when there is a payout, the monies are blocked to their benefit.

Lantus

The_Conductor wrote: »

How does the Management Company know which lender a unit leaseholder has their mortgage with? I know our Management Company certainly don't. There has to be a better way of doing all of this........

You purchase the land registry document for 5eu which has the name of the lender and any judgements that have been registered.

Agreed that service withdrawal is not as easy as you think. Some omcs use it to great effect but always suit adapt and apply some rationale to your unique situation.