Irish Times Property Clinic 5th day of February 2015.

 

 

Publishing Date; Thursday the 5th day of February 2015.

 

Q I have received a copy of a notice to approve the budget and service charges in our apartment complex for 2015 from our owners’ management company (OMC) which does not have a managing agent but is “self-managed” by effectively one member. There are several legal casesoutstanding against the OMC but, rather alarmingly, the notice states that the officers’ and directors’ insurance (ODI) is subject to a “moratorium” due to some activity in 2009 (no details provided) until 2015.

 

We are a company limited by guarantee but what happens if the litigation goes against us? Can the directors be personally liable? The accounts showthe ODI premium has been continuously paid from 2009 through the present. The legal cases involve alleged defamation and alleged breaches of the equality legislation.

 

A Members of companies limited by guarantee are protected from being personally liable for the debts and actions of the company. If the OMC is wound up, each member will be required to pay €1. The incorporated company is a separate legal entity that is established so as to undertake such activities as set out in the OMC’s memorandum of association.

The directors’ and officers’ liability policy itself can vary in the scope of cover. A lower premium would probably result in a smaller “limit of liability” in terms of damages to pay out and cover legal fees incurred to defend the cases. The level of cover will depend on the amount of the premium paid.

It is also worth noting that in directors’ and officers’ liability policies the limit of liability tends to cover a period of time and not a quantum of legal actions, however many there may be. This would mean the policy may not cover all the various legal fees if the costs collectively exceed the limit of liability. It would be prudent to seek professional advice to establish exactly what cover is being provided by your officers’ and directors’ insurance.

It is unclear in what capacity you have been asked to approve the budget and service charges, as recent changes in legislation require that this business is decided at the annual general meeting of OMCs.

Notwithstanding any of the above, the directors may be found personally liable depending on the specifics of the litigation and the directors’ and officers’ liability policy particulars. It would also be prudent for the members of the OMC to discuss the issues you have raised at the pending general meeting. You might like to write to the board of directors and ask them to make available a detailed written explanation about the outstanding legal cases if they are in a position to do so.

It would also be very helpful for the members to have the solicitor for the defence attend the meeting and answer, where possible, questions from the members. It may be necessary to replace the director if the charges are against the director who is currently in office and to which the cases may relate.

The consequence of all of this worry is that future premiums for directors’ and officers’ liability insurance may be higher to reflect the risk. Another is the cost of the restoration of the OMC if it is wound up or to prevent it from being wound up by way of legal fees within service charges to shore up any difference from the policy.

 

Paul Huberman is a member of the Society of Chartered Surveyors Ireland’s property and facilities management professional group

 

 

Author: Paul Huberman of H&H Property Management Consultants Ltd

Publish Date: 05/02/2015