By Caitlyn Buchanan, 14th October 2021
Chartered Accountants Ireland and the Housing Agency have recently published a guide for directors of Owners’ Management Companies (OMCs). In Ireland, OMCs are the bodies used to manage shared spaces and multi-unit development services such as apartments or housing estates including the maintenance of green spaces and facilities.
Ireland has seen an increase in Owners’ Management Companies taking on a large number of developments in recent years. According to the Central Statistics Office, planning permissions for apartments rose by 80% in 2019. The increase was partially fuelled by an overhaul to apartment planning guidelines in March 2018. The following restrictions were removed making it more cost-effective for developers to build multi-unit developments:
- The requirement for car-parking spaces was removed.
- The requirement for apartments to have windows on two walls was removed.
- The cap on the number of units allowed on each floor increased.
- The height restrictions on residential buildings were altered to allow for easier construction of high-rise developments in cities.
Effective Structure and Management of OMCs
The majority of Irish OMCs utilise a Company Limited by Guarantee (CLG) without a share capital. The CLG must comply with the Multi-Unit Development (MUD) Act 2011 provisions. The MUD Act sets out the legal requirements for operations when managing multi-unit apartment developments.
CLG Companies are a suitable structure for Owners’ Management Companies because they are non-for-profits and often run by volunteers. They are seen as a property/asset manager and often a resident’s association. When operated effectively they can create harmonious multi-unit developments which result in sustainable communities. Irish OMCs must place a focus on creating a collaborative relationship between the company and its owners/members and company directors.
Director’s Guide for Maintaining Corporate Governance of an OMC
The Guide is useful for company directors, secretaries, and stakeholders involved with the operation of an Owners’ Management Company. Considerations for good practice in ten key areas should be followed:
1. Directors’ Duties
Under the Companies Act 2014, directors have many general duties and responsibilities such as ensuring the company complies with company law and a duty to be transparent. It is best practice for directors to disclose any direct or indirect personal interests in contracts or transactions involving the Owners’ Management Company.
A property owner in an estate will automatically become a member of the OMC. Typically, the directors of an OMC are owners and therefore, members of the OMC, however, this is not a requirement.
2. Board Effectiveness
It is in the directors’ best interest to have a Board that uses its time efficiently. An effective Board and productive board meetings can help to:
- Ensure the company is in compliance with laws and regulations
- All directors are fulfilling their responsibilities
- Reduce the opportunity for disputes to arise
3. Performance vs Conformance
Owners’ Management Company directors must ensure the entity is compliant with laws and regulations, including the timely preparation of financial statements for annual returns and maintaining the entity’s RBO Filings. In addition, directors of overseeing the management of operations for long-term sustainable success. Although the OMC does not exist for commercial gain, it must maintain the physical, built environment within which people live. Maintaining sinking fund contributions can reduce the likelihood of requesting sudden large contributions from members.
4. The Company Constitution and Register of Members
The majority of OMCs are incorporated as Companies Limited by Guarantee (CLGs), which have members instead of shareholders. The Company Constitution must be fit for purpose with MUD Act provisions. It should state to what amount the member’s liability is limited in the event that the company is dissolved. As well as how individuals become a member or director and how to resign from these positions.
The register of members is an important document for the governance of an OMC as it determines important items such as individuals’ entitlement to vote at the Annual General Meeting (AGM).
5. Finances, Cash, and Debtors
The directors are ultimately responsible for ensuring that the OMC has sufficient revenue to cover its expenses, arranging for the collection of cash contributions from members/owners to cover debts and build sufficient reserves to cover future capital works or refurbishments. A debt effective collection policy should be put in place and reviewed regularly.
6. Company Accounts and Statutory Audit
To ensure sound financial management the following information and reports must be prepared:
- Section 17 owners’ management company annual report must be provided to members at least 10 days before the AGM under section 17 of the MUD Act 2011.
- Accounting records and the company’s primary books must be prepared. For example, invoices, bank statements, cheque books, ledgers and asset registers. The basic requirements for maintaining accounting records are outlined in the Companies Act 2014.
- Management accounts are financial reports produced for the OMC at regular intervals during a defined financial period as decided by the board. They typically include a statement of income and expenditure, a statement of assets and liabilities, an updated budget statement showing YTD budget versus actual performance, and cash flow forecasts.
- The Statutory Financial Statements include the Income Statement, Statement of Financial Position, Statement of Income and Retained Earnings, Statement of Cash Flows, and Notes to the Financial Statements such as accounting policies, and financial reporting standards. A Directors’ Report may also be required.
- Companies of a certain size are exempt from Audited Financial Statements. However, an OMC may incorporate a statutory audit requirement into its constitution. Financial statements are subjected to an independent statutory auditor for review, the auditor’s report will provide an opinion as to whether the financial statements give a true and fair view of the assets, liabilities and financial position for the financial year.
7. The role of the Company Secretary
The company secretary reports to the board, maintains accurate meeting minutes, and the timely filing of correct and complete returns with the CRO and other regulatory bodies. The vital company secretary role must be assigned by the board to a competent person. Company Secretarial Services may be outsourced to a corporate service provider to ensure good corporate governance.
When there is a lack of necessary skills and experience, assistance from professionals with the requisite expertise is appropriate. The directors of an OMC should consider the risks involved and when it is appropriate to outsource to service providers, this may include the role of company secretary, or an accounting and bookkeeping provider.
9. Annual General Meeting
There is a requirement for directors to hold relevant and timely Annual General Meetings (AGMs). Statutory financial statements must be provided to the members within nine months of the financial year-end date. In generally an AGM is a forum for members to discuss and query the statutory financial statements with directors.
10. Dispute Resolution
Dispute resolution in multi-unit developments may include mediation provisions under the MUD Act 2011. The Circuit Court has jurisdiction for enforcement of these provisions. Should a dispute arise between landlords and tenants in the estate, these issues can be taken to the Residential Tenancies Board.
In conclusion, the Companies Registration Office (CRO) is the central repository of public statutory information on Irish companies. The CRO holds company registration documents and enforces the Companies Act 2014. If a company is found to be in breach of its filing or compliance obligations the CRO can enforce fines and penalties or even strike a company from the register. The CRO makes various company information available to the public.
If you would like to register a new Owner’s Management Company you can order a CLG with MUD Act provisions online. If you have any queries about keeping your existing OMC compliant, please do not hesitate to contact us or call +353 1 6461625. One of our Company Secretarial experts would be happy to assist you.
Disclaimer This article is for guidance purposes only. It does not constitute legal or professional advice. No liability is accepted by Company Bureau for any action taken or not taken in reliance on the information set out in this article. Professional or legal advice should be obtained before taking or refraining from any action as a result of this article. Any and all information is subject to change.