Report on Multi-Unit Developments - Law Reform Commission

3.74 Sanctions imposed under company law in the context of owners‘
management companies can be divided into two broad categories. The first
category concerns the potential for an owners‘ management company to be
struck off the Register of Companies for failing to comply with the administrative
requirements of the Companies Acts, including the filing of annual returns
already discussed. The second category deals with the direct and personal
liability of directors who fail to fulfil their responsibilities to the company and the
members (unit owners). This section will consider strike-off and the next section
will deal with the liability of directors.
3.75 In the Consultation Paper, 69 the Commission noted that there had
been a number of owners‘ management companies struck off the Register of
Companies, the most common reason being for not filing annual returns under
the Companies Acts. 70 It appears that these failures may, at least in some
instances, be associated with developments where the developer has not
completed all aspects of the project and, in addition, has allowed the owners‘
management company to ―wither away.‖ In other cases, non-filing may have
arisen because some directors of owners‘ management companies have no
prior experience of sitting on a board of directors. In the Commission‘s view,
therefore, strike-off is another aspect of two difficulties with multi-unit
developments: the unsatisfactory governance arrangements that occurred (and
remain) in some multi-unit developments and the understanding deficit of some
unit owners.
3.76 The Commission must underline, however, that in general terms
strike-off is an entirely suitable sanction for non-compliant companies.
Nonetheless, it presents quite unsatisfactory aspects that are particular to the
multi-unit development setting. First, in many instances, the effect of strike-off
may only become apparent when a particular unit owner wishes to sell their
individual apartment. A potential purchaser will be advised not to purchase if
the owners‘ management company has been struck off the Register of
Companies. In this setting, strike-off imposes a disproportionate (unintended)
penalty on an individual unit owner who may be required personally to pay for
the restoration to the Companies Register when he or she wishes to sell a
single apartment. A second effect of strike off is that the property involved in
the owners‘ management company‘s assets is vested in the State under the
State Property Act 1954. While this may, at first sight, appear to be a windfall
for the State, it is in reality a burden on it. This also means that the owners‘
management company no longer has control over the title originally vested in it
69
Op cit, Chapter 4.
70
Companies Act 1963, s.125.
81