Dissolution of management companies: regulatory issues for housebuilders and developers

Housebuilders and developers are increasingly facing regulatory issues concerning the dissolution of management companies. It is not an uncommon occurrence for management companies, particularly those run by housebuilders and developers, to be dissolved following the handover to plot buyers.

This could be actioned by either the directors of the company themselves or by Companies House for a failure to keep up with filing statutory accounts and other documents.

The consequences of dissolution

If a management company is dissolved, the directors of the same company will be unable to continue acting. Any rights held by the management company, and retained at the time of dissolution, would then pass to the Crown. It is entirely possible that the Crown would look to disclaim any rights, which can present its own set of challenges.

In more practical terms, if the management company has to consent to any dispositions of individual plots, it could restrict homeowners from being able to sell or re-mortgage their property. There is also the possibility that repayments on existing mortgages could be triggered, and further difficulties could arise in respect of service charges.

Routes to restoration

There are two routes available to restore a company to the register:

1. administrative restoration; or
2. an application to the Court.

Administrative restoration is an out-of-court process engaging with the Registrar of Companies directly and is often non-contentious though time-consuming. However, it is only available for circumstances where the company has been compulsorily dissolved and the management company must have been actively trading.

With regards to the second option, applications to Court can be costly and time-consuming, especially if complications arise and need to be examined closely by the Court.

Both methods are only available for the first six years from the date of dissolution and must be brought by either a director or a shareholder of the dissolved company. If a company is voluntarily dissolved, then the only means of restoration is a court order.

Urgent action needed to avoid serious consequences for housebuilders and homeowners

Allowing management companies to be inadvertently struck off at Companies House can cause real headaches for housebuilders and homeowners alike, causing serious administrative, legal and reputational problems for both. Issues like managing the maintenance of common areas become complicated; homeowners can have difficulties selling their properties and buyers may struggle to get a mortgage where the management company position is in disarray.

This can cause frustration and distress for all parties concerned, which often results in complaints to the original housebuilder. Dealing with such matters can be extremely time-consuming for management and cause reputational issues if not resolved swiftly. Thankfully, it is possible to restore a management company in such circumstances.