Insolvency practitioners often encounter difficulties when trying to sell properties in residential developments because an original management company has been struck off the Register of Companies. The standard approach can be laborious and costly. A more cost efficient alternative is often available.
Insolvency practitioners attempting to sell unsold units in developments frequently encounter difficulties where the owners' management company has been struck off the Register of Companies, usually for failure to file annual returns.
Typically, such dissolved management companies were incorporated before the commencement of the Multi-Unit Developments Act 2011 (the "MUD Act"), and do not comply with its provisions.1
When restored to the Register of Companies, it can be necessary to seek to have it made compliant with the MUD Act and it is also often necessary to obtain court orders to compel the developer to transfer the common areas to the management company.
However, where there is an existing contract for sale of the common areas of the development from the developer to the management company, a cheaper and more direct alternative is often available in order to overcome the issues arising as a result of the dissolution of the existing management company.
The Trustee Act
In Heidelstone2 the High Court held that where there was a contract for sale from the developer to the management company:
- the developer held the legal interest in the common areas in trust for the management company; and
- the management company held the beneficial interest in the common areas in trust for the unit owners.
Accordingly, a simple application under section 26 of the Trustee Act, 1893, allows the court to make an order vesting the interest of the developer company and / or the management company in a new management company which has been incorporated for that purpose.
In Heidelstone, the court noted its view that this was a more cost effective and "clear cut solution" than the restoration of the management company.
What is Required?
In order to bring an application under the Trustee Act, there must be a contract for sale, or a conveyance of the common areas, to the management company. There is often such a contract for sale in existence, particularly where a number of units have been sold prior to the appointment of a receiver.
It is also necessary to exhibit the various agreements between the developer and the management company together with a letter of consent from the Chief State Solicitors Office acting on behalf of the Minister for Public Expenditure and Reform.
It assists if all owners in the development, or a majority of them, consent to the application but this is not necessarily required.
A new management company, which complies with the MUD Act, where required, must also be incorporated to allow for the transfer of the common areas on the making of the order. The insolvency practitioner should ideally prepare the memorandum and articles for the new management company to ensure that they are appropriate. This new management company is then run by the unit owners in the usual way.
This procedure suits the sale by insolvency practitioners and security holders of affected properties. The courts and the unit owners are also generally receptive to applications of this nature. The processes are generally quicker and cheaper than the historic alternatives.
1 This is only required in relation to residential, or mixed use developments.
2  4 IR 175.
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