Dissolved Management Companies – A More Efficient Approach?

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...