Can OMC's borrow money to cover unpaid fees?

balders93

balders93

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We're in a situation where a third of the properties in our small block are in receivership with Pepper and they've not paid service charge for those properties for 2024 or 2025 and I doubt we'll receive anything until they get vacant possession and sell maybe in 2026 or 2027.

We've works that need to be done sooner than later and general bills to pay.

Our managing agent says OMCs cannot borrow money, but our memorandum of association (from 2008) allows the directors to exercise powers of the company to borrow money.

I don't see anything in the MUD Act 2011 that would preclude us from borrowing.

Am I missing something legally that would prevent the OMC from borrowing?

Or is it a banking reality that banks won't lend to an OMC to cover unpaid service charges?
 
Your memorandum is likely out of date if it's still from 2008. When the revised companies act came into force in 2014, the OMC should probably have reregistered as a DAC. DACs need to have an objects clause in their constitution. This would specify whether the OMC company could borrow or not as the case may be. Maybe check in the CRO to see if your company is a DAC and has a more updated constitution registered there. If it is still registered as an LTD company then there are no restrictions on its borrowing power, but you probably have ended up with an OMC company that has a corporate structure that may not fully meet MUD Act requirements.
 
Thanks @Gushering, a quick search on the CRO says our company type is a "CLG - Company Limited by Guarantee"

I'm sensing bigger problems here, what does that mean for us?
 
balders93 said:
We've works that need to be done sooner than later and general bills to pay.
Click to expand...

Well if the works are substantial, then the sinking fund, if it exists is the place to look for that. If the OMC can't make ends meet on general bills, it sounds like there is looming insolvency. Get professional financial advice if at all possible.
 
@kickstart we will be able to cover it with a mid-year levy roughly equivalent to what we already paid in January for the annual service charge. I'm just looking into alternative financing options other than the 2/3rds of us who are owner occupiers covering for Pepper's refusal to pay.
 
It's helpful you have a CLG which is similar to a DAC in many respects. So the constitution is should have an objects clause and confirm the position on borrowing.
 
I cannot see a bank wanting to touch this to be honest. The management company could of course borrow from its members.

Otherwise are the units in receivership occupied and paying rent? If so, I think there’s a fair case to be made that the receiver should be paying management charges.
 
Your OMC is a CLG which means the company cannot generally raise new capital from its shareholder members. So you are looking at borrowing from members instead, which though possible is contrary to the intended structure of having a CLG in first place.

I can't see a bank lending here as they will have very limited recourse to go after the shareholders and the company sounds like it does not have a lot of assets on hand as collateral.

I think as earlier posters have said better way would be to vigorously pursue receivers for management fees if there are tenants paying rent to fund the repairs.
 
If you hit a brick wall, look at advance payment of future fees by owners who might be able to afford it.

Eg, if current fees are €1500, maybe a 3 year package for €4,000
 
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