Can an RMC director be sued personally? What the Companies Act 2006 says about duties and protection

A leaseholder who is asked to sit on the board of the residential management company (RMC) that owns or runs their block often asks the same thing: can I be sued personally? The Companies Act 2006 does not give a one-line answer, but it does say what a director must do and what the company may not promise in return.

The duties a director owes

Chapter 2 of Part 10 lists the general duties of directors. Section 170 describes their scope and sections 171 to 177 are the duties themselves:

Section 178 deals with the civil consequences of breach. We have read only its heading, so this guide does not say what the consequences are.

The care test in section 174

Section 174 says a director "must exercise reasonable care, skill and diligence". It then gives two tests. The first is the care, skill and diligence a reasonably diligent person would show, with the general knowledge, skill and experience that may reasonably be expected of someone doing that director's job. The second is the general knowledge, skill and experience the director actually has.

In plain terms, a volunteer with no property background is still held to the first test. A retired surveyor on the same board is held to the second as well, so the bar for them is higher.

What a company cannot promise a director

Section 232 says any provision that exempts a director from liability for negligence, default, breach of duty or breach of trust in relation to the company is void. It also says a provision by which the company indemnifies a director against such liability is void, except as allowed by sections 233 (insurance), 234 (qualifying third party indemnity) and 235 (qualifying pension scheme indemnity). It applies whether the provision is in the articles or in a contract.

So an RMC cannot simply write into its articles that directors are never liable. Insurance and certain indemnities are the routes the Act leaves open. We did not read sections 233 and 234, so we cannot say here what they require.

Relief from a court

Section 1157 lets a court relieve an officer, wholly or in part, from liability "on such terms as it thinks fit" where the person acted honestly and reasonably and ought fairly to be excused. A person who fears a claim may also apply to the court in advance.

The test has three parts and all must be met: honesty, reasonableness and fairness. A director who followed the lease, kept dated records and took advice has a much easier case to make than one who has nothing on file.

What a managing agent can do to help

A volunteer board relies on its managing agent for the papers that show it acted with care. That is a practical point, not a legal guarantee.

1. Keep board decisions on file. Minutes, the figures put to the board and the advice taken.
2. Run the year properly. The service charge year-end checklist lists what the board should see.
3. Check the accounts rule. Our guide on whether service charge accounts need to be audited covers a question directors often get wrong.
4. Run meetings to the Act. See the RMC AGM notice and quorum guide.
5. Record any interest. If a director owns a flat that is being sold, or has a link to a contractor, the arrears and sale guide and a declared-interest note both belong on file.

What we could not confirm

We did not read the text of sections 171 to 173 or 175 to 178, nor sections 233 to 235. We cannot say whether a particular RMC has director insurance, and we cannot say how a court would treat a particular case. A person deciding whether to take the role should read the company's articles and ask whether the company holds directors' insurance.

Overlyft can set up an AI assistant that drafts board minutes from a meeting recording for a person to approve, keeps a dated decision log with the papers behind each decision, and flags a director's declared interest before a contract is signed.

This is general information, not legal advice.