RMC Director Duties: Companies Act Sections 171 To 177

The Companies Act 2006 applies to a residents’ management company exactly as it applies to any other private company. Sections 171 to 177 set out seven general duties: act within your powers, promote the success of the company, exercise independent judgment, exercise reasonable care, skill and diligence, avoid conflicts of interest, refuse benefits from third parties, and declare an interest in a proposed transaction. Section 170(1) says they are owed by a director to the company, and nothing reduces them because you are unpaid or the company is small.

Who Owes the Duties, and to Whom

Your RMC is the company, and its members are usually the leaseholders. The duties run from you to the company, not directly to your neighbours: leaseholders’ rights against the RMC come from the lease and from the Landlord and Tenant Act 1985, a separate route with its own remedies.

Two extensions catch people out. Section 170(5) applies the duties to shadow directors so far as they are capable of applying, which can reach a former director who still runs things. Section 170(2) keeps two alive after you resign: section 175 as to property, information or an opportunity you learned of while a director, and section 176 as to acts or omissions in office.

Section 178 fixes the consequences. Breach of sections 171 to 173 and 175 to 177 is enforceable as any other fiduciary duty owed to a company by its directors. Section 174 is expressly excluded, so a failure of care is handled as negligence would be.

The Seven Duties Applied to a Block

The sections are short. The difficulty is spotting which ordinary block decisions engage them.

Sections 171 and 173: The Articles, and Your Own Judgment

Section 171 has two limbs: act in accordance with the company’s constitution, and only exercise powers for the purposes for which they are conferred. For an RMC the constitution means the articles of association, often a developer set never read since.

The second limb is underestimated. A power can be used within its literal wording and still breach section 171 if used for the wrong reason: withholding consent to punish a leaseholder who complained is an improper purpose however tidy the paperwork. Section 173 then requires independent judgment, subject to an agreement the company has properly entered into that restricts future discretion, or to authorisation in the constitution.

Section 172: The Long Term, and Fairness Between Members

Section 172(1) requires good faith and lists six matters to have regard to: the likely consequences of any decision in the long term, the interests of employees, the need to foster business relationships with suppliers, customers and others, the impact of operations on the community and the environment, the desirability of maintaining a reputation for high standards of business conduct, and the need to act fairly as between members.

The long term limb answers the board that keeps this year’s demand low by deferring the roof. Underfunding is a decision, and it must be one you honestly consider promotes the company over the life of the building. That is the backdrop to how much a block should hold in reserve.

Fairness between members has the sharpest edge, because the members are the people paying. Works benefiting one stair core, an apportionment that has drifted from the lease, an arrears policy applied to some and not others: each sets one group against another. The section does not demand an identical outcome, but it does demand that the difference be considered and justified. Section 172(3) preserves any rule of law requiring directors to consider creditors, which matters once the company cannot pay its contractors.

Section 174: What Is Expected of a Volunteer

Section 174(2) is a two part test: the care, skill and diligence of a reasonably diligent person with, first, the general knowledge, skill and experience reasonably expected of a person carrying out the functions carried out by that director in relation to the company, and second, the general knowledge, skill and experience that director actually has.

The first limb is objective and gives no discount for being unpaid, though it is set by your functions in that company rather than by a listed company board. The second limb only raises the bar: a director who is a surveyor, an accountant or a solicitor is held to what they personally know.

Appointing a managing agent does not transfer the duty. The agent does the work; the board still takes the decisions, including the decision to accept a recommendation.

Sections 175 to 177: Conflicts, Benefits and Declarations

Section 175(1) requires you to avoid a situation in which you have, or can have, a direct or indirect interest that conflicts, or possibly may conflict, with the company’s. Section 175(2) applies it in particular to exploiting any property, information or opportunity, and says it is immaterial whether the company could have taken advantage of it. Section 175(3) carves out conflicts arising in relation to a transaction with the company, which sections 177 and 182 handle instead.

Under section 175(4) there is no breach where the situation cannot reasonably be regarded as likely to give rise to a conflict, or where the directors have authorised the matter. Section 175(5)(a) lets the directors of a private company give that authorisation only if nothing in the constitution invalidates it, and section 175(6) makes it effective only if the quorum was met without counting the interested director and the matter was agreed without their vote counting.

Section 176 bars accepting a benefit from a third party conferred because you are a director, unless acceptance cannot reasonably be regarded as likely to give rise to a conflict. On a block that is the contractor’s commission, the insurance introducer’s fee and the case of wine at Christmas.

Section 177 requires the nature and extent of an interest in a proposed transaction to be declared to the other directors before the company enters into it, at a meeting or by notice. It does not apply where the interest cannot reasonably be regarded as likely to give rise to a conflict, or where the other directors already know. Section 182 covers a transaction already entered into and requires declaration as soon as is reasonably practicable. The difference matters: failing to comply with section 182 is an offence under section 183, while section 177 carries no criminal sanction of its own.

If your company uses the model articles unamended, article 14 also keeps an interested director out of the quorum and the vote unless the members disapply it by ordinary resolution, the interest cannot reasonably be regarded as likely to give rise to a conflict, or the conflict arises from a permitted cause. Many RMCs have bespoke developer articles, so check yours.

Where Volunteer Boards Most Often Slip

None of these need bad faith.

• Setting or enforcing an arrears policy while a director is in arrears, without that director standing out of the decision.
• Instructing a contractor owned by a director or a relative with no section 177 declaration and no quorate decision excluding them.
• Treating the service charge account as company money. Section 42 of the Landlord and Tenant Act 1987 makes contributions, and the investments representing them, trust funds held first for the costs they were collected for and then for the contributing tenants.
• Committing to works above the consultation threshold, set by the Service Charges (Consultation Requirements) (England) Regulations 2003 at an amount resulting in the relevant contribution of any tenant being more than £250.
• Leaving one director holding every password and bank mandate while the others sign minutes they have not read.

The consultation point most often becomes a bill the company cannot recover: see our note on section 20 consultation for major works.

What Happens When a Director Gets It Wrong

Four routes run in parallel, not as alternatives.

The company can sue. Section 178(1) applies the consequences that would follow from the corresponding common law rule or equitable principle, so for the fiduciary duties that can mean an account of profits, equitable compensation or setting the transaction aside, and for section 174 a claim in the nature of negligence.

A member can petition. Section 994 lets a member apply to the court where the company’s affairs are being or have been conducted in a manner unfairly prejudicial to the interests of members generally or of some part of them.

The tribunal can intervene. Leaseholders may apply under section 27A of the Landlord and Tenant Act 1985 for a determination of whether a service charge is payable and, if so, by whom, to whom, how much and when; paying it is not agreement or admission. Section 20C then lets a tenant ask for an order that the costs of the proceedings are not relevant costs for service charge purposes, leaving the company to carry its own legal costs. Section 62(2) of the Leasehold and Freehold Reform Act 2024 will omit section 20C, with the rest of section 62 putting a new litigation costs regime in its place, but section 62 had not been brought into force when this was written.

Section 24 of the Landlord and Tenant Act 1987 also lets the tribunal appoint a manager, after a preliminary notice under section 22 unless the tribunal dispenses with it, on grounds including breach of an obligation owed under the tenancy relating to management, unreasonable service charges made, proposed or likely, and failure to comply with an approved code of management practice.

And section 6 of the Company Directors Disqualification Act 1986 obliges the court to disqualify a person whose conduct as a director of a company that has become insolvent, or been dissolved without becoming insolvent, makes them unfit to be concerned in company management. The minimum is 2 years, the maximum 15.

What Protection the Company Can and Cannot Give You

Section 232(1) makes void any provision purporting to exempt a director to any extent from liability for negligence, default, breach of duty or breach of trust in relation to the company. Section 232(2) voids any indemnity from the company against such liability, except as permitted by section 233 (insurance the company buys), section 234 (a qualifying third party indemnity provision) and section 235 (a pension scheme indemnity provision). So an article saying directors are not liable is worth nothing, while directors and officers cover is expressly permitted.

Section 239 lets the members ratify conduct amounting to negligence, default, breach of duty or breach of trust, by resolution, with votes in favour cast by the director concerned and any member connected with them disregarded. Section 180(4)(b) adds that where the articles contain provisions for dealing with conflicts, acting in accordance with them does not breach the general duties.

The Filing Duties That Sit Alongside the Seven

Several administrative obligations fall on directors personally.

• Section 386: keep adequate accounting records, sufficient to show and explain the company’s transactions and to disclose with reasonable accuracy, at any time, its financial position.
• Section 442(2)(a): a private company has nine months after the end of the relevant accounting reference period to file accounts.
• Section 451: default is an offence by every person who was a director immediately before the end of that period, with a defence of having taken all reasonable steps. The penalty on summary conviction is a fine at level 5 on the standard scale, which for offences in England and Wales committed on or after 12 March 2015 means a fine of any amount, plus a daily default fine.
• Section 853A: a confirmation statement is due within 14 days after the end of each review period, normally a 12 month period.
• Section 476: members holding 10% in nominal value of the issued share capital, or 10% of the members of a company without share capital, can require an audit even where the company is exempt.

The civil penalty for late accounts falls on the company, and so on the leaseholders, rather than on the directors.

It doubles where accounts are filed late in two successive financial years beginning on or after 6 April 2008. Three newer requirements also apply: companies formed from 4 March 2024 give a registered email address on incorporation, and existing companies give one with their next confirmation statement dated 5 March 2024 or later; every statement from that date must confirm the company’s intended future activities will be lawful; and identity verification became a legal requirement on 18 November 2025, a date Companies House describes as the start of a 12 month transition period rather than a deadline, with existing directors supplying their Companies House personal code as part of the next confirmation statement.

What to Do Next

If you are unsure where your board stands, the first steps are small and cheap.

1. Download your articles from Companies House and read the conflict provisions. They, not the model articles, govern your board.
2. Open a register of directors’ interests and take a declaration from everyone.
3. Minute the reason for a decision, not only the outcome. Why a tender was preferred is evidence for sections 172 and 174.
4. Check the accounts and confirmation statement dates, and confirm every director has verified their identity.
5. Put reserve fund policy and the deferred works list to the members rather than settling it privately.

The last of those changes the temperature in a block, because it moves the argument from the board to the members, which is one reason to take the annual meeting seriously.

If your board wants the administrative load lifted without giving up control, that is what a managing agent is for. Plymouth Block Management works with RMC and RTM boards across Devon and Cornwall on a fixed management fee agreed in advance, takes no commission on contractor invoices, and holds client money in named Lloyds accounts, one per managed property. A director facing a conflict or a filing that has slipped is welcome to ring and ask before it becomes a dispute.

Common Questions

The questions RMC directors ask most often about the general duties.