What happens to service charges if management company goes insolvent?

What happens to service charges if management company goes insolvent?

10:06 AM, 7th December 2021, About A year ago 12

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I own a flat in a block of 20 flats, where the leaseholders jointly manage the flats under a management company. All the leaseholders are directors in the management company.

One of the leaseholders is suing this management company (for disrepair and consequent loss of rent) and though we have made an offer to address the repair issues by raising more funds in the near future (roughly £150k), we might still be sued for loss of rent (£60k). The management company have £50k in our service charge account at the moment. Service charges are kept in a trust account, and ours has been as well.

If we lose this case as we don’t have funds to defend ourselves, will that mean we will lose £50k that’s there?

It sounds very unfair to me, but not sure what the law says about this?

How are service charge funds treated under insolvency laws if the management company goes insolvent because it’s unable to defend itself in a legal case?

Only the company is being sued, not individual directors. We have directors liability insurance, but nothing more, unfortunately. The cost of repairs will be so high (something we have to do anyway for all of us), that we will not have any additional funds to defend ourselves.

Does anyone have similar experience or knowledge of the laws on this matter?


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rita chawla

11:47 AM, 12th December 2021, About A year ago

Thanks everyone,I do hope the service charges belong to leaseholders and are not lost after insolvency, as some of you kindly advised. We have finally decided to get legal advice, and I hope to share here in future.

Mervin SX

19:40 PM, 23rd December 2021, About A year ago

Hi Rita,
I tend to agree with Puzzler - the service charge money belongs to the leaseholders and not to the management company. But you need to understand the reasons for the large claim and how you can best defend it.
I am not legally qualified but I have a lot of experience with management companies and RTM companies. Would you like to email me at property.management@xavi.co.uk and perhaps help you see through the current challenges?

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