Over the last six months we have seen that the bankruptcy of housing companies, or at least the threat of one, has been getting quite a lot of media coverage.
Until recently, the bankruptcy of housing companies was not even considered a possibility. Until they did. And of course, it is obvious that any limited company can go bankrupt. The reasons for such a situation vary, but it is extremely rare that it comes “out of the woodwork”.
At the moment, housing associations and their finances are being hampered by a number of factors: rising inflation has increased the prices of almost all services, and housing associations have been hit particularly hard by higher energy costs. Inflation has also been the cause of rising interest rates, and there is no end in sight, at least not yet. Electricity prices have also played a part, but at the time of writing, the worst-case scenarios look a little easier.
If the management of the building company has been trying for years to minimise all costs, it is possible that the company has accumulated a repair debt. Building societies that have proceeded on a shoestring budget are also unlikely to have been able to prepare for future unexpected repairs, not to mention overdue renovations.
And when a threat materialises and money is needed, it can easily happen that the bank will no longer grant the loan. Because you consider the collateral values to be insufficient. Then the situation easily becomes self-serving and the result is bleak to say the least.
Amid all the gloom, however, we must remember that bankruptcy does not come on top like a freight train in a tunnel. It sneaks up on you. Therefore, every shareholder should understand the importance of the general meeting. The Annual General Meeting discusses not only the results of the previous financial year, but also the Board’s budget proposal and its justification. It is also in every shareholder’s interest to understand what is being discussed and agreed. And if you don’t understand, you should ask and ask for an iron wire, if nothing else helps. Because these give a picture of the state and direction of the building.
The Annual General Meeting also decides on the discharge of the Board of Directors. This should not be a flash in the pan or taken for granted either, because the government has had, or at least should have had, an understanding of the situation and what is happening as the year has gone by. If, for example, the company has accumulated a large amount of outstanding debts, it is up to the board to react quickly and effectively.
It is often difficult to get anyone to agree to sit on the board of a building society. Which is totally incomprehensible, because you would think everyone would want to be as close to the decision making process as possible when it comes to their own property! Of course, the board is also responsible for the decisions it takes and its members risk personal liability. A director’s personal risk usually means that the directors may make decisions that cause damage to the housing company or to a third party (e.g. a shareholder). Board members may be personally liable for these damages, for example under the Housing Company Act.The most typical damages caused by board members are usually related to, for example. exceeding their powers, failing to act and delaying.
It is very important to monitor the management and finances of a building society if you own shares in that company. And if you only want to own them, you should study them carefully before making a purchase decision. Of course, there are many other things to pay attention to, but these two are definitely at the top of the list. So when the estate agent selling the property you are interested in gives you a big pile of documents, read and understand them carefully! And if you don’t understand, visit our online shop!