Compelling a body corporate to approve a transfer of management rights
By Frank Higginson05 Aug 2008
We recently acted in the sale of a management rights business where the committee refused to provide its consent to the transfer as required by the management rights agreements and the relevant module. The committee’s stance jeopardised not only our client’s chances of selling the management rights, but also its chances of completing a contract for the purchase of other interests.
The purchasing entity was a husband and wife team, and both had a history of stable employment. They both had administration experience and excellent references. The husband even had relevant trade skills. So despite the fact that the purchasing team had no previous actual experience in management rights, it was without question that they had the skills required to perform the caretaking functions.
The committee refused the transfer solely on the basis that the purchasers had never previously owned management rights. This was despite the fact that it was a small body corporate where the demands on the management team were relatively low.
Negotiations proved fruitless with the usual ducking and weaving from the committee and their lawyers, with both trying to lay the decision to refuse the assignment at the feet of the other.
Our client could not afford, for financial and business opportunity reasons, to wait for a general meeting to approve the transfer, especially given that it may take up to six weeks to be held.
We were therefore left with no choice but to file an urgent application to have the committee’s actions declared unreasonable.
The application was supported by several statements from industry experts who agreed that the purchasers were well qualified to perform the management role, and confirmed the unreasonableness and extreme rarity of the committee’s stance.
The argument was also raised that people have to get a start in the industry at some time, and that by refusing consent based on the purchasers lack of previous experience, the committee was effectively seeking to close the door on new entrants to the management rights industry.
On receipt of the application the committee realised that they were being unreasonable and approved the transfer. However, it is a pity that our client had to issue an application to get the committee to act sensibly. In some respects it would have been wonderful for the industry to have had the decision made on the application, because without doubt, it would have been made in our client’s favour and the industry would have had judicial authority to combat the ridiculous proposition of prior management rights experience being necessary for new managers.
After the dust settled, it appears that the committee were scared into not approving the transfers on the basis that they would be held responsible for the actions of the purchaser if the performance was not up to scratch. This is also an argument without substance where the committee has acted reasonably.
And, as is usually the case, the body corporate is happy with its new management team.