Death of a sole director and shareholder
We have previously discussed this issue in previous blogs entitled; death of a sole director and shareholder and no man is an island but being a sole director might come close.
The recent case of Williams v Russell Price Farm Services, 2020 EWHC 1088 Ch is a timely reminder of what happens if company succession planning is not undertaken. In the event of the death of a director, if there are other surviving directors, they will often be able to step in and run the company. If the sole shareholder of a company dies, the directors can continue to manage the company until the deceased shareholder’s beneficiaries have the shares transferred to them.
However, without adequate company succession planning, difficulties may arise when a sole director who is also the sole shareholder dies. In these circumstances two key issues arise for the personal representatives of the deceased’s estate:
Both of these steps above involve obtaining Probate. Probate is a general term used to describe the legal and financial processes involved in dealing with the property, money and possessions (i.e. the ‘estate’) of a person who has died. This involves obtaining either a Grant of Probate or Letters of Administration. Probate is required in order for the personal representatives to be entered into the company’s register of members. The personal representatives then have the ability to pass a resolution appointing a new director.
Obtaining Probate can take a number of weeks during which the company will be unable to carry on business as usual. As a result, any delay caused by the need to apply for Probate can cause significant problems for the business. For example, whilst there is no director in office, assets in the name of your company cannot be accessed, contracts cannot be entered into, supplier and employees cannot be paid and other key decisions cannot be made. Clearly, this could have a substantial impact on the business you have worked hard to build.
The recent High Court case of Williams v Russell Price Farm Services provides a real life example of such a situation. The late Russell Price was the sole director and shareholder of his contract farming company. There was no provision in the company's articles of association for the personal representatives to appoint a director - only shareholders could appoint a director. This left the company in a precarious position as it was unable to operate its bank account and therefore could not pay its creditors or carry out day to day business transactions. As a result, the executors of his estate made an urgent application to the High Court requesting that they be entered into the company’s register of members so that they could appoint a director without waiting for the Grant of Probate to be obtained.
In Williams v Russell Price Farm Services the court granted the order sought by the executors but the need to apply to court may be avoided with suitable company succession planning.
If a company has adopted Model Articles as its articles of association (the default articles of association for companies incorporated from 1 October 2009), the position is clear. If, as a result of death, the company has no shareholders and no directors, the personal representatives of the last shareholder to have died can appoint a person to be a director.
However, if you do not have a valid Will in which executors are properly appointed, Probate will be needed to confirm the appointment of the personal representatives, in which case you are back to square one. Therefore, it is also necessary to ensure that you have a Will which properly appoints executors.
For companies incorporated prior to 1 October 2009, assuming that the company has not adopted bespoke articles of association, there is no equivalent provision. This means that either Probate is needed or the personal representatives of the deceased need to apply to court before a director can be appointed.
If a company has adopted bespoke articles of association, the position will depend on what those articles say. If there is no provision for the personal representative to appoint a director then a court order may be required.
No one wants to contemplate their own mortality, but for a sole director this may be one of the most important considerations that you can make. Company succession planning is essential to ensuring that a company can continue to function on the death of a sole director. Not only should you ensure that you have articles of association which provide for succession planning but any Will you have prepared should properly appoint executors and work alongside any company constitutional documents to avoid your company and your estate being exposed to a period of uncertainty and unnecessary costs.
Diva Shah is an associate in our Private Client team. Diva acts for various clients including high net worth individuals, entrepreneurs, executors, trustees and individuals who lack mental capacity on a broad range of matters.
Luke Gregory is an Associate in the Corporate and Commercial team, he works on a broad range of corporate and commercial matters including advising on company incorporation, bespoke articles of association and shareholder agreements, corporate governance, and Companies Act procedures such as off-market share buybacks and the removal of company directors.
In Part 1 of our two-part series on the Department for Business, Energy and Industrial Strategy's (BEIS) White Paper on audit and corporate governance reform (Restoring Trust in Audit and Corporate Governance), we focussed on whether the proposals regarding corporate governance are likely to make the UK a more or less attractive destination for investors.
In 2012, as a recently elected MP, Kwasi Kwarteng co-authored “Britannia Unchained: Global Lessons for Growth and Properity”, a political pamphlet which championed risk-taking and innovation in the UK economy, and which ever since has led some to label him a fervent Brexiteer. Appointed as the Business Secretary in January 2021, only a few months later his department (BEIS) published one of the longest and most ambitious government White Papers in recent years.
A recent case has highlighted a trend that that we have seen over recent years, with Employment Tribunals finding that the dismissal of a senior executive can be fair where there has been a breakdown in relations amongst a management team and one director / executive is considered to be more at fault (Moore v Phoenix Product Development Ltd EAT/0070/20). Also, the procedural requirements for such dismissals may be more limited, in this case, the fact that no right of appeal was offered did not render the dismissal unfair.
In the recent case of TMG Brokers Ltd (In Liquidation) (also known as: Baker v Staines) the High Court held a director of a company to be jointly and severally liable for payments made by his co-director out of the company’s bank account which were made without proper authority and amounted to disguised distributions of capital. The fact that he had placed trust in the other director for the company's financial affairs did not excuse him from performing his duties.
Following the release of the Hill Report at the start of last month, the FCA has announced that it is going to open a consultation into changing the Listing Rules and connected guidance with a view to encouraging the listing of Special Purpose Acquisition Vehicles (SPACs).
Following a request by the Department of Business, Energy and Industrial Strategy (“BEIS”) ICSA has prepared a report assessing the effectiveness of the independent board evaluation process introduced in the 2018 update of the UK Corporate Governance Code (the “UK Code”).
What happens when a director commits fraud by misappropriating company assets? Or what of the director who continues trading knowing that the company has no realistic prospect of paying its debts as and when they fall due? To whom does a director owe duties at that point and what recourse is there against that director? This article explores these questions.
Disputes between directors often arise because of, and/or result in, disputes about company money. Directors need to be alert to how they are required to act, particularly in times of conflict.
It is well known that directors owe duties to the company of which they are a director and, in certain circumstances, its shareholders, creditors and employees. Many people believe that if you have not been formally appointed as a director, i.e. you do not appear on Companies House records as a director, you will not owe the usual directors’ duties and, therefore, cannot be in breach of such duties or subject to sanctions for breach.
All providers registered with the Care Quality Commission (“CQC) must assure themselves that all directors who are responsible for delivering care to service users are fit and proper – in other words, they must be able to diligently carry out their responsibility to ensure the quality and safety of care. This forms part of the providers’ duty to ensure the service is well-led, which is one of the focus points during an inspection. Not only does the CQC monitor compliance at the point of registration, but it is an on-going duty and can lead to enforcement action where it is not met.
In the recent case of Barrowfen Properties Ltd v (1) Girish Dahyabhai Patel (2) Stevens & Bolton LLP (3) Barrowfen Properties II  EWHC 2536 (Ch), the High Court extended the iniquity exception to breaches of a director’s statutory duties.
It goes without saying that Insolvency Practitioners must behave honestly and with integrity in all their professional dealings. IPs must handle money and assets in a way which justifies the trust placed in them, but some professionals don’t realise that the way they behave on a Saturday night may be just as relevant to their ability to continue in their chosen profession as the way they behave on a Monday morning.
In response to the coronavirus (“COVID-19”) pandemic, the government introduced a number of loan schemes in order to assist businesses struggling financially. Recent reports suggest that these schemes, as outlined below, have become a target for fraudulent loan applications, by both genuine businesses and also organised criminal enterprises. This blog briefly examines the various loan schemes in place and the criminal offences which are likely to be the focus of investigating authorities in the coming months.
Court of Appeal overturns injunction in favour of son who sought to restrain his family from participating in the management of their caravan park business - Loveridge –v- Loveridge  EWCA Civ 1104.
Brother and sister Mark and Rachel Penfold were directors of a waste management company. In February 2016 an employee of the business suffered a serious injury when his arm was caught in a conveyer he was operating whilst at work. The Health and Safety Executive prosecuted the company and both individuals under the Provision and Use of Work Equipment Regulations 1998 (PUWER).
We live in uncertain and financially very troubling times. The coronavirus pandemic and the unprecedented measures put in place to tackle it have caused severe disruption to businesses. Big names such as Harveys, TM Lewin, Intu and the owners of Café Rouge and Bella Italia all went into administration at the beginning of the month. They will not be the last.
It is a sad reality that the Covid-19 Pandemic is likely to lead to a spike in the number of companies being put into insolvency. This has the potential to leave parties with claims against those companies with a reduced prospect of full recovery, even if their claims are strong. As a result, claimants may look for alternative targets, including ways in which they could sue directors personally.
Company succession planning is critical to ensure that a company can continue to run in the unfortunate event that a director (or shareholder) dies. If there are other surviving directors, they are able to step in and run the company, but what happens when a sole company director dies?
The impact of COVID-19 is being felt in many different ways. For those going through a separation or divorce, the pandemic has added a layer of uncertainty and stress to an already difficult process. This is particularly so for those who own a business (or whose spouse does), where the value of their business may have been affected and they are concerned with the impact on a financial settlement. In this blog, we look at the complexities of valuing businesses in divorce proceedings at this unprecedented time and provide some practical considerations.
In Hunt (as Liquidator of System Building Services Group Ltd) v Michie & Ors  EWHC 54 (Ch), ICC Judge Barber has confirmed that directors of insolvent companies remain subject to fiduciary duties, even after those companies enter into an insolvency procedure.
Skip to content Home About Us Insights Services Contact Accessibility