What happens if a company's sole director/shareholder dies?

It’s not uncommon for one person to be the sole director and shareholder of a company. Therefore all the power and legal authority to make decisions for the company rests with this one individual. Upon this individual’s death, the continued existence of the company and its business can be under threat.

If a company’s sole director dies when the Grant of Probate has not yet been obtained, the company could be at serious risk of breaching the Companies Act 2006 and even ceasing to trade altogether.

Although this situation could cause an unnecessary worry for executors up until the probate application is made, a recent development has provided an alternative route to ensuring that the company continues operating as usual.

Most companies that were incorporated before 1st October 2009 adopted articles of association in the form of Table A or with few amendments. Table A articles restrict executors in the way in which they manage the company during the administration of the estate up until probate is obtained.

If it is not expressly permitted in the articles of association, executors can neither vote nor can they appoint any new directors before they are formally registered on the company’s register of members.

In these circumstances, the company would be stuck in ‘limbo’ and would be at risk of having its bank accounts frozen. This could ultimately prevent the company from being able to pay employees’ salaries, pay VAT and potentially continue trading entirely.

A recent case of Ellott v Cimarron UK Ltd has indicated that an executor can rectify the register of members and appoint directors without a Grant of Probate being issued. The deceased was the sole shareholder, director and secretary of the company in question.

Her Will appointed her husband as the sole executor and gifted 40% of the company’s shareholdings to him. The remaining 60% of the shareholdings was divided equally between two employees.

The Executor wished to appoint the two above mentioned employees as the new directors of the company but, as he was unable to vote on this resolution, he did not have the power to do so.

If the Executor had waited until the Grant of Probate was issued, which could have taken up to a few months, the company would have been put in serious jeopardy.

The Executor therefore sought an order from the Court permitting him to rectify the register of members before obtaining the Grant of Probate. The Judge granted the order, despite the company being declared balance sheet insolvent, because he thought the delay would put the company in unacceptable jeopardy.

The Judge recognised that situations such as this are not entirely infrequent, and offered a solution to a common challenge faced by executors.

The ability to rectify the register of members before obtaining a Grant of Probate allows executors to make decisions that are in both the company and the estate’s best interests.

It is therefore essential for executors to make these applications to the Court as soon as possible so as to comply with their duty to the estate and avoid future complications.

At Goughs we can assist in making an application for a Grant of Probate and help prepare an application to the Court to ensure a company continues to trade as usual upon the death of a sole director and shareholder.

If you would like further information regarding Probate and, in particular, an estate which comprises shareholdings, please contact a member of our Private Wealth team today