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27 November 2017

What happens when a sole director-shareholder of a company dies?

Acting as a sole director-shareholder has its benefits and its risks, one so being succession planning. If a sole director-shareholder dies it can leave a company in a vulnerable position if plans have not been made.

In one case, the High Court had to step in to take emergency action to save a business.

Mr P was a sole-director of Lancashire Cleaning Services. While he appointed executors to his estate in his Will he did not update the company’s articles of association to allow the executors to make decisions on behalf of the company such as appointing a new director. When Mr P passed away, the company’s assets were frozen and employees could not be paid, and the executors were powerless to help.

The situation in this case was considered an emergency, calling for the High Court to step in and rectify the register of members with the executors so that they could pass a resolution to appoint a new director. Although the court usually requires a Grant of Probate before allowing this, the urgency in this case was sufficient for the court to proceed without, as it was thought the company would not survive otherwise.

In order to avoid any difficulties or uncertainty in the event of the death of a sole director-shareholder, you should review your company’s articles of association as soon as possible to make any necessary amendments to ensure your company could continue to operate in such circumstances. The company in this case was fortunate enough to benefit from immediate court intervention, but not every company may be so lucky.

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