“Till Death Do Us Part” – The perils of being a sole director/shareholder

The recent case of Kings Court Trust Limited v Lancashire Cleaning Services Limited highlights the difficulties that a company can face upon the death of a sole director and shareholder.  If the director/shareholder was to die unexpectedly there would be no executive officer available to run the company.

In the above case, Mr Pilling was the sole director and shareholder of a cleaning company who suddenly died.  Before his death, Mr Pilling had prepared a will appointing executors to administer his estate.   However the company’s Articles of Association did not allow the executors to appoint a director on the death of Mr Pilling.  Without a Grant of Probate, the executors had no legal authority to appoint a director or to make other important decisions regarding the company.  In particular, they were unable to change the Register of Members to remove Mr Pilling and to record the transmission of the shares into their names as executors of his estate.

The executors could not wait for the Grant of Probate to be granted because without a surviving director or company secretary the company’s bank account had been frozen by its bank which left the company unable to pay employees’ wages, creditors and tax due to HMRC.  Further, a buyer had been found for the company but it could only be sold at an attractive price if it was sold as a “going concern.”

The executors therefore made an emergency application to the High Court asking the Court to intervene by using its statutory powers to order rectification of the Register of Members to include the names of the executors.  This would then allow the executors to pass a written resolution to appoint a new director.

The Court granted the Order sought by the executors although the Judge stressed that he only did so due to the exceptional circumstances of the case. Had it not been the extreme urgency caused by the frozen bank account then it is likely that the executors would have been told by the Court to wait until probate was granted.

Companies with a sole director and shareholder should review their Articles of Association to ensure that they contain provisions which allow the personal representatives of the sole director/shareholder to appoint a new director immediately upon the death of the sole director.

Picture of Luke Patel

Luke Patel

Luke Patel
Partner
Commercial Dispute Resolution Team
LPatel@LawBlacks.com
0113 227 9316
@LukeLawBlacks

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