On the death of its director, due to insufficient succession planning a company almost faced insurmountable hurdles. Fortunately, the High Court saved the day by agreeing to appoint the executors as members of the company. However, the judge said that these were exceptional circumstances – your company might be less fortunate. We’d advise that you check your articles of association to ensure that it contains provisions to facilitate the continuity of management in the event of your death.
In this case the deceased was the sole member and director of a limited company. His shares passed to his executors on his death. Whilst they waited for probate to be granted, the company’s articles of association did not permit the executors to appoint a director or to replace the deceased’s name on the company’s register of members. Accordingly, for a period of more than a month, the company ended up without a director or a company secretary.
Consequently, the company’s bank account was frozen. The executors applied for an order to rectify the company’s register of members by replacing the deceased name with their own in advance of probate being granted.
The High Court agreed to replace the names as requested. However, the judge stated that this would not normally be allowed, but that these were exceptional circumstances – were the company forced to wait until grant of probate, it would be unable to pay salaries to employees or VAT to HMRC. .
The judge said: “I emphasise once again that the circumstances of the present case are exceptional and that normally the court would not make an order under section 125 of the 2006 Act unless and until the company had failed to act on a grant of probate in favour of the executors of a deceased member. This case will constitute no precedent for the more ordinary run-of-the-mill type of case where the company still has shareholders and directors able to act and where, in normal course, they would be fully entitled to await the grant of probate as constituting sufficient title to executors named in a will.”
We would advise against relying on this case – rather, plan in advance to avoid mischance.
The case is Kings Court Trust Limited & Ors v Lancashire Cleaning Services Limited (2017) EWHC 1094. You can read the full judgment here.
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