The High Court recently decided to replace the name of a company’s sole shareholder and director who had died, with that of his executors in the register of members. That despite the fact that the executors had not yet obtained a grant of probate.
The company’s constitution did not deal with the situation where the sole director and shareholder died. Although the constitution acknowledged that the deceased’s shares would pass to the executors, a grant of probate was required before the shares were registered in the executors’ names and added to the company books. Until then they could not deal with anything requiring a shareholder decision, including the appointment of a new director to deal with the company’s day to day business.
In those circumstances, the executors had little choice other than to make an application to ask the Court to permit them to replace the deceased in the register of members. It would be some time before the executors would obtain a grant of probate. Before making the probate application, an inheritance tax return would need to be submitted and accepted by HMRC. Meanwhile, the company’s affairs could not simply be halted; decisions needed to be made and creditors paid.
Due to the coronavirus pandemic, many public institutions are suffering from a back log of work. HMRC and the various probate registries are no exception to this rule. There are considerable delays, which is making it far more difficult for any executor to progress the administration of an estate.
This decision comes as a welcome reminder that the Court can assist executors in similar positions who need to take control of a Company urgently, before it runs into serious trouble. This may be because they fear a delay while waiting for HMRC to process the inheritance tax return or for a grant of probate to be issued or for any other reason. It may also be of use to those executors who were appointed on behalf of deceased individuals who used a Personal Service Company to provide professional services, without registering bespoke Articles of Association to deal with this scenario at Companies House.
As always, prevention is better than cure. In a period when there is increasing strain on public resources, asking the Court to intervene should be a last resort. Those sole shareholders and directors of Companies may want to consider appointing additional directors or think about additional shareholders who can make decisions when the original director or shareholder is not available (due to death, incapacity or otherwise). It is also worth reviewing the company’s constitution to consider whether it needs to be tailored; the standard articles of association applied to many newly incorporated companies may not suit every business.
If you are experiencing similar difficulties or would like advice on how best to avoid such a situation, please speak to your usual Druces advisor or contact: