Having in place an effective succession plan can help you ensure that the transfer of your business goes as smoothly as possible when you pass away.
The importance of this has been highlighted in the recent case of Williams v Russell Price Farm Services Ltd.
The case concerns the unexpected death of Russell Price who ran a farm contracting company called Russell Price Farm Services Ltd (the “Company”) of which he was the sole director and shareholder.
Mr Price did have in place a valid Will. He appointed three executors and left the bulk of his assets to his two children. However, he did not make proper provision for the succession of the Company.
As a result, although the Company’s shares passed to the executors as part of the administration of his estate, the Articles of Association did not allow for the executors to appoint a new director where the sole director and shareholder had passed away.
Without being able to appoint a director to authorise transactions, the executors were not able to operate the Company’s bank account. In effect, the Company’s bank account was frozen and the Company was unable to operate.
Without having a director and with no way to appoint one, the Company was in danger of collapse and losing its value for a potential sale as a going concern.
To overcome this issue, the executors were required to make an application to the Court under s.125 of the Companies Act 2006. Section 125 grants the Court the power to rectify a company’s register of members in exceptional circumstances. Until the executors’ names were on the register, they could not appoint a director for the Company.
The executors were successful in their application and were registered members of the Company enabling them to appoint a director. The Company was then able to pay its debts, fulfil its contracts and then wind up in a proper manner.
Sadly, as the executors had not applied for probate there was a further delay before they could be added as shareholders following the judgement as they had to wait for probate to be granted.
A key point in the Court’s decision to grant the application was that the executors were required to give undertakings to ensure that they would apply for probate as soon as possible.
This matter was resolved after some time and unnecessary expense to the executors.
To prevent this happening to you and your business, it is essential you consider the following:
- Create a business succession plan: If anything unexpected happens to you, a succession plan can help reduce the delays and monetary loss to your business.
- Ensure you have more than one director: Having more than one director or shareholder means that if one dies, the other can continue to run the business. It is also beneficial to have someone who has knowledge of your company’s dealings who can run the business if you were to unexpectedly die rather than an appointed executor who may not have been involved in your company’s affairs.
- Check your Articles of Association: Where you are a sole director and shareholder with no intention of appointing another, ensure your company’s articles give your executors the ability to appoint a director following your death and prior to the grant of probate being received.
- Apply for probate early: the grant of probate can take some time to be received so executors should apply for the grant as soon as possible.
How we can help you
At Phillips we can assist you with succession planning for your business to avoid unnecessary costs and difficulties in the future.
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This article is current at the date of publication set out above and is for reference purposes only. It does not constitute legal advice and should not be relied on as such. Specific legal advice about your specific circumstances should always be sought separately before taking any action.