What do you do if a company’s sole member and director dies leaving the company unable to function without them, and you’re the executor of the will?
A recent case (Williams v Russell Price Farms Service 2020) relates to the deceased director and shareholder of a company whose executors applied for a court order under section 125 of the Companies Act 2006 (the Act), in order to rectify the company’s register of members. Interestingly, the application was granted by the High Court despite probate having not yet been granted.
The deceased, the sole member and director, left the company with no directors or a living shareholder, meaning no one was able to do vital things such as accessing the bank account to pay creditors and fund day-to-day operations. To make matters worse, the articles of association didn’t give the executors the power to sort it out, as there was no mechanism in place for appointing new directors.
The executors applied to the High Court to replace the deceased’s name with their own, which would enable them to pass a resolution and appoint new directors who could keep the business going. They stressed, in their application, their full intention to apply for probate – which was important in the court’s decision to grant the order – but pointed out that a full inheritance tax return was needed in advance, which would be very time-consuming in an already urgent situation.
The High Court granted an order, in accordance with section 125 of the Act for rectification of a company’s register of members to replace a deceased sole member and director with the executors named in his will. The court recognised that the business risked failing without directors, and noted that section 125 of the Act allowed for an application where there was “unnecessary delay” in registering a person no longer a member. This unnecessary delay, the court was satisfied, arose in the time-consuming process of granting probate. The court could only grant probate, however, on condition that the executors agreed to apply for it as soon as possible, and pay all probate-relevant taxes.
So you can indeed apply to court to rectify or reconstitute a company’s register of members, but it can be a complicated process and it’s best to seek legal advice before you do so.
This interesting case flags up the importance of a company’s statutory registers, and especially the register of members, as it details exactly who holds legal title over the company shares; it’s simply not enough to rely on Companies House records. The case also shows how important it is to make your articles of association flexible, to deal with unfortunate circumstances such as the death of sole members and directors. If you do so, your company will be protected if things like this ever happen.
If you have any questions on this issue, our Company Secretarial Team is here to help.