Why sudden death could be a living nightmare for your business

No sooner had the festive cheer faded then the headlines were filled with misery — storms, political tension and even an outbreak of ‘Australian flu’ which spread rapidly across the country.

One report claimed that more than 4.5 million people have been affected over the last week alone with hospitals creaking under the strain. Thankfully the vast majority will make a full recovery. However, others may not be so lucky.

If you are the sole shareholder-director there are some legal necessities you really ought to be aware of — even if you aren’t planning to pass away suddenly — because if you do suffer that misfortune you’re leaving your company in a vulnerable position.

And OK, you may not care any longer, but spare a thought for the people you’d leave behind. When a sole shareholder-director dies one of the first things their ‘personal representatives’ need to do is appoint a new director, that way the business can continue running effectively. They also have to register the transfer of shares to new ownership.

It sounds simple but in many cases, depending on how and when the company was set up, it can be extremely difficult because there is no director who can approve the transfer of shares and neither is there a registered shareholder able to appoint a new director. All of which means is that the company becomes stuck in a Catch-22 situation.

The only relief available would be to make a court application to replace the deceased’s name with the representatives on the register of members. However, it’s a costly process where the outcomes are by no means certain.

A recently reported case of ours, Kings Court Trust v Lancashire Cleaning Services involved a local cleaning company who had cleaned our offices for many years. Sadly, last year the sole shareholder-director passed away.

The owner’s daughter approached us to urgently look at the matter when the bank froze the company’s account despite the business continuing to operate. As a result they could not pay any wages to employees or deal with outstanding debts.

In order to protect the future of the business, we made an emergency application to the High Court in order to try and rectify the register under S125 of the Companies Act 2006. With the company unable to function and the imminent failure to pay wages, the court granted the order. The representatives’ names were entered on the register of members and in turn the shareholders were able to appoint a new director to manage the company and make the necessary payments in time.

However, the court made it very clear that this was an exceptional case and such relief would not be automatically available in all circumstances. This case highlights the difficulties faced by a company when a sole shareholder-director dies and although a positive result was achieved for our client, there is a way to avert these problems. If you would like to discuss how, please contact our Commercial Team today on 01254 297900 or via email contact@taylors.co.uk.