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A welcome reminder of the need for business owners to ensure their company documentation works in harmony with their will

A recent case serves as a useful reminder of the problems that can occur where there is no provision in the company articles for the executors to…

The recent case of Williams & Ors v Russell Price Farm Services Ltd serves as a very useful reminder of the problems that can occur where a company has a sole director and shareholder, who then dies and there is no provision in the company articles for the executors to appoint a replacement director.

What happened in this case?

  1. The company founded by the deceased, and incorporated on 13 February 2006.
  2. The company carried on a farm-contracting business serving the farming community in Herefordshire and adjoining counties.
  3. The deceased was the sole shareholder in, and director of, the company.
  4. The deceased had made a will appointing three individuals as his executors.
  5. The will made a number of cash and other gifts, then gave 90% of the deceased’s shares in the company and his residuary estate to his children equally.
  6. The company’s bank had frozen its account, until a replacement director was appointed.
  7. The company’s articles of association incorporated standard ‘Table A’ regulations. These allow members (shareholders) who are listed on the register of members, to appoint a replacement director. However, although the deceased’s shares had automatically passed by operation of law to the executors, the articles did not enable them to be listed on the register of members effectively until a Grant of Probate had been obtained.
  8. The executors intended to apply for a Grant of Probate in due course, but the estate was relatively complex and, as is often the case, this would take some time to do.
  9. The company had a relatively large amount owing to creditors as part of its normal seasonal trading and so a replacement director was needed as a matter of urgency who could then unfreeze the company’s bank account.

How quickly can executors obtain a Grant of Probate?

Practically, it is very difficult for executors to obtain a Grant of Probate with any urgency following a death.

Formal valuations are needed, it can take time to unravel a deceased’s affairs, and where inheritance tax is payable, the cash to do so must be found before a Grant of Probate will be issued.

Why is that a problem?

If, as is often the case, a set of company articles do not deal with what happens when a sole director and shareholder dies, that company’s commercial operations can be hugely impacted.

Executors will often find themselves in the impossible situation of needing to appoint a replacement director as a matter of urgency, but not being able to do so until they have obtained a Grant of Probate and so they are left with the unenviable task of applying to the court for assistance.

What should business owners do?

The message is hopefully clear, in that business owners should never deal with their will in isolation and must review the relevant company documentation at the same time to ensure the two fit together. 

Our Wills, Trusts and Estates team regularly work closely with colleagues across our Owner-Managed Business group to ensure that a will is never viewed in isolation.

For more details on our full service legal approach for owner-managers, family business owners and entrepreneurs, please contact David Stokes at david.stokes@weightmans.com or view our Plan, Protect, Prosper brochure.

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