Rescue a ‘rudderless’ company with no directors or shareholders
26 January 2022
Has a limited company been left without directors or shareholders following the death of a sole shareholder/director? In such a situation, certain companies (e.g. most of those with standard Table A model articles) will be unable to act, leaving them at risk without prompt remedial action.
In such a situation, there will be no directors to carry out basic functions such as banking or paying salaries, no shareholders to appoint new directors and an inability to instate new shareholders without directors. If there are pressing matters that the company needs to deal with, it may be the case that the company ends up becoming insolvent in short order. Usually, the only way to achieve resolution in this scenario is via court intervention.
It is up to the personal representatives
When a shareholder passes away, his personal representatives (e.g. his executors or equivalent persons) will be the only people recognised as entitled to hold these shares (albeit for the ultimate benefit of the beneficiaries of the deceased’s estate). They will not, however, be able to act as shareholders until they are registered on the company’s register of members.
An application to the High Court would likely be required
With no directors to authorise the registration of the personal representatives, the only option is an application to the High Court for an order pursuant to Section 125 of the Companies Act 2006. This application would be made by the deceased’s personal representatives for a court order granting permission that the register of members of the company be rectified by replacing the name of the deceased with the names of the personal representatives.
Depending on quite how urgent the matter is, it may also be necessary to simultaneously apply to the court for the claim to be expedited and for an emergency general meeting of the shareholders to be convened at short notice for the purpose of appointing the proposed new directors of the company.
Such an application can be quite onerous for the personal representatives and would likely require, in addition to witness statements from them setting out the facts of the matter, an undertaking from each of them that they will (providing that a grant of probate has not yet been applied for):
- not renounce probate
- apply for a grant of probate as soon as possible, making all reasonable efforts to obtain the necessary information for that purpose; and
- pay all necessary taxes as required so that probate can issue.
Such undertakings have been established as likely required by case law such as Williams v Russell Price Farm Services [2020] EWHC 1088 (Ch). A judge will undoubtedly want to be provided with every assurance and piece of information available, so a document-gathering exercise will almost certainly be at hand.
Next steps and prevention
If the personal representatives succeed with the application, then there will be some additional work needed to ‘tie off’ the matter, including the necessary paperwork and filings at Companies House to effect the relevant changes. To this end, ensuring that the company’s register of members is in good order and available to be amended as soon as possible would be a prudent step to take. Not least, however, will be the work required by the personal representatives in then applying for the grant of probate and administering the estate of the deceased in order to comply with the undertaking mentioned above.
Of course, it is desirable to avoid ending up in the offending situation in the first place. Naturally, this is unlikely if the company does not have a sole shareholder/director, but it would be sensibly prudent to have measures in place to ensure that such a situation does not come about, such as amending the articles if they are still in the form of Table A.
If you have found yourself in the situation where such an application would be required, then please contact Joshua Jaworski for further information. If you want to take precautionary steps to avoid the situation occurring in the first place, or if you are a personal representative that needs assistance in applying for probate and/or administering an estate, then please contact our Corporate Team our Private Client Team respectively.
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Joshua Jaworski
Services
The content of this article is for general information only. It is not, and should not be taken as, legal advice. If you require any further information in relation to this article please contact the author in the first instance. Law covered as at January 2022.