My client is the sole shareholder and director of a trading company. After his death, the company will be closed down and its assets sold off. It won’t continue to trade as the business is really just him. The articles allow his executor to appoint a director by notice in writing. Should I be worried that this might take time and no one can control the company in the meantime? Should I also be concerned that a bank or other institution may require a grant of probate before recognising the new director? If I should be concerned, what is the best solution?
I don’t believe the bank would care once the new director appears on the register and Companies House.
Provided the current model articles apply (including Art 17(2)) or an equivalent provision has been incorporated, then the only issue is whether “the company” can accept a notice from an executor pre-probate. I suspect the answer in most cases is that there is unlikely to be anybody to object and so the executor can give notice, the director’s name is added to the register and the change is filed with Companies House.
It would be much more complicated in the event of a dispute over the will or if the company management were reluctant to accept it. Then, you might have to get the probate first and try to muddle through in the meantime.
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Without exhaustive research I would have said that a person named as such in the Will is an executor and can act as such before probate. Of course he takes the risk that the Will might be later found to be invalid. The precise wording of the Article plainly matters.
Jack Harper
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Executors duties start from date of death, so this should be ok, but do consider a business continuity clause as well because without it, all the executor can do is close the business but if things change in the future, like he brings in another shareholder/director, whilst he ought to update the will, we all know clients are reluctant to do so immediately, so at least the continuity clause will help if that is the case.
This is not an unincorporated business, so a clause in the Will like 4.8 of STEP 3rd Ed. is not going to be relevant.
The shares owned by the deceased devolve upon the executor in a representative capacity (though he may also be a beneficiary under the Will when a conflict of interest might arise).
He has the limited right to sell them, like any other estate asset, to pay debts and liabilities, but any wider rights and powers can only be given by the Articles and any Shareholders’ Agreement(“SHA”).
We are not told:
1 Who inherits the deceased’s shares;
2 What rights attach to those shares, and any others in issue, under the Articles and any SHA, with the critical point being who can put the company into voluntary liquidation or force or prevent a sale (e.g. drag/tag along rights).
The executor apparently has the right to appoint at least one director. That is almost certainly fiduciary in nature and not merely personal. Almost certainly the executor cannot appoint himself and must be careful not to become a shadow director.
Once appointed, the director and not the shareholders will be, in principle, the person who runs the company’s business and owes duties to the company and its members as governed by company law. The shareholders are not in principle obliged to observe the non-binding wishes of the deceased, although if trustees are to be shareholders they will be bound to observe the terms of the trust.
These are necessarily generalities and there is insufficient information to say more. The choice of appointee(s) as director(s) is plainly one which the executor must make extremely carefully, guided by any exoneration of liability clause in the Will, of which clause 11 of STEP3 is an elaborate example, and any like optional clause 15, especially 15.3.
A members’ voluntary liquidation is regulated by Part IV Chapters II III Insolvency Act 1986 and a liquidator will have to be appointed who is a licensed insolvency practitioner: s.230(3). Before that the director(s) must make a declaration of solvency, tricky if none has past experience of the company’s operations. A special resolution of the members, 75% of the votes, is needed: s.283 Companies Act 2006. So an awkward minority can have a veto where the company is solvent unless they are bought out or action is taken to wind up by the Court under s.100(1)(g) IA (just and equitable).
A sale of shares by all members to a third party may fetch a better price, and cash up more expeditiously, but is rather dependent on the nature of the underlying assets and liabilities. An executor (and the Board) should stay out of what is essentially a shareholder decision unless it is necessary for administration. The reduction of BPR after 5 April 2026, despite the instalment option, and the need to settle the IHT before probate are going to add to PRs’ funding headaches, particularly where a sale or liquidation is commercially either not desired or is inopportune as to timing.
Jack Harper
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