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What will happen to my business after I die?

Posted on 20th May 2020 in Later Life Planning

Posted by

Rachael Morley

Associate and Solicitor
What will happen to my business after I die?

If you run your company by yourself, perhaps as a sole director and shareholder, your hard work in building up your business will have cost you many hours of time and sleepless nights. But have you set up your company in such a way to allow it to keep trading after your death?

This is a question which all sole shareholder-directors must consider as part of succession planning, to ensure that your hard work is not endangered.

 

What could go wrong?

A recent case, Williams v Russell Price Farm Services [1], provides a salutary example of the need not only to consider your Will when putting together your succession plan, but of checking the company rules which dovetail with it to look at the situation in the round.

Mr Williams was the sole shareholder and director of a farm contracting company. He had put in place a valid Will for his death, leaving the bulk of his assets to his two children and appointing three Executors.

On his death, the bank froze his company bank account in the usual way, until a new director was appointed to take control. With £110,000 owing to creditors, staff wages to pay and machinery purchases to make before the company could fulfil its planting contracts, the Executors stepped into the breach to take urgent action. The company shares passed by law to them, to deal with as part of the administration of the estate, so surely they could appoint a new director?

Unfortunately, no. Due to the rules which governed Mr Williams’s company, known as ‘Articles of Association’, the Executors actually had no authority to appoint a new director. In fact, nobody had.

 

What does this mean for me?

Sadly, this is not the first case of this nature which came before the courts. A similar problem in a similar situation arose for the late Mr Pilling, the sole director and shareholder of his company, Lancashire Cleaning Services Limited [2].

For both Mr Williams and Mr Pilling, without any director at the helm and with no way to appoint one, their companies’ very survival was threatened. The companies were unable to meet their obligations in paying employees, completing contracts and dealing with suppliers. Each was therefore in danger of collapse and losing its whole value as a going concern.

The happy ending for both cases is that a solution was found in the end, as the courts agreed to authorise the Executors to appoint a new director. Of course, this only took place after the expense, worry and delay of court proceedings and no doubt the Executors would have been pleased to avoid the sleepless nights of anxiety.

 

What is the solution?

To avoid following these examples, it is vital to look beyond your Will when considering your succession plans. A timely appraisal of your whole situation, incorporating your Will and the Articles of Association which govern your company, is a simple step to avoid huge difficulties further down the line.

As part of your succession planning process, as a business-owner, you should also review your company’s Articles and consider how you intend your company to be operated after you are gone. Please do remember that your solicitor’s standard fee for Will-drafting is not likely to cover such extra checks, so it is essential to let them know exactly what help you need.

For any business-owner, such checks and all-encompassing planning are vital. If you are a sole director and shareholder and have not reviewed your company’s Articles to consider the future, please do take action today.

 

For further advice and guidance on succession planning and putting in place a Will, please contact our specialist Later Life Planning Team, or visit their dedicated hub page.

Contact the team

 

[1] Williams & Ors v Russell Price Farm Services Ltd [2020] EWHC 1088 (Ch)

[2] Kings Court Trust Ltd v Lancashire Cleaning Services Ltd [2017] EWHC 1094 (Ch)

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