When a person dies the personal representatives (PRs) of their estate have the task of administering the estate. If the deceased made a valid will which includes an effective appointment of executors then those executors take on the role of PRs.
A Court issued grant of representation is then required to prove the authority of the executors to administer the estate. However, the deceased's assets will vest in the executors at the date of death, meaning that the executors can undertake certain tasks prior to obtaining the grant of representation. The executors do though have to stop short of transferring assets either to themselves or the beneficiaries prior to obtaining the grant of representation.
This means that where the deceased owned shares in a private company the executors will not be able to be registered as shareholders until after the grant of representation is issued. Where the deceased shareholder was also a director then that directorship will cease on death. The role of director will not "vest" in the executors in the same way that assets of the estate vest in the executors.
Whilst this does not tend to present problems where the company has other directors and/or shareholders, difficulties can arise if the deceased was the sole shareholder and sole director. In those circumstances, unless the company's articles allow for it, the executors are unable to vote as shareholders until after the grant of representation. They are also unable to exercise powers to appoint new directors. Consequently, this can leave sole director/shareholder companies in limbo with no one to manage them until after the grant of representation has been obtained. From the date of death it can often take a number of months to obtain the grant of representation.
This issue arose in the case of Ellott v Cimarron UK Ltd [2017] EWHC 3872 (Ch). In that case the deceased was the sole shareholder and director of the company. While under the company's articles the deceased's shares vested in the executor named in her will, they did not permit the executor to vote as shareholder while the shares continued to be registered in the deceased's name. The executor also lacked the power to appoint new directors.
This left the company without any directors or shareholders and with no one to operate the company’s bank account, meaning that the company would be unable to continue to trade as a result. The executor therefore brought a claim at the High Court seeking an order rectifying the company's register of members to remove the deceased's name and replace it with his own. This would enable the executor to pass a resolution appointing new directors who could then take control of the company.
The Court granted the order, finding that it was not necessary for an executor to obtain a grant of representation in order to become entitled to be registered as a shareholder where there is no dispute as to their title. The court went on to find that whilst ordinarily a company should await a grant of representation before registering an executor as the holder of a deceased member's shares, it was inappropriate to do so in exceptional circumstances, for example where waiting even a short time could put the company in jeopardy.
It is all too common to find sole director/sole shareholder companies and whilst this structure may be desired or even necessary in certain circumstances, it can be problematic where companies are actively trading. It is even more so if the director/shareholder is elderly or in ill health. For that reason the appointment of additional directors should be dealt with as a priority if situations such as the one which arose in this case are to be avoided.
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