HM Insights

Why the lack of a personal succession plan can leave a company in limbo

A recent case highlights the need to have a business succession plan in place – don't leave your company in limbo.

The High Court in England recently considered an urgent application by the executors of an estate to ensure that the business of a farming company could continue after the death of the sole director and shareholder.

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The circumstances of the case

The business by its nature was seasonal and dependent on the completion of planting contracts which would require payment. However, following the death of the sole director and shareholder, neither the employees nor the executors had the authority to deal with the day-to-day operations of the company and without taking further action the business would grind to a halt, the company's bank having already frozen its account.

This was due to the company's Articles of Association as these did not contain any provision for the executors to appoint a replacement director. Without any such provision, only members of the company could do this, but the executors were not members because their names were not on the company's register of members. To resolve this, Confirmation (or Grant of Probate in England & Wales) must first be obtained from the court, but this does not usually happen until months after the death which is not a practical or commercial solution.

Due to the urgency in this case and the irreparably damage that the delay could cause to the business, the High Court decided that it was not appropriate for the executors to wait for the Grant of Probate to be obtained. A court order was made to rectify the company’s register of members and allow the executors to be registered.

What can you do to avoid this happening?

This case highlights the need for business owners to review their succession plans (or make a plan) and company documentation, and not to review their Will in isolation. If no action is taken, a business could be left in limbo leading the failure of the company, unemployment and unnecessary stress and grief at an already difficult time.

Get in touch – we're here to help

At Harper Macleod, our Private Client and Corporate teams work together to ensure that our clients' succession plans for their business and family are harmonious and that practical solutions are in place to deal with the unexpected.

If you would like to discuss your own situation please contact our private client team using the form below or call one of our offices on:

Glasgow: 0141 227 9344                           Inverness & Highlands: 01463 795 035

Edinburgh: 0131 247 2500                         Shetland01595 695 583 

Elgin: 01343 542623

Useful Links

EXECUTRY ADMINISTRATION

MAKING A WILL IN SCOTLAND