Normally, if a director of a company dies without a Will, the surviving directors can continue to manage the company while the shareholders of the company appoint a new director. If the sole shareholder of a company dies, the directors can continue to manage the company pending the transfer of shares to them.
However, if a sole director of a company dies without a Will, the company is usually left without any person properly authorised to immediately manage the company. Where the sole director is also the sole shareholder, the risk of uncertainty in regards to management of the company is even greater.
Where the deceased sole director/shareholder has a Will
According to section 201F of the Corporations Act 2001, in the event of the death of a single member/director of a proprietary company, the executor or any other personal representative appointed to administer the deceased’s estate may appoint a new director to the company. The executor is generally appointed by means of a valid Will. Once the new director has been appointed, he/she has all the powers, rights and duties of the deceased director and can manage the company until shares are transferred to beneficiaries who may then appoint new directors.
Where the deceased sole director/shareholder does not have a Will
In the event of the death of a sole director/shareholder who does not have a Will, a near relative or other person must apply to the Supreme Court for letters of administration to manage the estate – a process which could take weeks or even months. Where there is no obvious close relative or other person, the Public Trustee may step into the role of administering the estate. This process may also take a number of months.
During that period when there is no director, the company’s operations may be put on hold completely as there is not any person who is properly authorised to make management decisions. The company may be unable to trade and banks and other financial institutions may be unwilling to accept instructions from the company. Staff and suppliers may not be able to be paid which can have a detrimental effect on the reputation and value of the company for beneficiaries of the estate.
If the decision is made to wind up the company so that all the beneficiaries can be paid out, this may also decrease the value of the company due to the possible delay of several months.
If a person is seeking to purchase the company, he/she also may experience significant delays. Until a testator has been appointed and the estate is settled, there is no recognised owner of the shares who can authorise their transfer to the new purchaser.
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