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Failing to Plan Ahead Creates Problems for Family Companies

Although no one likes to think about their own death, failing to be prepared for all eventualities can cause chaos in family companies, which are often dependent for their success on the skills of a small number of people.

The point could hardly have been more powerfully made than by one High Court case concerning a company that was plunged into crisis following its founder's death.

A businessman owned all the shares in the company and was its sole director. His death had left the company entirely directionless, without directors or a company secretary to guide it. Its bank account had been frozen, leaving it unable to pay its staff or tax liabilities. In the circumstances, the executors of his estate launched emergency proceedings in order to save the business.

In upholding the executors' emergency application under Section 125 of the Companies Act 2006, the Court directed amendment of the register of companies so as to substitute them for the deceased as the holders of the latter's shares. That in turn would enable them to pass a written resolution appointing a director of the company who would be empowered to put it back on an even keel.

Such relief would normally be granted only after the businessman's will had been admitted to probate, but the Court recognised that the case was wholly exceptional. Given the company's pending liabilities in respect of staff wages and a VAT demand, any delay could irreparably damage the business.

The contents of this article are intended for general information purposes only and shall not be deemed to be, or constitute legal advice. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of this article.