It is often the case with small family run businesses that either Mum or Dad is nominated as the sole director/shareholder of the family company. If the person nominated as sole director/shareholder dies without a Will, this can cause substantial problems for the surviving family members, especially in the short term, as they try to continue to manage the business.
In normal business circumstances, if a director or sole shareholder of a company dies without a Will, the surviving directors are able to continue to operate the business and, if necessary, may even nominate an interim person to fill in the role of the deceased. Equally, if the sole shareholder of a company dies, the directors can continue to manage the business until the beneficiaries have the shares transferred to them under the will.
However, where the deceased is the sole director and shareholder, the situation is different.
Under s 201F of the Corporations Act 2001 the Executor or other personal representative who is appointed to manage the deceased’s estate is able to appoint a new director of the company. The director has all the powers, rights and duties of the previous director and can keep the company running until the shares are distributed to the beneficiaries.
Without a valid or current Will in place, the process can become significantly more complex and can take substantial time (and money) until either letters of administration are granted by the Supreme Court to a family member who makes an application, or alternatively if there are no immediate family members to deal with the Estate, then the Public Trustee may step in to manage the Estate.
During that period where there is no director, the company will be left with no one authorised to manage the affairs and continue to operate the business, which can have detrimental effects on all areas of the business – from dealings with banks and other financial institutions in relation to company accounts to not being able to pay staff and suppliers. These issues can have a harmful effect on the reputation of the business (and in turn value) which can ultimately affect the value of the entitlements of the beneficiaries of the Estate. Equally, should there be a buyer willing to purchase the company, this transaction cannot be completed quickly as there will be no recognised owner of the shares to authorise the share transfer. Even if the beneficiaries decide to wind up the company and divide the proceeds, the potential delay may mean the company’s value would be much less than if it had been able to trade in the interim.
To summarise, if you are the sole director/shareholder of a company it is essential that you have a Will in place to ensure the smooth transfer of the company assets to your ultimate beneficiaries.