7th March 2019
The Problem with Sole Director-Shareholder Companies using Table A Articles
The recent High Court ruling in Kings Court Trust Ltd & Ors v Lancashire Cleaning Services Limited (2017) has highlighted a significant problem for sole director-shareholder companies who use Table A articles of association.
If you are the sole director-shareholder of a limited company, do you know:
• if your company was incorporated with Table A articles of association;
• whether any amendments were (or have been) made to Table A; and
• what Table A provides for in the event of a sole director-shareholder’s death?
Prior to the Companies Act 2006 coming into force, the default articles of association that automatically applied to any company that did not adopt its own articles on incorporation were Table A. In order for Table A to be an effective, and useable, piece of governance, it had to be quite significantly amended. One issue, in particular, effects companies with a sole director-shareholder and what happens on the death of that individual.
Whilst the legal title to your shares will pass automatically, via transmission, to the personal representatives (“PRs”) of the sole director-shareholder, this does not guarantee that the company will be able to continue operating as this depends upon the terms of the company’s articles, which may be problematic if the Company is using Table A articles.
The Problem with Table A
Unlike the Model Articles, which are the default set of articles for limited companies incorporated on or after the 1st October 2009, Table A does not contain adequate provision to allow for the company to continue to operate effectively in the event of the sole director-shareholder’s death because it does not contain a provision which permits a deceased shareholder’s PRs to appoint a new director in circumstances where the company is left without a surviving director or shareholder.
The basic position is that, unless the Table A provisions have been effectively amended, if a sole director-shareholder of a company using Table A dies:
1. it is not possible to re-register the deceased’s shares in the PR’s names because there are no officers with power to accept evidence of transmission and update the company’s register of members accordingly; and
2. the PRs have no interim power to appoint a new director to remedy the situation.
This results in the company falling into a situation where the PRs cannot appoint a new director to authorise the registration of the shares in the names of the PRs, the ultimate beneficiary or third party who the deceased intended the shares to pass to, leaving the company with no one to run it, and no shareholder(s) to pass the required resolution to appoint new director(s) who can authorise the transmission of those shares. As in the case of Kings Court, the company’s bank account is likely to be frozen resulting in the company being unable to pay its employees, creditors and/or HMRC and facing the prospect of being dissolved. The only option available is to apply to the court for an order of rectification to the company’s register of members, which is expensive, time consuming and stressful.
Avoid the Problem
The simplest way to avoid this problem is to amend your company’s articles of association to ensure that there is adequate provision to deal with such an eventuality. For advice on how best to address this issue, and for any other corporate advice you may have, please get in touch with Alex Lee or Matt Lewins who will be pleased to help. They can be reached at Tel: 01892 502 362 or Email: email@example.com or Matthew Lewins (firstname.lastname@example.org or telephone 01892 502 314)