When viewed from the company’s perspective the consequence of the death of a director or secretary can range from inconsequential to catastrophic. However, as with most things in life, the usual outcome when a director dies lies somewhere between these two poles.
In another article, we explain some of the actions to take whenever a director leaves office, whether they resign, retire or die. If the director was also a shareholder, you may also wish to look at the risks a private company can face on the death of a shareholder.
Companies House will need to be informed by the completion of form TM01 (termination of a company director appointment) and/or form TM02 (termination of a company secretary appointment) as may be the case. The company’s register of directors and/or register of secretaries will need to be updated.
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Clearly there will also be staff, suppliers (especially the company’s bankers) and customers that need to be notified. If the company lists its directors on its website or company stationery, these should be amended as appropriate. There are additional consequences if the individual was also the only shareholder in the company, which will be looked at in another article.
For now we will consider two scenarios: The first relates to if there are other serving directors still able to direct the company and the second concerns a company where the individual who died was the only director.
First scenario - where there are surviving directors
If a director or secretary dies and there are other surviving directors the situation is somewhat more straightforward. Indeed in most instances the remaining directors can continue to run the company and simply share out the responsibilities of the deceased officer. An exception to this is if the company’s articles of association require there to be a company secretary and/or a minimum number of directors and the recent death has caused the requirement(s) in the articles to be breached. Another case where the new status quo cannot be allowed to continue is that a PLC must always have two directors and a properly qualified company secretary. In any of these cases arrangements must be made for a new officer to be appointed to the company.
However, even if the status quo is permissible by law and/or the articles, it may simply be the case that the continuing officers do not have the necessary skills e.g. finance or IT that the deceased officer had and a new appointment needs to be made. If the post was a critical one then hopefully some key man insurance will have been in place to allow the company to buy in some short-term cover until a longer term replacement is found.
Second scenario - when a sole director dies
Now, whereas a PLC must have two directors and a company secretary, a private company does not need a company secretary but must have, as a minimum, at least one natural person (i.e. not a corporate officer) appointed as a director. The last limb of this article explores if this sole director of a private company were to die which would, de facto, trigger the breach of the very rule that there must be at least one director.
If there are surviving shareholders they may hold a shareholders’ meeting to appoint a new director. If, however, the deceased director was also the only shareholder then there are two outcomes:
- Generally, for companies incorporated prior to the 2006 Companies Act regime it is for the personal representative of the deceased shareholder to seek a court order for the appointment of a new director. This can be time-consuming and costly.
- For companies incorporated post the 2006 Companies Act, article 17(2) of the Model Articles of Association provide for the personal representatives of the deceased shareholder to appoint a new director of the limited company.
Companies still operating under the old regime with only one director may like to consider revising their articles to take advantage of the more flexible arrangements now available to personal representatives. Otherwise, in order to avoid the possibility of such a difficult situation arising, it may be prudent to appoint a second director to the company.
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