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The pitfalls of a sole director company

02 August 2017 #Directors' Duties #Corporate #Dispute Resolution


Many small companies will have a sole director and shareholder, with no company secretary.  If the director shareholder were to unexpectedly die the company may be in a vacuum.  This was what the Court had to consider in the recent case of Kings Court Trust Limited v Lancashire Cleaning Services Limited.

The sole director and shareholder, Mr Pilling, died leaving his company with no director, shareholder or secretary.  The company continued to trade and a buyer for it had been found.  However, without any directors its bank had frozen its account, leaving the company unable to pay staff wages or its VAT bill.  Mr Pilling’s personal representatives (PRs) had applied for probate but this had not yet been granted.  The PRs were unable to take any steps on behalf of the company, such as appointing new directors, unless they were entered onto the company’s Register of Members.  They made an urgent application to Court for this to happen under section 125 Companies Act 2006. 

The Court made the order sought, although stressed the wholly exceptional nature of the case.  It seems very likely that had there not been the extreme urgency caused by the frozen bank account the PRs would at least have been told to wait until probate was granted. 

Although disaster was averted on this occasion, it still required an urgent application to Court.  Companies with a sole director and shareholder that are governed by “Table A” Articles of Association should consider avoiding this risk by either (a) appointing a second director or (b) updating its constitution to allow the PRs of the sole director shareholder to appoint a new director.

Clarkslegal, specialist Director’s Duties lawyers in London, Reading and throughout the Thames Valley.
For further information about this or any other Director’s Duties matter please contact Clarkslegal's Director’s Duties team by email at contact@clarkslegal.com by telephone 020 7539 8000 (London office), 0118 958 5321 (Reading office) or by completing the form on this page.

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Stephen James

Stephen James
Partner

E: sjames@clarkslegal.com
T: 0118 953 3931
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