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The pitfalls of a sole director company

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.

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.

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