When a person, unfortunately, passes away without making a will, this can cause unintended consequences for Sole Company Directors or Shareholders that they perhaps hadn’t contemplated. Below, we discuss the issues that are caused by not making a will.
One of the biggest complications caused by not making a will is that a person or entity cannot be quickly appointed to deal with the deceased’s estate, meaning the estate cannot be dealt with quickly. As a result, the deceased’s dependents may be waiting for a lengthy time before a public trustee is appointed or the Supreme Court grants a person a letter of administration, to manage the estate, and the cost of this delay may be substantial.
The impact is even greater when a sole director of a company passes away without leaving a will. The death may leave the company without anyone to immediately manage it. Similarly, if a sole shareholder of a company dies, the remaining directors (if any) will have the shares transferred to them, and then the beneficiaries. Whereas, when a sole director is also the sole shareholder, the risk of uncertainty and delay is far greater.
Section 201F of the Corporations Act 2001 provides for the executor or personal representative of the deceased’s estate to appoint a new director to a proprietary (or Pty Ltd) company if a sole director dies. The appointed director can then keep the company operating until the shares are transferred to beneficiaries, who can then appoint a new director. This adds several layers of complexity to dealing with the deceased’s estate. Firstly, obtaining legal authority to deal with the estate is more difficult. Secondly, an ‘interim director or directors’ is added to the equation, whereas no such addition results when a director is appointed in a will.
While the company has no director, it may be entirely unable to operate. A business operating as a company will be unable to trade, and properties owned by a company will be unable to be managed. Banks may be unwilling to accept instructions concerning the company’s trading account unless they are satisfied that the person instructing them has the legal authority to do so – that is, is the executor or administrator of the deceased’s estate or a duly appointed director of the company. Employees and suppliers may not be able to be paid, which can quickly undermine the goodwill of the business or income generated by the property, and the value to the beneficiaries of the deceased’s assets, which are held as a company, may be diminished.
If the beneficiaries decide to wind up the company, the delay in being able to do so may mean that the value of the company (and the deceased’s estate) will be less than it would have been if it had been able to continue operating in the period between the deceased’s death; the appointment of an administrator, and the distribution of the deceased’s estate.
If you are a sole shareholder/director of a company, you should have a will in which you provide for your shares to be gifted to a beneficiary or beneficiaries, and (subject to the company constitution), you should appoint a director or directors upon your death. Making a will can be complicated, and if not done properly, it could lead to your wishes not being implemented and outside parties contesting the will. If you are a company director or a shareholder, contact KLD Legal to discuss how we can write a will that covers everything discussed above and more.
We acknowledge that the content of this information has been substantially contributed to by the website of the Australian Securities and Investments Commission, at https://asic.gov.au/for-business/running-a-company/company-officeholder-duties/importance-of-sole-company-directors-or-shareholders-having-a-will/