Death of a director - what can a company do?

A director of a private limited company will have key responsibilities in the company's operations. It can be a challenging time when a director passes away and there are important issues to consider to ensure continuity in the running of the company.

What happens when a director dies, but there are surviving directors?

The articles of association govern how a company should be managed by its directors, including the quorum and minimum number of director requirements. They should be the first port of call to set a plan of action should any of the directors die. In that event, if there are surviving directors who satisfy the quorum and minimum number of directors, the company can continue to be run as usual without the need to appoint any new directors. If, however, the number of directors falls short of the quorum or the minimum number requirements, a new director(s) should be appointed as soon as possible.

A sole director dies, but there are surviving shareholders

Under the Companies Act 2006, a company must have at least one director. The death of a sole director would put the company in breach of such requirement and may cause practical challenges. For example, the sole director might have been the only person able to authorise payments from the bank account which could impact day to day business. The surviving shareholders must appoint a new director immediately to remedy the breach and to ensure business continuity.

What happens when a sole director/shareholder dies?

Where the deceased was the sole shareholder and sole director, the company's articles may help to determine who can appoint a director of the company. The position will depend on whether the company has adopted Table A Articles, Model Articles or bespoke Articles.

Companies incorporated under the Companies Act 2006 which have adopted the Model Articles can rely on Model Article 17(2). This article grants a right to the executor of the sole shareholder's estate to appoint a new director by notice in writing.

Companies incorporated under the Companies Act 1985 which have adopted Table A Articles require the executor of the sole director and shareholder to first obtain a grant of probate (or confirmation in Scotland). Once obtained, they can be added to the register of members of the company in order to appoint a new director. For more information on the death of a sole director/shareholder, please read our earlier insight article.

Companies House Filings

In any case, when a director dies their directorial appointment automatically terminates. Companies House must be notified of this termination of office by the filing of a form TM01 within 14 days of the death of the director. The company's statutory register of directors should also be updated to account for the termination of office of the director and any new board appointments.

Conclusion

The death of a director can have a significant effect on the running of a company, particularly if the officer was the sole director and shareholder. Effective succession planning, including ensuring that the company articles of association provide for what should happen on the death of a directors, can help avoid the problems that may arise and allow the company to continue without any interruption to its business.

How Brodies can help

If you would like to discuss anything raised in this blog in more detail, please do not hesitate to get in touch with one of our corporate lawyers or your usual Brodies contact.