What happens to a limited company when the sole director and shareholder passes away?
When the sole director and shareholder of a limited company passes away, the company remains active, but cannot legally operate until a new director is appointed. The company requires an appointed director to make decisions and manage business operations.
How is a new director appointed?
The ability to appoint a new director depends on the company’s ‘articles of association’. This is a legal document that sets out how a company is run, governed and managed, acting as a rulebook for directors and shareholders.
- Appointment by the executor
Some articles of association allow the executor of the deceased estate to appoint a new director. This is usually the quickest route to appointing a new director. - Appointment by a shareholder
If the company’s articles of association don’t give power to the executor, then the person who inherits the shares through probate gains control of the deceased shares. When probate is complete, the new shareholder can appoint a director to take over the running of the company. - Court intervention
If the article of association are unclear or there is no mechanism in place to appoint a new director, interested parties, such as creditors, employees, or key stakeholders, can apply to the court to resolve the situation.
What happens if no director is appointed?
Without a director, the company is effectively frozen. While it still legally exists, it cannot trade or make decisions until a new director is in place. This can lead to several problems for the company and its stakeholders.
- Bank accounts are frozen
Company bank accounts are typically frozen if no director is in place, as banks require an authorised signatory to approve actions. Some banks may allow executors to access accounts if explicitly stated in the articles of association. - Employees may be unpaid
Without full access to bank accounts, employees’ wages can often go unpaid. - Contracts and operations are halted
The company is unable to sign new agreements, fulfil existing contracts or make key business decisions - Creditors can take legal action
If the company is unable to pay its debts, creditors may issue a winding-up petition to have the company forced into compulsory liquidation. - The company can be struck off
If the company remains inactive for too long and fails to file the required accounts, Companies House may strike it off the register. If the company has debts, however, it’s unlikely the company will be struck off as a notice is placed in the London Gazette, giving creditors the opportunity to object.
What happens if the director signed personal guarantees?
If the previous director of the company signed personal guarantees, they are passed on to the estate of the deceased and are handled through the probate process. These will only crystallise on the deceased estate if the company is insolvent and cannot cover these costs.
What are my options as the new shareholder?
If you, the new shareholder, want to close the company or continue its trading operations, the deceased shares must first be passed on through probate. Once probate is granted and the shares are transferred to you, as the beneficiary of the deceased, you can appoint a new director and begin the process of either continuing to trade, or closing the company.
How we can help your company
We understand that dealing with a company after the passing of a sole shareholder and director can be an extremely challenging and difficult time. We can help you navigate the complexities of either closing a company, or restructuring it so that it can continue trading. We can offer free, confidential advice tailored to your circumstances during sensitive times.
- Repay your company debts in a payment plan via a Company Voluntary Arrangement (CVA)
A CVA is a payment plan between a company and its creditors that allows you to restructure your company’s unsecured debts, while continuing to trade, by making affordable monthly payments over a fixed period. We start by assessing your company’s financial position, determining a realistic repayment amount. These terms are then proposed to your creditors and, if approved, your company enters the repayment plan. When in place, all interest and charges are dropped and creditors in the arrangement cannot take further legal action. The process lasts for up to 5 years and on successful completion, any remaining unsecured debt in the arrangement is written off.
- Restructure your company through administration
Administration is an insolvency procedure for companies. Entering the procedure, your company will be in a temporary state of protection by a moratorium that halts creditor action, including legal proceedings, giving your company the breathing space to continue trading. We will act as administrator and our primary purpose is to rescue your company as a going concern, attempting to restructure and turn it into a leaner, more profitable organisation. If rescuing the company isn’t a viable option, we will also look at the most appropriate exit strategies from administration, whether that be a potential sale of the business, assets, the whole company, or transitioning to an alternative insolvency procedure.
- Close your company down via a Creditors' Voluntary Liquidation (CVL)
A CVL is a liquidation procedure for companies that are insolvent. The process will formally close and liquidate your company, ceasing its trading operations, realising any assets, and removing the threat of creditor legal action. If your company has employees, they can claim for redundancy and other statutory entitlements through the government’s Redundancy Payments Service (RPS). The process is final and irreversible. Once completed, your company’s unsecured debt will be written off and the company is dissolved, allowing you, the director, to move on.
- Close your company down and start again via a pre-pack liquidation
A pre-pack liquidation is a type of CVL where the sale of your company’s assets is arranged before liquidation, allowing business operations to continue seamlessly under the purchasing company. The company name may be reused, and employees can transfer under TUPE. Contracts and essential agreements can also be included as part of a sale, ensuring minimal disruption to your business operations. This process eliminates the unsecured debts of your previous company, providing a fresh start free from previous unsecured liabilities.
- Close and liquidate your solvent company via a Members' Voluntary Liquidation (MVL)
An MVL is the liquidation and closure of a solvent company. The procedure will formally wind up and close your company, whilst extracting the company’s maximum value, through its various tax benefits. The company’s assets, including any premises, are realised, with the remaining funds distributed to shareholders once creditors are satisfied.
How to get in touch with us: The next steps
- Speak with our initial advisers
Make contact with our team, via phone, online form, or live chat. We will assess your circumstances and, if suitable, arrange a free consultation with a consultant to discuss your company’s situation. - Initial assessment
During the consultation, we will advise you whether an insolvency procedure is the most appropriate route forward or whether alternative solutions better suit your company’s problems - Formally engage with Wilson Field
If there is an appropriate insolvency solution, we will confirm the necessary steps to start the procedure and will issue you with the relevant documentation for you to formally engage us.
In summary
After a company’s sole director and shareholder passes away, a new director must first be appointed. This process will be dictated by the company’s articles of association. Once the shares have been distributed and a new director is appointed, the company will be in a position to either continue trading or close.
Case Studies
Designer Recliners Limited
Kelly Burton • Manufacturing • Administration, Company Voluntary Arrangement (CVA)
A Sheffield furniture manufacturer and upholsterer has relaunched offering a smaller, more specialised range of products.
Anico Interiors Limited, whose range included reclining chairs for the elderly, had suffered cash flow problems and issues with profitability.
Designer Recliners Limited, managed by director Nick Wall, has purchased the assets and business of Anico, saving all 11 jobs.
Andy Wood and Robert Dymond from Sheffield business turnaround experts Wilson Field were appointed joint liquidators on 8 June and advised on the sale of the 14-year-old company, based on Orgreave Crescent at Orgreave Industrial Estate, as a going concern.
Andy Wood, associate director and insolvency practitioner at Wilson Field said:
“Historically, the company offered a wide range of products but has now streamlined its offer to customers and cut out some unprofitable lines, as well as revamped its website.
“Directors took advice from Wilson Field with the business sold to new company Designer Recliners Limited as a going concern, safeguarding all 11 employees’ jobs. The new company will offer the same service and standards under the same management team but focus on a smaller range of specialised products.”
The company employs skilled staff including upholsterers, seamstresses and cutters and was set up in 2002 by Nick Wall.
Derwent Castings Limited
Kelly Burton • Metals • Creditors' Voluntary Liquidation (CVL)
Unsecured creditors owed money by a Derbyshire manufacturing company which went into liquidation are to receive a higher-than-expected dividend of 60p in the pound.
A total in excess of £128,000 is due to be distributed to unsecured creditors of Whatstandwell-based Derwent Castings Limited, whose claims totalled over £192,000.
The company, whose roots date back to the 1940s, had traded profitably for a number of years but in late 2013 / early 2014 saw the cancellation of its largest sales contract which represented 70 per cent of its turnover.
Bosses at the company, which employed 16 staff including three directors, struggled to attract replacement business and had to drop prices. Further business was lost as a result of foreign competition.
Sheffield’s insolvency specialist Wilson Field was called in as liquidator and worked with the creditors’ committee of Derwent Castings Limited to secure the positive dividend.
Andy Wood, associate director and insolvency practitioner at Wilson Field said:
“Dividends for insolvent companies are generally low, or nothing, for a variety of reasons – cost of staff redundancies, difficulty collecting outstanding invoices, selling assets in a forced sale situation, selling specialist assets which have limited appeal to purchasers, deteriorating or perishable assets, as well as other costs involved.
“However, thanks to a very positive relationship with the creditors committee, I am delighted to return a healthy dividend to the unsecured creditors in the region of 60p in the pound.
“The supply chain is often greatly affected by a liquidation and in this case we have been able to help creditors.”
Derwent Castings Limited was incorporated in August 2002 and specialised in iron casting from the five-acre Derwent Foundry site at Whatstandwell near Matlock.
However, the iron founding operation at Derwent Foundry was first introduced back in 1946 by Wragg & Hawksley which produced cast iron pipes for the water industry.
In 1950 the foundry was acquired by WH Davis & Sons Ltd to supply castings for their railway wagon building business. Following a management buy out in 1984, the company was renamed Derwent Foundry Ltd and following its closure in July 2002, was bought by its present owners and renamed Derwent Castings Ltd.
Amongst jobs carried out on site were moulding using loose pattern and modern air setting (boxless) sand systems; metals work using the latest in electric induction melting producing a wide range of grey, SG and alloy irons; an independent Namas approved test laboratory, finishing, pattern making and machining facilities.
National Videogame Arcade
Kelly Burton • Leisure & Hospitality • Administration
Image from GameCity.org [http://gamecity.org/]
Over its time, it has also been involved in working in collaboration with Arts Council England, Times Educational Supplement, Wellcome Trust and the British Library to name a few. These projects and collaborations focused on developing the role of videogames in culture and education.
Home of the acclaimed GameCity festival, The National Videogame Arcade in Nottingham, sadly fell into cash flow difficulties earlier this year despite an increase in its footfall. An eleventh hour investment by a director-led consortium, led by director Iain Simons, saved all 40 jobs at the increasingly popular tourist attraction and museum.
The cash flow difficulties led to the destination being taken into administration, Wilson Field’s Andy Wood and Lisa Hogg were appointed as joint administrators on 19th August 2016.
Andy Wood, an insolvency practitioner at business turnaround and insolvency specialist, Wilson Field, said:
“The investment story behind the consortium is based on the passion that Iain Simons and his staff have for the GameCity project.
“We were appointed as administrators after the company fell into financial difficulties, despite growing in popularity. The consortium of investors could clearly see the potential to turn the business around and with support from the staff, GameCity has a new future.”
Director of GameCity and investment consortium leader, Iain Simons, was very happy with securing the last minute investment and the service he received from ourselves: “The NVA is like no other facility within the UK and is rapidly growing in popularity. It was devastating to us when we realised that the business was in financial difficulty, but we knew it could be overcome.
“I have to give all credit to the staff here who volunteered to work without pay when we announced that the business was in trouble and this undoubtedly allowed us the time to pull together a consortium of investors to give the facility a bright new future and secure those jobs.
“GameCity is rapidly picking up pace and the Toast Bar, National Videogame Arcade and our collaborations with new partners in the UK and beyond are proving to be just as popular as we’d hoped.”
For more information on GameCity visit http://gamecity.org and for further information about our insolvency procedures, call us on 0800 901 2475.
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