Succession law provides that probate validates all prior actions of an executor. Think again.
Particular care needs to be taken by an executor when dealing with a sole director / sole shareholder company prior to a grant of probate.
The provisions of section 201F of the Corporations Act have now been taken by a single judge decision of the Supreme Court to mean that after the death of the sole director / sole shareholder of a company, only their “legal personal representative” can appoint someone to replace the deceased sole director / sole shareholder as a director of the company.
The court said that it is not until after the grant of probate has been made for the deceased sole director / sole shareholder that a director can be appointed in their place by the executor.
That in turn means that day to day decisions of the company cannot be made in that period between the date of death and the grant of probate.
This issue includes where the company is trustee of a trust. That can be a real problem as director resolutions cannot be passed until after the grant of probate, which can impact taxation compliance requirements (including about the required taxation law annual income distribution resolutions).
Please note that this only applies to a director that is the only director and happens to also be the only shareholder.
There are various things that can be done to manage the Section 201F issue. Here are some of them.
Multiple directors
Appoint another director. If there is a concern about controlling the making of decisions between the directors, a members’ resolution could be passed giving the existing sole director voting rights to control a director meeting or the existing sole director could be made the managing director with similar rights.
Multiple shareholders
Subject to any unwanted tax and stamp duty of doing so, shares could be issued to a shareholder other than the current sole shareholder. So that the share issue does not interfere with the existing shareholding, it could be a share that only has discretionary dividend rights or for example, the share could be issued to a trust controlled by the existing sole shareholder.
Trustee company
Change the trustee of the trust (if that is possible). So read the trust deed.
A company power of attorney
The company (not the directors) could appoint an attorney that would allow the company to continue to perform functions that the directors would normally perform.
Members’ resolution
A members’ resolution could be passed that provides for who will be the director after the death of the existing single director and shareholder.
A members’ resolution could be passed that provides for who will be the director after the death of the existing single director and shareholder and if there is any concern about controlling the way particular decisions are made, that can be managed by having more than 1 director involved if that is what is required.
If you have any concerns about the management of this issue, please contact us.
Disclaimer
The information in this article is general in nature and is not intended as legal advice. You should not do or fail to do anything in reliance on information in it. We do not accept any responsibility for any loss that you suffer if you do. You should seek professional advice before you do anything about the issues set out in this article.
