Sole Directors Need a Will
If you are the sole shareholder/director of your company, then you should have a Will.
Ordinarily, if a director of a company dies the surviving directors will assume control over the business until the beneficiaries have those shares transferred to them under the will.
In the case of a sole shareholder/director dying the beneficiaries will have to wait for the shares to be transferred to them and this could take months!
Therefore, it is vital, that you as a sole shareholder/director of a company, and as a Testator:
- Have a valid will, and
- Make provision in that will to ensure the transfer of the shares to your nominated beneficiary or beneficiaries.
What is a Testator?
A Testator is someone who makes a will to dispose of their property and account for their debts after they die. The term comes from the Latin meaning “one who makes a will or one who bears witness.”
What is a Beneficiary?
A Beneficiary is someone who has been included in a will of a person who has passed away and have been left a gift or benefit from their estate.
What happens if you die?
If you die without a valid will, you are said to have died, intestate. In this situation, the State or relevant Territory authority usually referred to as the Public Trustee will step in and administer the estate and decide how the assets will be distributed. This can be very problematic for many reasons and becomes especially complex and distressing if there is a sole shareholder/director company involved.
Time is of the essence when a sole shareholder or director dies, given the company continues to operate despite the death. The death of a sole director potentially leaves the operation of the company without anyone authorised to make decisions for the company.
When an ordinary person dies without leaving a will, their estate cannot be easily administered and any dependents such as widows and children can be left waiting for long periods while the State or Public Trustee takes over to manage the estate, or letters of administration are granted by the Supreme Court for someone else to administer the estate.
The Corporations Act 2001 – Appointing a new Director
Section 201F(2) of the Corporations Act 2001 (the Act) allows that if a person who is the only director and only shareholder of a propriety company (such as a company that has been issued an ACN by ASIC (see Section 45A of the Act) dies, the executor or other “personal legal representative” appointed to administer the estate may appoint a new director to the company.
Powers of Executor and Personal Legal Representatives
Under sections 201F(4) and (5) the executor or personal legal representative who has the power of appointment, may appoint themselves as the director and hold that office as if they had been appointed in the usual way.
The new director has all the powers, rights, and duties of the deceased director and can keep the company operating until the shares are transferred to beneficiaries who may then appoint new directors if they choose.
The executor is the most efficient person to administer the will and transfer the shares. Where there is no will, however, any relatives or other persons would have to apply to the Supreme Court for letters of administration to manage the estate and this could take weeks or months.
Die intestate – Be prepared to wait months to receive your shares while the business fails
In the absence of any relatives or beneficiaries, the Public Trustee may assume administration of the deceased estate, but this process is also months in the making, and meanwhile, the company has no means to make management decisions, trade, operate or meet its financial commitments. Also, banks or other financial institutions may not be willing to accept instructions from a person who is not legally authorised to operate the company. Equally, staff or suppliers may not be able to be paid which could cause further reputational damage to the company and reduce its value and goodwill. This will be bad for the beneficiaries once they take control and or if they want to sell the shares.
Alternatively, if there is anyone wishing to purchase the company, they won’t be able to do so because there is essentially no owner of the shares to authorise their transfer until a person (the testator) has been appointed and settled the estate.
As mentioned above, even if the desire is to wind up the company so all the beneficiaries can be paid out, the delay of several months could result in the value of the company is less than it otherwise would have been if it had been able to continue operating in the interim.
What is a valid Will?
A valid will is one signed by the testator or by someone authorised by them, where their signature must be witnessed by at least two witnesses who are not beneficiaries under the will, and who must be present to sign the will in the testator’s presence.
Dealing with ASIC is convoluted, let me help!
Once an executor or administrator has been appointed, ASIC (Australian Securities and Investment Commission) will need to be notified. ASIC will also need to be notified if/when a replacement Director is appointed. Administrators/Executors need to submit changes to the company within 28 days of the change occurring. Penalties will occur if you do not meet the deadline.
The paper Form 484 is no longer available to make these changes and now must be done exclusively online through ASIC.
What to do now – Call Richard immediately!
The importance of documents such as a Will, Enduring and Corporate Power of Attorney, and Enduring Guardianship cannot be understated and will provide peace of mind for you and your loved ones should there be an unexpected death, especially if that person is a sole shareholder/director of a company.
Richard McDonald is available for all your Wills and Estate Planning requirements.
Call now on (02) 8824 4736 or 0411460034 and we can come to you, or if you would prefer, we can meet at one of our comfortable conference rooms and offices.