Running a Limited Company (Ltd) in the UK can be a lot of work, there’s a lot of paperwork, legislation, and registration needs that need to be attended to, not just when you get started – but as you proceed as well.
One area that you might not have considered, but you should certainly be planning for, is unexpected situations.
Now this sounds like a bit of an oxymoron, after all – how can it be unexpected if you’ve expected it; but stay with us.
There are some situations that we’re peripherally aware of, but might not actively consider them – such as illness, incapacity, death, etc. It can feel morbid to dwell on these possibilities, but the wellbeing of your company depends on the decisions you and any fellow directors make – and preparing for the worst and having actually usable contingencies can save a lot of stress, time, and money during a potentially difficult period.
Because a Limited Company is a separate legal entity in its own right, there are strict rules governing the way it operates, who can do what, and when.
We’re going to look at a few different situations that you might not have considered, and what’s involved in preparing ahead should they occur.
What Happens if All Directors Resign from the Limited Company?
A Ltd Company has to have at least one director in order to continue trading – should all the directors (or a sole director) resign, Companies House will contact the named contact and inform them that a new director must be appointed by a certain date (deadlines will vary from case to case, so Companies House will provide the specific date).
If the company fails to do this by the deadline, the company will be ‘struck off’ (removed from Companies House register – sometimes called dissolution). Any outstanding creditors at this point would need to write off the money they are owed as a ‘bad debt’ or apply to reinstate the company (this is done by a court order and can be an extremely costly process in both time and money).
The assets of the company may be auctioned off or determined to be ‘bona vacantia’ (vacant goods) and pass by law to the Crown.
Should you find yourself in a situation where all of the directors (or just the one in the case of a single director) plan on resigning at the same time, it’s crucial to know who is listed as the contact for Companies House, who (if anyone) is going to take on the new director’s role, and that if the company is to continue, that Companies House are informed of the changes within time.
What Happens if the Director is Incapacitated?
The ability to function as a director can be compromised by illness or incapacity, including mental health issues. If this happens, and the director is unable to make decisions – whether temporarily or permanently – it can seriously affect the company’s ability to remain trading.
It’s important to understand what powers can be delegated and include them in your company documents (Articles of Association, Partnership Agreements, and / or Shareholder Agreements). The company may consider allowing for Lasting Powers of Attorney (LPAs) which allow for the appointment of a person or people to make decisions on the individuals behalf (having a spoken or informal arrangement is not good enough, because it’s not legally binding).
The LPA does have limitations, they can’t act as a Company Director and the duties of the position cannot be delegated to them – but it allows for action to be taken, such as the decision to remove the incapacitated individual (with appropriate proofs such as a doctor’s written opinion), or to appoint someone else in the role.
What Happens if a Company Director Dies?
Dealing with the loss of a loved one is a difficult situation and having to handle the business end can make it worse for the executor of the estate.
If the company has more than one director, the other individuals may decide to take on their obligations and continue to run the business as usual, or they can elect to bring in a new director. To approve this, a ‘resolution of members’ must be passed at a general meeting (or by written resolution) and Companies House must be notified.
If the company is left with no directors, this is a breach of the Companies Act (2006) which requires Limited Companies to have at least one director (PLCs to have at least one director and Public Limited Companies to have a minimum of two).
To avoid the company being ‘struck off’ and other legal issues, it’s important to have contingencies in place to provide direction for the company, even after the director is gone.
If there are surviving shareholders, they can call a general meeting and pass a resolution to appoint a new director – however, if the sole director was also the sole shareholder, this can get more complicated – especially if specific provisions haven’t been left in the Articles of Association; if the sole director dies without these in place, there’s no one to exercise their powers and authorise business actions (such as essential payments).
The Companies Act (2006) model articles of association allow the deceased’s executor (Personal Representative) the authority to appoint a new director, who can then authorise the needed actions (such as transfer of the deceased’s shares, etc). The new director and any new shareholders must be entered into the Company Register and Companies House informed.
If however the company was incorporated under the Companies Act (1985), the executor must have a court order to approve the appointment.
To avoid the distress and time-consuming process, it’s important to clearly set out appropriate provisions in the Articles of Association ahead of time.
It’s not fun to dwell on negative ‘what if’s’, but it’s so very important.
If you’re not sure that your business is adequately prepared, or you want to make sure that your contingencies are up-to-date (and legally binding), you can book an appointment with one of our experts and request a consultation, so we can make sure that you and your company prepared for the future.
