Out on your own? Directors beware!!

Barry Riley

Out on your own? Directors beware!!

One thing to watch out for if you are a sole director of a limited company is whether your company’s Articles of Association (the main governing document of the company and its constitution) sufficiently protects you in the event that something untoward happens to you.

If your company’s Articles pre-date the Companies Act 2006 revisions (i.e. most commonly if your company was incorporated prior to the new Act and have yet to be updated), then in the absence of anything to the contrary, if you die, your personal representatives will need to obtain a court order (at a significant cost) to be able to appoint a new director to run the company.

Of course, if you share the responsibility of being a director with others, then this is not a concern, but for those individuals who are out on their own, if something happens to them, this can cause considerable problems for their family once they have passed, and if this is not sufficiently protected against.

The main problem stems from the fact that a limited company will be in breach under the Companies Act 2006 if there is no director appointed. The Act requires at least one individual be appointed as a director.

Under the pre-2006 Act regime, there was no provision in the standard Table A Articles of Association to deal with such a situation. That leaves the personal representatives of the deceased with one option, and that is to seek a court order for the appointment of either a temporary or permanent director. Of course, such a process is time consuming, stressful and ultimately fairly costly.

The Companies Act 2006 provides a safeguard though, which should be utilised in such a scenario.

Now that the use of Table A standard articles has been largely done away with (save for those companies incorporated prior to the new act who care to keep these in place for whatever reason), Table A has now been replaced by the Model Articles regime under the Act; where the previous act failed companies with sole directors, the new provisions provide suitable protection for the scenario outlined above. They explicitly provide for the personal representatives of the deceased to be able to appoint a director of the limited company. Such power comes in on death, if such individual is named in the deceased’s will or, failing the existence of a will, once Letters of Administration have been issued.

The main solution to this dilemma is either to appoint another director, or update the company’s Articles of Association and modernise them to bring them in line with the new provisions brought in by the Companies Act 2006.

Metcalfes charge a set fee for a revised set of Articles of Association of £250 + VAT, which is significantly cheaper than the costly exercise of obtaining a court order to assist in circumstances where a company is unprepared for the passing of a sole director. If you are running the show on your own, make sure that you are adequately protected!

For more information on this blog post, or indeed for any other queries you may have in respect of the issues raised above, please do not hesitate to contact Barry Riley on 0117 9453 042 or briley@metcalfes.co.uk

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