The risks of Single Shareholder-Director Companies

As part of the administration of a deceased’s estate, our private client team recently encountered the scenario where the deceased was both the sole shareholder and sole director of a private limited company in Jersey. This created the dilemma whereby upon the sole director-shareholder’s death, there was no director to register the transmission of shares nor was there a shareholder to appoint a replacement director – a “catch-22” situation.

When a shareholder dies, title to their shares vests in their personal representatives (PRs) by operation of law via a process known as transmission. For individuals with a will, their PRs will be the executors appointed under their will, whereas for those who die intestate it will be the court appointed administrator. However, although the deceased’s shares will vest in their PRs on death, in fact the PRs won’t officially become shareholders of the company until they are registered in the company’s register of members and share certificates are issued.

For private limited companies registered under the Companies (Jersey) Law 1991 (the Companies Law) with model articles, registration of the PRs as shareholders can only occur once the directors receive evidence of the PRs entitlement to the deceased’s shares, that is, a grant of probate (where the deceased had a will) or letters of administration (where the deceased did not have a will). Consequently, in the absence of any amendments to the model articles to override these provisions (which, interestingly, is now addressed under the model articles in England & Wales for private companies incorporated after 1 October 2009), without the existence of a living director, the PRs cannot be registered as the holders of the deceased’s shares.

In the interim period, the company will face a power vacuum, with both the PRs being unable to exercise the voting rights attached to the deceased’s shares and there being a lack of directors to run the company. Case law from England has shown that, in such situations, contracts have gone unfulfilled and staff and creditors have gone unpaid.

Recourse is available in Jersey by way of application to the Royal Court for rectification of the register of members of the company under Article 47 of the Companies Law, to reflect the PRs title to the shares. However, this course of action will add further complication and expense to the administration of an estate as time and money will need to be spent preparing the representation, attending court and paying court fees.

Ultimately, this scenario can be wholly avoided where companies have appointed more than one registered director or shareholder, and individual shareholder-directors should therefore take note and plan accordingly. For expert assistance on private client matters please contact enquiries@bcrlawllp.com and our team will be more than happy to assist you.