Charlie Newington-Bridges acted for the successful applicant in an unusual High Court application under s125 Companies Act 2006

27th May 2020

Charlie acted for the successful applicant in a s125 Companies Act 2006 application involving the rectification of the register of members where a 100% shareholder and sole director had died and no provision had been made in the Articles for the appointment of a director by executors. The claim was made pursuant to s125 Companies Act 2006 for an order that the Claimants, who were the named executors of the estate of the late Russell John Price (‘the Deceased’) could rectify the register of members, allowing them to appoint directors.

Russel Price Farm Services Ltd is a successful farm contracting business employing a large number of people. It was also the main asset in the estate of the Deceased. The Deceased was the sole director and shareholder of the Company. The Company on the death of the Deceased therefore had no director. The Articles of the Company did not provide the executors with the power to appoint directors. HSBC, the Company’s bankers, had frozen the Company’s bank account in the absence of any director, so that invoices and wages could not be paid. The claim was urgent (and was heard soon after the claim was field) because in the absence of an order the Company would have likely ceased trading because it could not pay its bills, which would have destroyed value, meant the end of employment for a number of employees as well as creating unnecessary uncertainty for unsecured creditors.

Judgment

In his judgement, HHJ Matthews sitting in the High Court in Bristol referred to the one authority that bore some resemblance to the case: Kings Court Trust Ltd v Lancashire Cleaning Services Ltd [2017] EWHC 1094 (Ch). He stated that:

“That too was the case of an application under section 125 of the 2006 Act, in circumstances which bear more than a passing resemblance to the present. In that case a Mr Eric Pilling was the sole shareholder and director of the defendant company, and he died leaving a will appointing the claimants as his executors. There, as here, the deceased’s shares had passed by operation of law to the claimants as his executors. Similarly, there was no provision which would permit the executors to appoint a director where as a result of death the company had no shareholders or directors. There, as here, there was an urgent need for the appointment of a director or directors, otherwise the business of the company would be irreparably damaged.”

In granting the application HHJ Matthews held that:

“I respectfully doubt whether the framers of the relevant sections of the Companies Act 2006 had specifically in mind the problem that confronted HHJ Hodge QC in the Lancashire Cleaning Services case, and me in this one. But I must focus on the particular words used by the legislature in enacting section 125. In the light of the exceptional urgency of the situation, where matters could not wait for the application for, and then the grant, of probate, I was satisfied that there was an “unnecessary delay” taking place “in entering on the register the fact of” the deceased’s “having ceased to be a member”. That opened the jurisdictional gateway to the court’s making an order under section 125. I considered that in principle an order of the kind sought could be justified, as it was in the Lancashire Cleaning Services case.”

But, as I have said, there were two factual differences between that case and the present one. As to the first, the fact that Lucy Price was the company secretary simply went to the question of service of the claim. In the case before him, where there was neither director nor company secretary, HHJ Hodge QC dispensed with service. That was not necessary here. On the other hand, the fact that the claimant executors had not yet applied for probate of the will, although as I say it was their intention to do so, was in my view more significant. I was concerned that the court might make an order that the claimants be substituted for the deceased as members of the defendant company, and then for some reason the claimants did not apply for, or initially applied for but did not in the end obtain, probate. For example, they might baulk at personally paying the inheritance tax in advance. In correspondence with the solicitors, I therefore sought an undertaking from the claimant that (1) they would not renounce probate, that (2) they would apply for it as soon as possible, making all reasonable efforts to obtain the necessary information for that purpose, and that (3) they would pay all necessary taxes as required so that probate could issue.

The claimants were initially unhappy at giving the third part of that undertaking in unconditional terms, instead offering an undertaking to pay all necessary taxes from the estate as required. But in my judgment that would not have been good enough, because if the estate did not have sufficient assets, or sufficient liquidity, there could be a lengthy hiatus during which the claimants would be on the register without being able to obtain probate. As it happened, there was advice from accountants that the shares in the company would be eligible for 100% business property relief, so that it did not seem that there would be a problem in practice. Nevertheless, in my view the risk (if there was one) should be taken by the claimants, who would have knowledge of the facts and be in control of the assets, rather than by the court, which would have no means of knowing what was going on, and no direct control. After all, everything which personal representatives properly do in the administration of the estate carries a personal risk for them, although usually the right of indemnity out of the estate is a sufficient answer. I could not see why this case should be different.”

Conclusion

 The case was unusual because there appeared to have been only one reported case on the issue. It was plainly urgent too, but the court dealt with the matter quickly recognising that without a rapid response the Company might well have failed in any event because of delays in paying creditors as well as employees. The judgment has some importance because it demonstrates that executors who find themselves in the position of having a valuable company asset in the estate, but without any way of making decisions for an on behalf of that company, can resolve that problem by way of this uncommonly used mechanism.

St John’s Chambers has a strong Company and Commercial team that would be happy to assist in similar matters.