As a business owner whose energies are undoubtedly invested in the here and now, not least in trying to survive the current economic crisis caused by COVID-19, it is just as important for you to consider what would happen to your business should something happen to you.
The prospect of us dying is a sobering thought. Still, by putting in place suitable measures to ensure that your business can continue in your absence, or that adequate financial provision can be made for those you leave behind, you can provide yourself and your loved ones with much-needed peace of mind. By planning ahead for all eventualities, you will also instil confidence in those you work with and those that work for you.
The starting point for any astute business owner, whether as part of a wider succession planning strategy for a partnership or limited company, or simply to ensure the financial security of your family after you die, is ensuring that you have a valid Will in place.
In England and Wales, if a person dies without making a Will, the rules of intestacy come into play. These restrict the beneficiaries of the deceased’s estate to specified classes of relatives, in a set order of priority, but making no automatic provision for unmarried partners. As such, there is potential for this to have unwelcome ramifications in relation to the distribution of both the deceased’s personal and commercial assets, in some cases solely benefitting estranged family members. It can also create problems for any surviving business, often adding an extra layer of confusion, delay and uncertainty to an already difficult process.
Where a person dies intestate, the task of handling their affairs usually falls to the deceased’s next of kin. However, in most cases, the next of kin will still need to apply for a ‘Grant of Letters of Administration’. This is the official document issued by the Probate Registry providing the personal representative(s) with the authority to administer the deceased’s estate. If the deceased’s affairs are especially complex and high value, involving the payment of inheritance tax, this could take weeks or even months to obtain.
Additional delay can also arise where a search needs to be undertaken to clarify whether a Will has been made or in verifying who is a valid member of the class of beneficiaries entitled to apply to the court for the Grant of Representation. This could be, for example, where the deceased has no surviving spouse, children or parents, or where their relatives are not known.
If you add into this mix the absence of adequate succession planning provisions within any partnership agreement or the company’s Articles of Association, post-death business problems can quickly escalate. This issue was recently highlighted in the case of Williams & Ors v Russell Price Farm Services Ltd [2020] EWHC 1088 (Ch).
On its facts, the late Russell Price was the sole director and shareholder of a contract farming company. However, there was no provision in the Articles for the executors to appoint a new director in the event of his death, leaving the executors of his estate without the authority to do so themselves prior to the Grant of Probate. This left the company in a precarious position as there was no-one to pay the company’s creditors to enable it to trade. As a result, the executors were forced to make an urgent application to the High Court requesting that they be entered into the company’s register of members so that they could appoint a director.
Yet, with prior planning, these problems could have so easily been avoided for the relatives and personal representatives of Mr Price. By putting in place a written Will, together with any suitable succession planning measures, you can help to safeguard both the financial interests of your loved ones and the future of your business you have worked so hard to build.
Legal disclaimer
The matters contained herein are intended to be for general information purposes only. This blog does not constitute legal advice, nor is it a complete or authoritative statement of the law in England and Wales and should not be treated as such.
Whilst every effort is made to ensure that the information is correct, no warranty, express or implied, is given as to its’ accuracy, and no liability is accepted for any error or omission. Before acting on any of the information contained herein, expert legal advice should always be sought.