23 Jun 2017

In (1) Kings Court Trust Limited (2) Lois Joanne Talbot (3) Angela Jane Pilling (Executors of the late Eric Anthony Pilling) v Lancashire Cleaning Services Limited [2017], the High Court held that where a company had no acting officers and delay in appointing any officers may lead to the failure of the company, the court can exercise its discretion to order rectification of the Company's register of members under s.125 Companies Act 2006 in favour of executors, notwithstanding the absence of a grant of probate of the deceased's will.

Background

Mr Eric Pilling was the sole shareholder and sole director of Lancashire Cleaning Services Limited (the Company) which had adopted Table A as its articles of association. Mr Pilling died on 28 February 2017.There was no company secretary.

The deceased's shares had passed by operation of law to his personal representatives and this was reflected in regulations 29 to 31 of Table A. However, probate of Mr Pilling's will had not been granted.

There was no provision in the articles for the personal representatives to appoint a director where, as a result of death, the company had no shareholders or directors. By contrast, the Model Articles (17(2)) would have enabled the Executors to appoint a director.

The bank accounts of the Company had been frozen by the Company's bank and the Company was unable to pay staff wages, outstanding VAT liability and other creditors.

The Executors applied to the court under section 125 Companies Act 2006 to rectify the Company's register of members, by substituting them as shareholders, so that they could then appoint a director, notwithstanding that probate of the deceased's will had not yet been granted (or prior to the hearing applied for).

Executors' arguments

The Executors argued that the shares had devolved upon them as the Executors named in the will and they were entitled to be registered as shareholders. The fact that there was no grant of probate did not prevent registration of the shares in their names as there was no dispute as to their title.

The Executors based their argument on the observations of Newey J in Re Goodman [2013], to the effect that the term 'personal representative' in the Administration of Justice Act 1985 included a personal representative who had not yet proved. An executor derives title from the will, and the property of the deceased vests in him from the moment of the testator's death, unlike an administrator who only derives title from an appointment by the court.

The power of the court to rectify the register of members is in section 125 of the 2006 Act, which provides:

  • If the name of any person is, without sufficient cause, entered in or omitted from a company's register of members, or:
    • default is made or unnecessary delay takes place in entering on the register the fact of any person having ceased to be a member
    • the person aggrieved, or any member of the company, or the company, may apply to the court for rectification of the register.
  • The court may either refuse the application or may order rectification of the register and payment by the company of any damages sustained by any party aggrieved
  • On such an application the court may decide any question relating to the title of a person who is a party to the application to have his name entered in or omitted from the register, whether the question arises between members or alleged members, or between members or alleged members on the one hand and the company on the other hand, and generally may decide any question necessary or expedient to be decided for rectification of the register.
  • In the case of a company required by this Act to send a list of its members to the registrar of companies, the court, when making an order for rectification of the register, shall by its order direct notice of the rectification to be given to the registrar.

The judge, Judge Hodge QC, sitting as a judge of the High Court, said that in normal circumstances a company will not register executors until they are able to prove their title by production of a grant of probate. However, the court is entitled to have regard to all of the circumstances when determining if there is sufficient cause (as required by s.125(1)) to omit a deceased member from the register and to enter his executors in his place.

The judge considered this to be a wholly exceptional case. There was no power (without the intervention of the court) to enter the executors in the register or appoint a director in these circumstances. In view of the inability of the Company to operate properly, including the inability to withdraw funds to pay employees, as well as an outstanding VAT payment to HMRC, the Company was "completely directionless" and, in the view of the judge, there was unnecessary delay in entering the Executors in the register and it was inappropriate to delay registration until the grant of probate was obtained.

Section 125(3) allowed the court to decide questions relating to the title of someone in the position of the Executors. Only the court could rectify the situation the company was in. The company should await the grant of probate; but, in this case, it may have been too late for the company if it did. The judge was satisfied that, on the evidence, including in particular the oath in support of the application for a grant of probate, the three named executors should be registered as the members of the company. The court had the power under section 125 to order rectification and it should exercise its discretion to do so by entering the names of the Executors and removing the name of the deceased sole shareholder from the register.

Under s.125(2), the court had the necessary power to order the claimants to make the necessary entries on the register immediately as there was no officer of the Company able to do so. Such a power is necessarily inherent in the court's power to order rectification of the register. Without including such an ancillary provision, the court would not be fully performing the function conferred upon it by section 125(2).

The judge also allowed the Executors' request to dispense with service of the claim form, under CPR 6.16, given that there would be no officer of the Company on whom it could be properly served.

Comment

It is important to note that the judge found that the circumstances of this case were exceptional and therefore warranted the intervention by the court. Had the court refused to intervene it may have resulted in a failure of the Company.

The judge made clear that the court would not normally make an order under s.125 of the 2006 Act unless and until a company had failed to act on a grant of probate in favour of the executors of a deceased member. This case was not a precedent for where a company still has shareholders and directors able to act. In the normal course, a company would be fully entitled to await the grant of probate to prove sufficient title to executors named in a will.

If the Company had had articles which were more appropriate to a sole shareholder and sole director company, such as Model Article 17(2), these problems could have been avoided and a director appointed to manage the company.