COURT ORDERS EXECUTORS TO BE REGISTERED AS SHAREHOLDERS WITHOUT GRANT OF PROBATE
In Kings Court Trust Limited and others v Lancashire Cleaning Services Limited , the High Court granted an order to register the executors of the deceased and only shareholder of a company as the company's new shareholders, even though they had not yet obtained a grant of probate.
Mr Pilling was the only director and shareholder of Lancashire Cleaning Services. The company had no company secretary. Mr Pilling died on 28 February 2017, leaving the company with no shareholder, directors or secretary.
Mr Pilling had named Kings Court Trust and two individuals in his will as the joint executors of his estate. The company's constitution stated that title to Mr Pilling's shares was to pass automatically to those executors upon his death (as is fairly usual).
The company continued to trade. In particular, it owed wages to its employees and a VAT liability to HM Revenue & Customs ("HMRC"). A potential buyer was found for the company. However, the company's affairs were at risk: its bankers had frozen its bank account and it had no directors left to conduct its business and deal with its liabilities.
The executors applied to the court under section 125 of the Companies Act 2006 to be registered as the new shareholders of the company. Section 125 allows the court to rectify a company's register of members if a person's name is omitted from the company's register "without sufficient cause" or if there is "default" or "unnecessary delay" in registering that someone has ceased to be a shareholder. On being registered, the executors intended to appoint a new director to manage the company.
The executors claimed that the sole shareholder's death entitled them to be registered. However, although the executors had applied for a grant of probate proving their right to be registered as the new shareholders, they had not yet received it. They asked the court to register them as the company's shareholders without the grant of probate, given the urgency of the situation.
What did the court decide?
The court granted the request and ordered that the executors be registered as the new shareholders.
Normally, a court will only register a person's executors as the new holders of his shares if a grant of probate or letters of administration are handed to the company. However, in these circumstances, the judge felt that waiting for the final grant of probate would be an "unnecessary delay". The imminent failure to pay employees' wages, and the risk of a shortfall in payments to HMRC, were grave enough to dispense with this requirement. It would have been "inappropriate" to wait for the grant of probate.
However, the judge was at pains to point out the "quite exceptional" circumstances of the case. He noted that the case would not be a precedent for more "run-of-the-mill" cases where a company still has directors who are able to act.
The court's decision was the only sensible outcome in the circumstances. The risk of leaving the company "rudderless" far outweighed the risks of making the order registering the executors as the company's shareholders.
However, the court was clearly swayed by an unlikely combination of factors. If the company had still had other directors, or if it had not been in imminent danger of defaulting on its payments, it seems the court would probably have insisted on waiting for the grant of probate.
Likewise, the court emphasised that the grant of probate had been applied for and there was "every likelihood" that it would be made. If, however, there had been any doubts about the grant, or if Mr Pilling had died intestate, the court would most likely not have made the order.
Although unusual, the case highlights a key risk to companies with a single director-shareholder. If that person dies, the company's affairs may be at risk until probate is granted.
There are ways to guard against this. A company can ensure that it always has at least two directors appointed, ensuring there is no vacuum if one of them dies. A company's constitution can also allow the personal representatives of a sole, deceased director-shareholder to appoint a director to fill the void. (The Model Articles for new private companies permit this.) This would avoid the need to apply to be registered as a shareholder first.
Sole director-shareholders of companies may wish to review their arrangements and consider amending them to protect against this remote, but burdensome, eventuality.
COURT UPHOLDS EXCLUSION CLAUSE IN CONTRACTS BETWEEN PARTIES OF EQUAL BARGAINING POWER
In Persimmon Homes Limited and others v Ove Arup & Partners Limited and another , the Court of Appeal agreed that a clause excluding liability in relation to asbestos was effective and that it extended to liability arising from negligence.
Persimmon and two other companies formed a consortium to acquire a regenerated site in Barry. After successfully bidding for the site, the consortium engaged Arup, which had previously advised on the regeneration, to provide certain environmental and project services. This developed into a further agreement under which the consortium appointed Arup to provide engineering services.
Each of the successive contractual arrangements between the consortium and Arup contained limitations on Arup's liability, including a single line stating: "Liability for any claim in relation to asbestos is excluded."
Another of the consortium's contractors subsequently discovered asbestos on the site. The consortium brought proceedings against Arup, claiming it had negligently failed to identify the asbestos. Arup claimed that it was not liable to the consortium due to the asbestos exclusion clause.
The High Court agreed with Arup. The consortium appealed, arguing on relatively orthodox principles that, as the exclusion was ambiguous, it should be interpreted in favour of the consortium (under the so-called "contra proferentem rule"), and that it was not clear enough to exclude liability for negligence.
What did the court decide?
The court dismissed the consortium's appeal. It decided that the clause was not ambiguous and, on an ordinary reading, must have extended to negligence. This was even more so because it was hard to think of a scenario where liability relating to asbestos could arise other than through negligence.
The judges also stated that the contra proferentem rule, on which the consortium placed heavy weight, played a limited role where the parties were of "equal bargaining power".
Although it related to a construction matter, the principles in this case touch on all kinds of commercial contracts. There has been a gradual drift away from construing exclusion clauses in commercial agreements narrowly to recognising the right of sophisticated and well-advised parties (particularly parties to B2B contracts) to allocate risk and liability between themselves as they see fit.
The decision gives further comfort to commercial parties seeking to limit their liability that the courts are likely to uphold these limitations.