What happens if an officeholder/director passes away?

Question

What happens if an officeholder/director passes away?

Answer

Ordinarily, if a director of a company dies, the surviving directors can continue to manage the company and may even make a temporary appointment, pending the appointment of a new director by the members (shareholders) of the company. Equally, if the sole shareholder of a company dies, the directors can continue to manage it until the beneficiaries under the will have the shares transferred to them.

However, where the company's sole director/shareholder dies (or has a mental incapacity such that they cannot manage the company), section 201F of the Corporations Act 2001 provides that the deceased's legal personal representative (LPR) may appoint a person (including themselves) as director to carry on the business of the company.

Note that where a director has died or an LPR/new director is appointed, the change can be made via a Form 484.

The person appointed as a director will hold office as if they had been appointed in the usual way - i.e. they will have all the powers, rights and duties of the deceased director and can keep the company running until shares are transferred to beneficiaries who may then appoint new directors if they wish.

 

The LPR is the person named in a Will whom the deceased has appointed to administer their estate. As such, complications would tend to arise where a sole director/shareholder dies without leaving a will (hence having not appointed an LPR). It may leave the company without any person properly authorised to manage the company for weeks to months, until the Public Trustee steps in or the Court grants Letters of Administration for someone to manage the estate. This means that, in the interim, the company may be completely unable to operate.

 

This highlights the importance of having a valid Will (i.e. the means by which an LPR/executor is ordinarily and most efficiently appointed) especially where a company has only a sole director/shareholder.

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