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NSW Death of Sole Director and Company Insolvency - What Happens Next?

Discussion in 'Debt and Bankruptcy Law Forum' started by Homer, 10 May 2016.

  1. Homer

    Homer Member

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    Sole Director/Shareholder dies and the NSW company (Pty Ltd) is almost insolvent (about to halt trading when employees leave).

    - The company is in too much debt ( ATO and unsecured loans) to restructure/sell
    - The beneficiaries would not want to accept the shares and would not want to deal with the company at all
    - The company has a lease agreement and a few employees who are owed benefits
    - The company has assets that would fail to pay off half the debt.

    Questions:

    Who is responsible for winding up/liquidating the company and how does this happen?
    What do employees do with keys when walking out?
    Are the employees held responsible for anything?
    Can the assets be sold before winding up/liquidating?
    What happens if assets go missing?
    Does the Executor (if appointed) of the Director's personal estate (also in debt) need to deal with the company?

    Thanks
     
  2. Tim W

    Tim W Lawyer

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    1. First things first - is it a corporation, or a sole tradership, or a partnership,
      or (god forbid) some sort of mishmash of trusts and holding companies?

    2. Next - Is there a valid will?
      If so, who is the executor?
      Is there anything in the will about the company,
      such as purported gifts of shares?

    3. A corporation is a legal entity distinct from the director(s) personally.
      For sole director corporations, the executor/ legal person representative
      of the deceased director does not automatically become a director, but can can appoint a new director.
      But the executor/ LPR has to be appointed before they can act in respect of the company,
      so you need a Grant of Probate or Letters of Administration asap.
      The executor does not have to become the/a new director - they can appoint somebody else.
      It may suit the situation for the executor and the new director to be different people, even if they are working "side by side".

      Have a read of this.

    4. The executor doesn't get to choose what beneficiaries might or might not want.
      If they are planning to renounce gifts, then they can do that, but there are some formalities to observe.
      As a general thing, the debts have to be satisfied first, before any distribution

    5. There are no degrees of insolvency - either it is or it isn't.
      What the heirs might be saying is "I don't want to inherit somebody else's debts".

    6. The other questions:
      The replacement director appointed by the executor.
      How it happens depends on if it's a simple closing down, or if there are questions of insolvency, tax debts, employee entitlements, superannuation obligations, leases on equipment and real estate, insurance claims, and any conditions in the terms of loans or credit relating to the disposition of capital assets.
      You may find the advice of a solicitor and an accountant helpful
      Hand them to the executor/ replacement sole director/ Voluntary Administrator, just like any other item of equipment in their possession (yes, right down to the pens and pencils).
      Most likely, the (former) employees will be unsecured creditors. The benefits guarantee schemes are not the magic bullet people think they are.
      Plain old PAYG employees? Lots of ifs, buts, maybes and exceptions, but as a general thing, no.
      Subject to any securities or charges on the individual items, possibly.
      Don't hide assets.
      As a general thing, the executor can appoint a replacement director. It's helpful to understand that the executorship and the directorship are separate offices, even if they are held by the same person.
     
    Rod likes this.
  3. Homer

    Homer Member

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    Hi Tim

    Thanks for the quick response, please see answers below in blue:



    Q:First things first - is it a corporation, or a sole tradership, or a partnership,
    or (god forbid) some sort of mishmash of trusts and holding companies?


    A: Australian Proprietary Company, Limited By Shares

    Q: Next - Is there a valid will?
    If so, who is the executor?
    Is there anything in the will about the company,
    such as purported gifts of shares?


    A:For argument's sake, let's say yes to a valid will:

    Executors are myself and my brother (brothers of the deceased) who are also beneficiaries along with 3 other family members.
    No mention of the company in the Will - in summary, estate to be divided evenly.

    A corporation is a legal entity distinct from the director(s) personally.
    For sole director corporations, the executor/ legal person representative
    of the deceased director does not automatically become a director, but can can appoint a new director.
    But the executor/ LPR has to be appointed before they can act in respect of the company,
    so you need a Grant of Probate or Letters of Administration asap.
    The executor does not have to become the/a new director - they can appoint somebody else.
    It may suit the situation for the executor and the new director to be different people, even if they are working "side by side".

    Have a read of this.


    Thanks for the link, I've read most of the information contained on the ASIC website relating to the death of a director, insolvency, administration, liquidation etc. I've found it very difficult to find any information on an insolvent company and the death of sole director/shareholder. Most information is about the responsibility of the Director to engage solicitors/accountants if the company may become insolvent, all of which would normally be paid by the company while solvent

    "you need a Grant of Probate or Letters of Administration asap"

    Which begs the question, why would we want to spend money obtaining probate if there is no distribution from the company or from the Personal Estate (both insolvent)? We are thinking to renounce probate and assign to the NSW Trustee & Guardian.

    We assumed this would make the NSW Trustee & Guardian responsible for placing the company into administration/liquidation at no cost to us?


    The executor doesn't get to choose what beneficiaries might or might not want.
    If they are planning to renounce gifts, then they can do that, but there are some formalities to observe.
    As a general thing, the debts have to be satisfied first, before any distribution


    Sorry, should have included in the post that beneficiaries are also the named executors. There will be no distribution

    There are no degrees of insolvency - either it is or it isn't.
    The company is currently solvent until the 3 employees walk away (which could be tomorrow)

    What the heirs might be saying is "I don't want to inherit somebody else's debts".

    Correct there is only debt to inherit

    The other questions.

    Q: Who is responsible for winding up/liquidating the company and how does this happen?
    A:The replacement director appointed by the executor.
    How it happens depends on if it's a simple closing down, or if there are questions of insolvency, tax debts, employee entitlements, superannuation obligations, leases on equipment and real estate, insurance claims, and any conditions in the terms of loans or credit relating to the disposition of capital assets. You may find the advice of a solicitor and an accountant helpful


    We have engaged a solicitor for the context of Probate - which could be a costly expense for nothing in return. We are awaiting a response from our solicitor; if we should renounce probate. I posted here, to hear options on the matter and I thank you for your time.

    Q: What do employees do with keys when walking out?
    A: Hand them to the executor/ replacement sole director/ Voluntary Administrator, just like any other item of equipment in their possession (yes, right down to the pens and pencils). Most likely, the (former) employees will be unsecured creditors. The benefits guarantee schemes are not the magic bullet people think they are


    If the staff walk out tomorrow, there is no appointed executor/replacement director/administrator etc so if the employees care enough who would they hand the keys to?
    If they don't care - why would they even worry about locking the doors when walking away?



    Q:What happens if assets go missing?
    A:Don't hide assets.


    How would one know if the employees took the assets? If questioned, they could blame the dead Director for the missing assets. As unsecured creditors, they know they won't see any money due to the other debts
     

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