Over the coming weeks we will be rolling out a series of initiatives focusing on asset protection and estate planning, ensuring these issues are carefully considered and that a sufficient plan is put in place to ensure your wishes are carried out.
The first part of this is to ensure that people close to you maintain control of any companies you are a Director of if you are incapacitated in any way, or when you die.
What happens to your Companies when you die, or if you get sick, are litigated against or become bankrupt?
There are almost 3 million companies in Australia and many are used by small business to trade and for others, companies act as a trustee for a discretionary family trust or a self-managed super fund. However, what happens when the director of the company – trading or trustee dies or becomes incapacitated?
- Who will manage the day-to-day operations, including having authority to pay wages, pay suppliers and sign contracts?
- Will the company go into long slow hibernation until Supreme Court legal action is taken to install a director or new trustee?
- Will the company be taken advantage of by existing directors?
- Will lawyers seeking to make claims against the estate lock up the company or put their favourite director in?
- For SMSFs will the ATO install their directors?
Any of the above reasons can spell disaster for a company, trust or SMSF. We have seen cases where a company was run into the ground in a short space of time because there was no director and the client had obviously not realised that his will would be ineffective in appointing a continuing director. For this reason, we are advising all of our clients with company directorships to ensure that they have a Successor Director in place.
What is a Successor Director?
The company constitution and rules (not the Will or any enduring power of attorney) may provide for a person known as the Successor Director to take over from a sole director or a director on a Board when the current director is sick, dies or is subject to litigation including divorce or bankruptcy.
There is no waiting for a will or EPOA to be reviewed or finalised, suppliers and employees can continue to be paid and the business can be carried on, with minimal stress or financial worry for a grieving family. The current director is automatically removed, and the Successor Director appointed.
John Smith runs his trading company as a sole director. He has ten staff and is very hands on but his staff do know what to do to keep the business running. He is also the director of the trustee company for his family trust and self managed super fund. John dies in an accident and leaves behind a business, wife and two young children.
John’s family wealth is exposed as are all of his structures. Who will pay the bills? Will his family be able to access any money – even for the funeral? And this is only the tip of the iceberg – wait until the bank starts to threaten foreclosure on the family home from lack of funds.
But John’s accountant has put in place the Successor Director solution for all his companies and on Johns death, his brother Nigel is appointed as Successor Director the next day to keep an orderly transition of business, the family trust and the SMSF. The funeral is paid for and ongoing income is paid to the family.
If you are a director of a company, whether that be a trading company or a corporate trustee, you need to ensure you have an appropriate successor director plan in place.
We can consult with you to select an appropriate successor director, review the constitutions of your companies and arrange for them to be upgraded to stipulate the line of succession.
Please feel free to phone or email us if you have any further questions or would like to begin the process.