There are almost 3 million private companies in Australia.  Many are used by small businesses 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?

  • Will the business fail?
  • Will it 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.  For this reason, all current company Directors should consider putting a Successor Director solution 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.  The current director is automatically removed and the Successor Director appointed.

Case Study – a Successor Director solution in action

John Smith runs his trading company as a sole director.  He has ten staff and is very hands-on but his staff does 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, a 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? For home loan repayments?

However, John’s accountant has put in place the Successor Director solution for all his companies and on John’s death, his brother Nigel is appointed as Successor Director the next day to keep an orderly transition of the business, the family trust, and the SMSF. The funeral is paid for and ongoing income is paid to the family.

What is involved?

To put in place the Successor Director solution, firstly a review and upgrade of your company constitution/s will be required to enable the Successor Director appointment.  Then, a binding resolution is completed and signed by the current director or directors.  These actions will auto-install the Successor Director in the event of death, disability, bankruptcy, litigation, or for any other reason.  There is no need to inform ASIC at this time but if it is used, then ASIC is an important cog in the wheel when the time comes.

This is important to do now

If you have a company and don’t have the Successor Director solution in place you may be exposed.  If you would like to know more simply email us and we can provide you with further details.