Shares are personal property under section 36 of the Companies Act 1997, so they form part of an estate or a bankrupt’s property. Several sections work together to make the transition orderly.
Section 66 — passing by operation of law
Shares in a company may pass by operation of law notwithstanding the constitution of the company.
However tightly the constitution restricts transfers — directors’ consent, pre-emption, permitted transferees only — the shares still vest in the personal representative on death, and in the trustee on bankruptcy. Section 66 is expressed to operate notwithstanding the constitution.
What a constitution can do is impose a compulsory transfer afterwards: requiring the representative or trustee, within a stated time, to offer the shares to continuing shareholders at a price fixed by formula or by an independent valuer. That is the standard answer in a family or closely held company, and it is enforceable between shareholders under section 32(1)(b).
Section 73 — registering a personal representative
(1) Notwithstanding section 72, the personal representative of a deceased person whose name is registered as holder is entitled to be registered as the holder of that share as personal representative.
(2) Notwithstanding section 72, the personal representative of a deceased person beneficially entitled to a registered share is, with the consent of the company and the registered holder, entitled to be registered as holder as personal representative.
(3) Registration under this section does not constitute notice of a trust.
Subsection (1) covers the ordinary case: the deceased was the registered holder, and the representative is entitled as of right to be registered in that capacity. Subsection (2) covers the case where the deceased was only the beneficial owner — someone else held the shares for them — and there the representative needs the consent of both the company and the registered holder.
Subsection (3) is essential plumbing. Section 72 forbids entering a trust on the register; without subsection (3), registering someone expressly “as personal representative” would appear to do exactly that.
Section 40(3) adds a practical power: the personal representative of a deceased shareholder may transfer a share even though the personal representative is not a shareholder at the time of transfer. So the estate can sell without the representative first taking registration — and under section 65(2) a transfer form may be signed by the present holder or by his personal representative.
Section 74 — the trustee of a bankrupt
(1) Notwithstanding section 72, the trustee of the property of a bankrupt registered as holder is entitled to be registered as holder as the trustee of the property of the bankrupt.
(2) Notwithstanding section 72, the trustee of a bankrupt beneficially entitled to a registered share is, with the consent of the company and the registered holder, entitled to be so registered.
The structure mirrors section 73. Personal insolvency is governed by the Insolvency Act (Chapter 253), under which the bankrupt’s divisible property vests in the Official Receiver or the trustee — and shares are part of it.
Sections 84 and 85 — the extent of liability
| Provision | Effect |
|---|---|
| s 84 | Liability of a personal representative registered as holder — incurred in that capacity, and answered out of the estate to the extent the section provides |
| s 85 | Liability of a trustee registered as holder — incurred in that capacity, with recourse to the trust property as the section provides |
| s 79 | The general rule: a shareholder is not liable for the company’s obligations by reason only of being a shareholder — liability is limited to amounts unpaid on the shares, constitutional liabilities, s 54 repayment and s 82 calls |
| s 80 | Liability of former shareholders in a liquidation — relevant where the estate has sold the shares |
The main practical risk is partly paid shares. A representative who becomes the registered holder takes on the liability for amounts unpaid, and for calls under section 82, in the representative capacity. Where the shares are partly paid and the estate is modest, consider transferring under section 40(3) without first taking registration.
Note also section 65(5): the board may refuse or delay registration of a transfer where an amount due on the shares has not been paid.
Rights before registration
Until the register is altered, section 69(2) allows the company to treat the registered holder as the only person entitled to vote, receive notices, receive distributions and exercise the other rights attaching to the share. A representative who has not been registered therefore cannot vote the shares. Two consequences follow:
- Apply for registration promptly if the votes matter — for example where a resolution to remove a director or to approve a major transaction is expected.
- If registration is refused, apply under section 71 for rectification, compensation, or both — compensation may be ordered against the company or a director. Section 70 imposes on each director a duty to see that transfers are promptly entered.
Where the deceased was the sole shareholder and sole director, the company can be left with nobody able to act. The routes out are section 132, under which the Court may appoint directors, and section 104, under which the Court may call a meeting of shareholders and direct how it is conducted. Obtaining the grant of probate or administration quickly is the first step; see executors, administrators and trustees.
Practical steps
- Obtain the grant of probate or letters of administration, or the appointment of the trustee.
- Notify the company and ask for registration under section 73 or 74, producing the grant.
- Check the constitution for compulsory transfer or pre-emption provisions triggered by death or bankruptcy.
- Check for unpaid amounts before taking registration.
- Obtain a share certificate and the section 75(1)(b) statement of rights, so the estate knows what it holds.
- Value the shares for the estate — the constitution may contain a valuation mechanism.
- Transfer or retain: under section 40(3) the representative may transfer without being registered, which is often the cleaner course.
Sources
- Companies Act 1997 — ss 32, 36, 40, 65, 66, 69–75, 79, 80, 82, 84, 85, 104, 132
- Insolvency Act (Chapter 253)
Before relying on anything here, read the current text of the Companies Act 1997 and check for later amendments. If a decision matters to you, get advice — start with the Office of the Public Solicitor, or find a firm in the law firms directory.