Successor Director Solution: Business as Usual

Successor Director Solution: Business as Usual

Caution: Having a Sole Director in a company without a backup plan is just not prudent. It leaves the company vulnerable to numerous threats.
In Australia, there are approximately to 3 million corporations, many of which are used by small businesses for trading, and others which serve as trustees for discretionary family trusts or self-managed super funds.
Have you ever worried about what comes next, if the trustee or director of the trading firm passes away or becomes incapable?

• Will the company falter?
• Will it enter a protracted legal coma until a Supreme Court lawsuit is filed to appoint a new director or trustee?
• Are indeed the current directors going to exploit the company?
• Will attorneys trying to assert claims against the estate lock up the business or appoint their preferred director?
• Will the ATO appoint directors for SMSFs?

The truth is, a company, trust, or SMSF might find itself in trouble for any of the reasons stated. We have witnessed instances where a firm was quickly pushed out of business because there was no director and the company’s accountants, attorneys were unaware that the director’s will is ineffectual to designate a continuing director. But we got you covered with, “the Successor Director Solution”.

What exactly is a Successor Director?

Subject to the company’s constitution and rules (not the Will or any enduring power of attorney) a person known as the Successor Director may replace a sole director or a director on a board when the current director becomes ill, passes away, is involved in litigation, including divorce or bankruptcy. The next director is appointed automatically, and the present director is dismissed.

Case study

John Smith is the sole director of his trading business. He employs 10 people and is extremely hands-on, yet his team is aware of what must be done to keep the company afloat. The trustee firm for his family trust and self-managed super fund is run by him as well. John passes away in an accident, leaving behind a wife, two small children, and company.
All of John’s constructions are revealed, as well as the riches of his family. Who will cover the expenses? Can his family find any funding, even for the funeral? And this is just the beginning; just wait till the bank threatens to foreclose on the family home due to a lack of finances.

But 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 business, the family trust and the SMSF. The funeral is paid for, and ongoing income is paid to the family.

What is involved?

We must first update your company constitutions to enable the Successor Director before we can implement the Successor Director solution.

Note: Successor Director Solution can be implemented only through company constitution. It cannot be done through the Will or through an EPOA (Enduring Power of Attorney).

Then we create a legally binding resolution that must be signed by the existing director or directors and that, in the event of a director’s demise, disability, insolvency, legal action, or for any other reason, automatically installs the successor director. ASIC (Australian Securities and Investments Commission) does not yet require notification, but if it is used, it will play a crucial role in the process.
Let us keep your company invincible even in the face of your demise, sickness, or legal plight through the Successor Director Solution.