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COMPANY LAW AND DECEASED ESTATES

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Article by listed attorney: Fawzia Khan

One of the anomalies in law is the concept of a ‘person’. All human beings are regarded as natural persons. Entities such as a company, trust or close corporation are also considered to be  ‘persons’, albeit “juristic or legal persons”. A legal person can sue or be sued in its own name. Even if there is only one shareholder or director in the company, a company is seen to being distinct from its shareholder/s.

The Companies Act 2008 governs all matters pertaining to companies. What happens if a person dies without a will and the person (deceased) was the sole shareholder and director of the company? Who would be considered to be temporarily in charge of the running the affairs of such a company and make decisions around the operation of the business?  This was question the Western Cape High Court had to answer when it delivered its judgment in April 2014.

A Russian businesswoman, ‘Roza’, who lived in Moscow, was the sole shareholder and director of a company in South Africa. Roza died in Russia in August 2013 and left no will, nor did she leave any documentation to say how her estate in South Africa was to be dealt with. She had two daughters whose relationship with each other was acrimonious at best. The financial manager of Roza’s South African company, who was neither a shareholder nor a director of the company, brought an urgent application in the High Court, asking the court to grant him rights of an “interim receiver”.

In South Africa when a person dies, his or her estate has to be wound up by an executor. This appointment is made either by the deceased in terms of a will, or by the Master of the High Court, if there is no will. All property in the deceased’s name including any ‘right, title or interest’ to property, which the deceased would be entitled to, would be deemed to be part of the deceased’s estate. This includes both immovable and movable or ‘incorporeal’ property, (such as shares in a company). The executor is expected to administer the deceased’s estate, either according to the wishes of the deceased in terms of a will, or in terms of intestate laws, if there was no will.

The function of the executor is to take control of all the deceased’s assets and liabilities and be accountable to the Master. Unless a will exempts the executor from doing so, all executors have to file security, to the satisfaction of the Master, for the due and proper fulfillment of their duties.

In the matter before the court, there was no appointment of an executor to deal with Roza’s affairs and those of her company. The attorney acting for one of Roza’s daughters applied to be appointed as executor, but failed to file security to the Master. There was also an objection to his appointment by the other daughter on the basis of conflict of interest, and he was not appointed.

He argued that the Administration of Estates Act would not apply and tried to use the Companies Act 2008 to support his argument. These rights would have enabled him to continue to operate the company and take control of the business of the company, including all assets, sales and finance of the company.

The Court said that a deceased estate cannot be liquidated unless there were letters of Executorship issued by the Master of the High Court or as he may otherwise direct and an executor is appointed and proper security is filed for the performance of his functions. The Court said that until such time as Letters of Executorship have been granted, an interim curator must be appointed. This interim curator must also provide security to the satisfaction of the Master of the High Court and must account for the property of the deceased in such a manner as the Master may direct.

The Court rejected his arguments and held that neither Administration of Estates Act 66 of 1965, nor the Articles of Association of the company allowed for the manager to have such powers and said that in doing so the manager would be usurping the functions of an executor. It also found no basis for urgency of the application, refused him the order and made him pay the costs of the application. If you run a business in the name of a company in which you own 100% shares and you are the sole director, I would recommend that you include a provision in your Memorandum of Incorporation [MOI] setting out who, upon your demise, would be responsible for the running of the business and ensure that you have a valid will drawn up. Talk to us about amending your MOI and/or drafting or updating your will.

 

Know your rights!

The Law Desk of Fawzia Khan & Associates. We know! We Care! We Deliver! Email fawzia@thelawdesk.co.za or call 031-5025670 for any legal assistance.