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Writer's pictureGrant Abbott

What happens to your Companies if you die, 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? 

  • 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.  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 accountants and lawyers to the company did not realise that the director’s will is ineffective to appoint a continuing director.  For this reason we advise all of our company clients to ensure that a Successor Director is 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

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. 


What is involved?

To put in place the Successor Director solution we need to first upgrade your company constitutions to enable the Successor Director.  Then we complete a binding resolution, signed by the current director or directors which 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.


This is important to do now

If you have a company and don’t have the Successor Director solution in place you are exposed.  You can get Abbott & Mourly lawyers to do the Successor Director solution which includes an important Deed of Indemnity for the incoming Director to protect them for $995 per company.  Protect your family’s interests and wealth now. Simply email us - nush@abbottmourly.com.au and we will work on the project immediately for you.

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