Executors of company director successfully petition nobile officium of Court of Session to be added as company members

About this case:

• Citation:
  [2024] CSIH 19
• Judgment:
  External link
• Court:
  Court of Session Inner House
• Judge:
  Lord Malcolm

It was stipulated in the will of the late director, B, that the petitioners were appointed as his executors. However, at the time of the petition they had yet to apply for confirmation and thus had no title to the deceased’s shares in the company, anonymised to protect commercially sensitive information, preventing the approval of measures to secure additional financing.

The petition was considered in the Inner House by Lord Malcolm, Lady Wise, and Lord Armstrong. Moynihan KC appeared for the petitioners, with no opposition.

Gap in the law

B, the deceased, was one of two directors of C Ltd along with another deceased, the late D. Both held 450 ordinary shares of 100p each in the company. D’s shares were vested in his executors, and his son was appointed a director in his place. Due to the complexity of B’s estate, it was estimated that the confirmation process would take three to four additional months past the raising of the petition.

It was submitted that the company was suffering from financial distress and urgently required additional finance. However, the company’s articles of association provided for “consent matters”, including the approval of additional finance, to be approved by a meeting including both B and D or their respective successors. Without confirmation, such a meeting could not take place because the petitioners would have no entitlement to give such consent or appoint a replacement director.

The petitioners recognised that there was authority in Scotland for executors to do certain things in advance of confirmation, such as vote in a sequestration. However, there were limitations in the absence of an active title. Any lender willing to offer finance to the company would wish for assurance that matters were authorised and in order before advancing funds.

In support of their petition, the petitioners drew attention to decisions of the English courts where the court was prepared to order rectification under the terms of section 125 of the Companies Act 2006. If the court was satisfied that this route was available in Scotland, there would be no need to invoke the nobile officium. However, if it could not be used, the court was asked to fill what was described as a gap in Scots law.

Urgency of the situation

Lord Malcolm, delivering the opinion of the court, said of the English decisions cited: “Section 125 has been amended since the English decisions, but not in a manner which renders consideration of them redundant. It is apparent that the judges were not convinced that section 125 was designed for what were described in re Lancashire Cleaning Services Ltd (2017) as “quite exceptional” circumstances. However it might well have been too late for that company if nothing was done prior to the grant of probate.”

He continued: “The judge stressed that the decision was not a precedent to be used for ‘the ordinary run of the mill type of case where the company still has shareholders and directors able to act and where, in normal course, they would be fully entitled to await the grant of probate as constituting sufficient title to executors named in a will’.”

On the applicability of section 125 in the present circumstances, Lord Malcolm said: “The immediate issue with applying this provision is that it is difficult to say that the petitioners’ names require to be on the register. It must include the members’ names and addresses. However, the petitioners do not have title to the deceased’s shares till confirmation is granted. And in these circumstances the subsection (3) power to decide any question as to title does not arise; or if it does, the answer would be in the negative. The reference to necessary or expedient decisions can hardly be used to create a title to shares which does not exist.”

However, in respect of the nobile officium he concluded: “The court has no difficulty in concluding that the urgency of the situation demands that in the absence of a good reason to the contrary, if practicable the court should assist with a solution. The possibility of appointing a judicial factor might suggest that there is no gap in the law requiring to be filled, but that would do less than justice to the scope of the court’s inherent equitable jurisdiction.”

The court therefore granted the prayer of the petition and ordained the rectification of the register to substitute the petitioners as members of the company.