Succession in your company

Consider the following scenario: you are sole director of your Ltd or public limited company and you exercise the membership rights (“titre”) of more than half of the shares.

In the case you become incapable, your company is directionless. After all, there are no other directors to take the helm and the general meeting cannot quickly appoint a new director either, given your majority shareholder position. As a result, contracts cannot be validly concluded from then on, payments cannot be (validly) made and certain decisions cannot be validly taken and executed.

If you have not taken any prior measures, your family will be able to unblock the company through a legal procedure before the justice of the peace by appointing an administrator who will then temporarily do the honours as helmsman and take charge of the company. However, as long as the administrator is not on board, the company will remain rudderless.

In this hypothesis, a healthcare proxy seems a sensible preventive measure to cope with the possible (steering) failure in your company. But a healthcare proxy also has its limitations.

• First, a healthcare power of attorney does not extend to directorships, so the trustee (often your partner, trustee and/or your children in subsidiary order) does not automatically take over your role as director.
  In the case of a limited company, this obstacle can be circumvented by explicitly including in the healthcare proxy that the trustee, as the majority shareholder, has the power to appoint a new director. In addition, you should allow in the BV’s articles of association that shareholders can be represented for the exercise of their voting rights by a trustee who is not a shareholder. This rule is an additional provision in the Companies and Associations Code  and will therefore be applied automatically, unless it is deviated from in the articles of association.Unfortunately, this solution will not provide relief in a public limited company. While shareholder voting rights in a public limited company can be delegated to non-shareholders, this is only possible for specific meetings or for a limited period of time. This is contrary to nature of a healthcare proxy, in which the delegation is fundamentally for an indefinite period of time, which is therefore contrary to the legal requirements for the delegation of voting rights in the public limited company.

• Secondly, a healthcare proxy is only effective in the event of incapacity and not in other situations where you cannot continue to manage the company, such as if you go missing or are absent for more than 3 months.

For entrepreneurs who are sole directors and majority shareholders in a family-owned company, and certainly for those operating under the form of a public limited company, it is therefore advisable to provide for a well-considered succession scenario in the articles of association, in addition to drafting a care proxy.

A common approach is to provide your partner or trustee (for a limited period or not) as the next director in the event of your ‘stepping down’, followed by (one of) your children, and so on.

Clearly defining and enshrining in the articles of association the term ‘step down’ or ‘defunct’ is crucial in this regard. This term, often used in the context of a foundation, can be interpreted more broadly than just ‘becoming incapacitated’, as in the case of a healthcare proxy. Stepping down can also refer to situations where you are temporarily out of contention, missing, absent for more than 3 months, dying, and so on.

By proactively incorporating a succession scenario in your company’s articles of association, you prevent your company from becoming (dis)controlled during your (temporary) absence. Especially in family-owned companies with a parent as sole director, this can make sense.

Compare it to a captain handing over the helm of the ship to an able helmsman during his absence.