Legacies Roundup | March 2019


Charity Legacies

In our March 2019 edition of Legacies Roundup, we consider the recently reported case of Ellott v Cimarron UK Ltd, examine the possible effects of Brexit on legacy giving, and take a look at the issues surrounding post-death access to digital assets.

We take the opportunity to share some thoughts on the recent roundtable we hosted with the ILM on the proposed replacement for Smee & Ford notifications.

We are looking forward to the next Bates Wells legacies event this June which we hope to see many of you at.

A gift of shares? Rectification of the register following Ellott v Cimarron UK Ltd

Our experience is that gifts of shares to charities are becoming more common, and can represent a valuable addition to a charity’s assets. Although the transfer of shares in public listed companies are usually very straightforward, gifts of shares in private limited companies can be more problematic, particularly when the legator was also sole director of the company.

If a company has no directors, and no living shareholder able to pass resolutions to appoint new directors, little if any business can be transacted on the company’s behalf. Although under the Companies Act 2006 the court has power to intervene, typically the court would expect a grant of probate to be extracted first. However, a grant can take months, risking companies (particularly small, private limited companies) not being able to operate properly in the meantime, including paying wages and other expenses.

Ellott v Cimarron UK Ltd ([2017] EWHC 3872 (Ch)), is a case decided by the High Court in 2017, but the judgment has only recently become available. In this case, the deceased had been the sole shareholder, director and secretary of the company. Under the deceased’s Will, the executor was to inherit 40% of the shares in the company, and the company’s employees 30% each. The employees indicated that they wanted to continue working for the company and were happy to be appointed as directors. Though the executor had applied for probate, as the company had no other directors or shareholders, there was a distinct risk that the company could have its bank accounts frozen and be unable to trade or pay its employees or tax liabilities whilst the application for the grant was processed.

So, the executor made an application to the court, under section 125 of the Companies Act 2006, to have the company’s register of members rectified so as to register himself as the holder of all of the company shares, enabling him to then distribute them in accordance with the deceased’s Will and (very importantly) to enable him to pass the necessary resolutions to appoint the employees as directors.

Ordinarily the courts are extremely cautious of interfering with the due process of applying for probate, and expect an executor to be able to prove their right to deal with the company by way of a grant. However, this case confirms that where a company faces real jeopardy, and where there is no dispute over the executor’s right to obtain probate (e.g. because there is no dispute over the will’s validity) and they are willing to act, the court is willing to make the necessary orders before a grant is obtained. The court did make clear, however, that the rectification of the company’s register should include reference to the fact that the executor was to hold the shares in that capacity and not on his own behalf.

Although examples of the court exercising its powers prior to the grant of probate being obtained remain rare, this case demonstrates the court’s willingness to put pragmatism above process in certain circumstances.

Brexit and charity legacies

As we near the date on which Britain was due to leave the European Union, one question we are constantly asked is “how will Brexit affect me?” With that in mind, we wanted to take the opportunity to examine the ways Brexit could impact legacy giving going forward.

Though we do not yet know the specific terms of the UK’s withdrawal from the UK (and might not do for some time!), it seems increasingly likely that the right to free movement of capital between the UK and the EU Member States will come to an end. The withdrawal also means it is unlikely that donors within the EU will be able to benefit from the tax relief rates on charitable giving allowed for in the UK, as set out in the ruling of the European Court of Justice in the case of Hein Persche v Finanzamt Ludenscheid.

In Persche, the Court ruled that where a taxpayer, in one member state, claims tax relief on gifts given to an organisation recognised as charitable in another member state, the gift falls under the provision of free movement of capital and thus the tax relief should be granted in the member state the donor resides in. Though somewhat narrowly applied, the Persche ruling encouraged cross border donations both through lifetime donations and in legacy giving. However, following the UK’s withdrawal from the EU, and subject to the terms of the withdrawal, EU member states may not have to provide their citizens with the tax reliefs offered by the UK when they donate to UK charities. There is a risk that this may make UK registered charities less attractive to European donors.

The effect of Brexit on the housing market is also likely to prove damaging to charities and their legacy income. The uncertainty of Brexit has already taken its toll on the UK housing market, with new data from Nationwide suggesting that house prices have fallen an average of £5,000 since July 2018 alone. If this trend continues, the impact could be felt particularly by those charities that may hold large property portfolios or those who rely on residuary legacy gifts, which often include the proceeds of sale from any property owned by a legator. This is something charities will need to consider when forecasting legacy income in the coming years.

Though there is no certainty as to the effects of Brexit, we will continue to monitor the situation and will keep our readers informed of any other developments which may affect the sector.

Unlocking digital assets

Digital assets have been in the news again in the last few months, with an increasing emphasis on encouraging individuals to make preparations for how their digital estates should be dealt with on their death, including any digital assets they may hold or manage.

A particularly striking example of this in practice can be seen with the recent death of Gerald Cotton, former CEO of cryptocurrency exchange service QuadrigaCX. Mr Cotton died suddenly on 9 December 2018, at the age of 30, and QuadrigaCX now claims that he was the only individual with access to the passwords required to access the cryptocurrencies held by the company on behalf of its customers. Experts who have attempted to access Mr Cotton’s private computer and records have met with “limited success” and it is estimated over $145 million worth of digital assets may now be lost.

Though an extreme example, Mr Cotton’s story provides a cautionary tale for anyone who manages any form of digital asset, whether that be a cryptocurrency portfolio or a solely online savings account, to ensure appropriate steps are taken to grant access to these assets following their deaths.


Smee & Ford – ILM roundtable with Bates Wells

On 31 January 2019 HM Courts & Tribunals Service (HMCTS) announced that it will shortly be ending its current arrangement with Smee & Ford to provide a paid-for legacy notification service to charities, due to inconsistencies between the service and HMCTS’ “legal duties”. At this stage it is not clear what particular issues are troubling HMCTS. It may in part be due to the introduction of GDPR, bearing in mind that Smee & Ford notifications include information about living people (i.e. the executors named in the will). Or it might be concerned with issues around competition law, noting that under the current arrangement HMCTS sells information to one private company.

Whatever HMCTS’ reason for wishing to implement change, it has stated that it intends to work collaboratively with the charity sector and others to create a new and sustainable notification arrangement “that works for charities”. To that end it has invited key sector representatives, including the Institute of Legacy Management (ILM), to join a working group to canvass and collate the views of the sector.

As a contribution to this important issue for the sector, last month Bates Wells hosted a roundtable convened by the ILM and involving legacy professionals from some of the country’s leading charities. The group had a really engaging discussion.

One key problem identified during the discussion is the risk that removing the notification service could lead to an increase in legacy fraud, as charities would no longer receive key information enabling them to make enquiries of executors and ensure that legacies are collected in.

The discussion fed into the ILM’s paper in response to the consultation, and we will keep our readers informed as matters progress.

Save the date

News of The Sackler Trust’s decisions first to withdraw a £1M donation to The National Portrait Gallery, and then to suspend all new UK donations, highlights a particularly difficult issue for charities which hit the mainstream news in January 2018 as part of the Presidents Club scandal – what to do with donations that come with ethical question marks and potentially negative PR repercussions.

With this in mind, on Thursday 13 June 2019 we will be hosting our next training session for charities on charity legacies, this time with a focus on how to how to handle legacies which may raise reputational issues, including renouncing and returning legacies, ex gratia payments and s.105 orders.

Further details will follow, but if you would like more information in the meantime please contact Laura or Leticia

This information is necessarily of a general nature and doesn’t constitute legal advice. This is not a substitute for formal legal advice, given in the context of full information under an engagement with Bates Wells.

All content on this page is correct as of March 28, 2019.