When making a Will, the general rule is that you are free to leave your assets to whoever you wish. However, when it comes to assets such as shares in a company, they may be affected by pre-existing agreements which take priority. The following is a cautionary tale on what can happen when a Will is inconsistent with earlier corporate documentation.
Ernesto and Josephine Colicci got married in 1982 and started an ice-cream van business, which later grew into a successful catering company with cafes and restaurants across London, including in the Royal Parks. They had two children, Robert and Rosanna. The couple divorced in 2011 but continued to run the business together. As part of their divorce, they agreed to a clean break and signed a shareholders' agreement.
In 2014, Ernesto remarried a woman named Nora Grinberg. However, in 2016, Ernesto and Josephine signed a legal document (a "deed") agreeing that when they died, their shares in the company would go to their children, Robert and Rosanna. They promised to make Wills to reflect this agreement. Ernesto did not inform his second wife, Nora, about this deed.
In April 2017, Ernesto made a new Will leaving his shares to Nora, without telling Josephine or his children. His lawyer warned him that this could upset his adult children and lead to a legal challenge. Around the same time, a new shareholders' agreement was signed, which gave Robert and Rosanna some shares and made Robert a director. Ernesto also didn't tell Nora about this.
Court's Decision:
The High Court ruled that the 2016 deed was a binding agreement between Ernesto and Josephine. This meant they could not make any other plans for their shares after their death. The deed required them to leave their shares to their children, and the 2017 shareholders' agreement did not cancel or replace it. As a result, Robert and Rosanna inherited Ernesto's shares in the business, not Nora Grinberg.
Key takeaways from the case
The problems were in part caused by Ernesto's failure to tell the different parties involved what he was doing. This led to uncertainty about his intentions, leading each side to interpret the documentation in a different way. However, the key finding of the court was that as a matter of interpretation the 2016 agreement was not superseded by the 2017 agreement and accordingly Nora (as Executor) held the shares on bare trust for Robert and Rosanna rather than inheriting them under the Will. What this case illustrates is the need to ensure that any Will that includes business assets such as shares is drafted with an understanding of the existing status of those shares from the corporate perspective.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
