When a shareholder is made bankrupt, their shares become part of the bankruptcy estate and vest in the trustee in bankruptcy automatically, without any transfer form. The trustee does not become a member until registered, and any compulsory transfer provisions in the articles usually mean the shares must be offered to the other shareholders rather than sold freely.

This page explains the process in England and Wales from the company’s side: who controls the shares, how the transmission rules in the articles work, and how a deemed transfer clause interacts with the trustee’s duty to realise value. For the personal consequences of bankruptcy, see personal bankruptcy basics.

What happens to the shares when the bankruptcy order is made?

Section 283 of the Insolvency Act 1986 defines the bankrupt’s estate as all property belonging to or vested in the bankrupt at the commencement of the bankruptcy. Shares in a private company are included. Property the bankrupt holds on trust for someone else is excluded, so shares held purely as a nominee for another person do not fall into the estate.

Section 306 then vests the estate in the trustee immediately the trustee’s appointment takes effect, or when the official receiver becomes trustee, and it does so without any conveyance, assignment or transfer. Ownership in law passes to the trustee even though the company’s register still shows the bankrupt’s name.

Can the shareholder move the shares out of reach first?

Generally not. Under section 284, a disposition of property made between the bankruptcy application or petition and the vesting of the estate in the trustee is void unless the court consents to it or later ratifies it. A company that registers a stock transfer form signed in that period is registering a void transfer.

Earlier gifts are also exposed. Section 339 allows the trustee to apply to court to reverse a transaction at an undervalue, which includes a gift, and section 341 sets the look back period at five years before the application or petition. For transactions more than two years before, the individual must have been insolvent at the time or become insolvent because of the transaction, but that is presumed where the recipient is an associate such as a spouse or relative.

Does the trustee become a shareholder?

Only once registered. Section 770(2) of the Companies Act 2006 preserves the company’s power to register a person to whom shares have been transmitted by operation of law, and section 771, which sets the two month deadline for dealing with transfers, does not apply to transmission. The detail comes from the articles. Under the model articles for private companies:

  • A transmittee is defined as a person entitled to a share by reason of the death or bankruptcy of a shareholder or otherwise by operation of law, so a trustee in bankruptcy is a transmittee.
  • Article 27 says the company may only recognise the transmittee as having title. A transmittee who produces the evidence the directors properly require may, subject to the articles, choose to become the holder or to have the shares transferred to someone else.
  • Pending that, the transmittee has the same rights as the holder, but article 27(3) says a transmittee cannot attend or vote at a general meeting, or agree to a written resolution, unless they become the holder.
  • Article 28 requires written notice to become the holder, or an instrument of transfer to pass the shares on. A transfer by a transmittee is treated as made by the original shareholder and as if the bankruptcy had not occurred, so any restrictions that would have bound the shareholder also bind the trustee’s sale.
  • Article 29 binds the transmittee by notices given to the shareholder before the transmittee is registered, and article 31 makes the transmittee the person to whom dividends are paid once the holder is no longer entitled because of bankruptcy.

The same transmission rules apply on death; compare what happens to shares when a shareholder dies.

How do compulsory transfer provisions apply on bankruptcy?

The model articles contain no compulsory transfer clause. Many bespoke articles of association and shareholders’ agreements add one, listing bankruptcy as a transfer event. A typical clause works like this:

  1. The bankruptcy order triggers a deemed transfer notice for all the shareholder’s shares.
  2. The shares are offered to the other shareholders, sometimes to the company, in proportion to existing holdings.
  3. The price is fixed by agreement or, failing that, by an independent valuer applying a definition such as fair value or market value, with or without a minority discount.
  4. If the offer is not taken up within the stated period, the trustee may sell to a third party, often only with board approval.

Two points need checking. First, where the provision sits. Under section 33 of the Companies Act 2006 the articles bind the company and every member, whereas a shareholders’ agreement is a contract between the people who signed it, so a provision appearing only in the agreement may be harder to apply to a trustee. Second, the price. A trustee’s job is to realise value for creditors, so expect close scrutiny and legal advice on any clause that fixes a price below fair value on bankruptcy. The valuation wording is covered in fair value clauses.

What can the trustee do with the shares?

Section 314 gives the trustee the powers in Schedule 5, which include selling property in the estate. In practice the realistic buyers of a minority stake in a private company are the other shareholders or the company itself through a buyback, both subject to the articles.

If the shares cannot realistically be sold, section 315 allows the trustee to disclaim onerous property, which includes property that is unsaleable or not readily saleable. Disclaimer ends the rights and liabilities of the bankrupt and the estate in that property from the date of disclaimer. Partly paid shares carrying a liability for unpaid capital are an obvious candidate.

What if the bankrupt shareholder is also a director?

Article 18 of the model articles provides that a person ceases to be a director as soon as a bankruptcy order is made against them. Separately, section 11 of the Company Directors Disqualification Act 1986 makes it an offence for an undischarged bankrupt to act as a director, or take part in the management of a company, without the court’s permission. Where the bankrupt was the only director and the majority shareholder, the company can be left without anyone able to act until the trustee is registered or the remaining members appoint a new director. See being bankrupt as a company director.

Discharge normally happens automatically one year after the bankruptcy commences under section 279, unless the court suspends it. Discharge does not reverse anything already done with the shares.

What should the company and the other shareholders do?

  • Ask for evidence of the bankruptcy order and of the trustee’s appointment before dealing with the trustee.
  • Stop registering transfers signed by the bankrupt shareholder.
  • Pay dividends declared after the bankruptcy to the trustee, not the bankrupt.
  • Serve or record the deemed transfer notice if the articles provide for one, and follow the offer and valuation timetable exactly.
  • When the shares are sold, register the buyers and update the register of members. If anyone crosses the more than 25% threshold for shares or votes, or moves between the 25%, 50% and 75% bands, notify Companies House of the PSC change within 14 days.

How might this work in practice?

Illustration only. A company has three shareholders with 100 shares each. One of them, Dev, is made bankrupt. The articles treat bankruptcy as a transfer event, require Dev’s shares to be offered to the other two at fair value set by an independent accountant, and allow a sale to outsiders only if they decline.

Dev’s shares vest in the trustee on appointment. The trustee writes to the company with evidence of appointment, and the board records that a deemed transfer notice has arisen. The valuer sets a price of £90,000 for Dev’s 100 shares. The other two shareholders each buy 50. The trustee signs the stock transfer forms, which take effect as if Dev had signed them before the bankruptcy. As the price exceeds £1,000, the buyers pay stamp duty at 0.5% before the transfers are registered. Dev never votes on any of this, and the dividend declared while the offer was running goes to the trustee.

What mistakes come up most often?

  • A shareholder gifting shares to a spouse or child shortly before bankruptcy, assuming the trustee cannot reach them.
  • The company registering a transfer signed after the petition or application, which is void without the court’s consent.
  • Letting the trustee vote before being registered, contrary to model article 27(3).
  • Relying on a compulsory transfer clause that exists only in a shareholders’ agreement the trustee never signed.
  • Paying dividends to the bankrupt instead of the trustee.

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Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 19 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.