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The case of Hashmi v Lorimer-Wing [2022] EWHC 191 (Ch) has questioned the suitability of the Model Articles for private companies that have a sole director appointed.
Therefore if you are a sole director of a private company limited by shares or by guarantee, and the company adopts the Model Articles, you may need to take action in order to avoid potential disputes in the future arising as to whether decisions taken by you at Board level were permitted under the company’s articles of association and/or the Companies Act 2006 (CA 2006).
The articles of association of a company is the document setting out the company’s rules which determine how a company is run and operated. For example, they regulate the powers and relationships of the directors, members and the company itself.
The Model Articles are a standard set of articles of association which are included in Schedule 1 of the CA 2006. Some private companies adopt the Model Articles on incorporation while other companies adopt them subject to various amendments.
The case of Hashmi v Lorimer-Wing looked at the interpretation of Model Articles 7 and 11, and in particular, whether a sole director could take decisions on their own without regard to any other provisions of the Model Articles (Model Article 7(2)), even though the Model Articles require a minimum quorum of two directors present at a Board meeting for a proposal to be voted on, except a proposal to call another Board meeting (Model Article 11).
The common understanding and interpretation of these provisions had been that Model Article 7 overruled Model Article 11 in the circumstances where a company only had one director, and as such, a Board meeting would be quorate if only a sole director was present.
Although the case of Hashmi v Lorimer-Wing included an additional bespoke article dealing with the quorum for Board meetings in the company’s articles of association, it was held that even if this bespoke article was not included in the articles, Model Article 11 was a clear caveat to the provisions of Model Article 7(2), and that in such circumstances where a sole director company adopts the Model Articles, any decision made by the sole director may be outside of their authority due to the provisions of Model Article 11.
The decision creates uncertainty for companies that have a sole director appointed and which adopt the Model Articles.
The decision is of particular importance if a decision of a sole director becomes a matter of contention in a dispute, as it is possible the validity of such a decision will be questioned and deemed to be an act beyond the sole director’s powers if ever challenged.
Therefore if you are a sole director of a company, or have recently become a sole director due to the termination of appointment of another director (or directors), then particular care and attention is required.
Any sole director of a company adopting the Model Articles should obtain legal advice and carefully consider the following options:
If amending the Model Articles, once such amendments have been made it is important that the company ratifies any previous decisions of the sole director. This can be done by the passing of new Board resolutions and member resolutions to ensure that the previous decisions are not invalid if circumstances arise in the future where they are challenged.
If you require advice on the above please do not hesitate to contact Scott Richardson by phone on 01329 227907 or by email on scott.richardson@glanvilles.co.uk.
The contents of this article are intended for general information purposes only and shall not be deemed to be, or constitute, legal advice, and should not be relied upon as advice. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of this article. All content was correct at the time of publishing. Legal advice should always be sought in relation to specific circumstances.