Sole Directors and Legal Uncertainty Around the Model Articles

Whilst the option for a sole director of a private company limited by shares to adopt Model Articles has long been used by companies looking for a simple method of adopting Articles of Association when forming a company, comments made in the recent High Court case Hashmi v Lorimer-Wing [2022] EWHC 191 (Ch) raised questions on the ability of a sole director to act for this type of company where it has adopted, or partially adopted, the Model Articles.

In this particular case, the company involved had adopted the Model Articles, as modified or excluded by their own bespoke Articles of Association filed at Companies House. The company had at times had one director and an argument was made and accepted by the judge that because their bespoke Article 16 specified that the quorum for meetings of the Board of Directors had to be two (modifying Model Article 11.2 accordingly), this conflicted with the provision in Model Article 7 which allows sole directors to “take decisions without regard to any of the provisions of the articles relating to directors’ decision-making” if “no provision of the articles requires it to have more than one director”. It was decided that this provision requiring two directors to a make a quorum required the company to have two (or more) directors. As there was no quorum of two whilst the company had a sole director, his actions at this time were viewed as ultra vires.

The decision in Hashmi v Lorimer-Wing [2022] EWHC 191 (Ch) appears to have turned on the facts of the case, however has created some legal uncertainty through additional (obiter dicta) comments made, which suggested that a similar approach should be taken where the Model Articles are directly adopted without modifications by this type of company, and that a similar conflict may arise between Model Articles 7 and 11 (which also relates to quorums) where there is a sole director. If this interpretation of the Model Articles were to form the essential part of a legal decision in the future, this may restrict the ability of a sole director of a company which has adopted these to act, eventually requiring either modifications to their Articles or the appointment of a further director to resolve the potential issue. For now, as the High Court’s comments on this point were obiter, this does not appear to be a definitive judgment that private companies limited by shares are required to adapt the Model Articles where they have only one director.

We at Cheeswrights LLP are pleased to continue to assist our clients in respect of notarial instructions and queries relating to private limited companies with sole directors, as well as a wide range of other matters. Please do get in touch should you require notarisation of your company documents.

Philippa Slaney – July 2022

The article above should not be relied upon as an exhaustive explanation of the law or issues involved without seeking legal advice.