High Court ruling on private companies with a sole director

2 September 2022

In the case of Hashmi V Lorimer-Wing (2022), inconsistencies have been highlighted for private companies who operate under the Model Articles with a sole director, and it has been questioned if the Model Articles are adequate to allow directors to make decisions solely. The High Court determined that private limited companies who operate under the Model Articles must have a minimum of two directors, and therefore the Model Articles are required to be amended in permitting a single director to make decisions on behalf of the company.

Prior to the ruling, the Model Articles (Article 7(2)) interprets that if a company has a sole director and the articles do not require them to have more than one director and the general rules do not apply, then the director may make decisions without regard to any of the provisions of the articles relating to directors’ decision making. Article 11(2) states that the quorum for directors’ meetings must never be less than two and unless otherwise fixed, it is two.. It therefore appears that there is a conflict between Article 7(2) and Article 11(2).

As a result of the ruling in this case, decisions previously made by a sole director may be called into question. This will apply to companies who are operating under Model Articles or articles that also include equivalent articles to the Model Articles in relation to directors’ decision making.

Following the High Court’s decision, it is anticipated that the Government will review and amend Articles 7 and 11 of the Model Articles to be less conflicting.

Consideration for companies with a sole director

Given that Model Articles were viewed as being sufficient enough in permitting a sole director to act on behalf of the company, the High Court’s decision will most likely have implications with the potential of affecting a large number of companies.

Therefore, sole director companies who are operating under Model Articles or similar should expedite the required amendments to specifically permit a sole director to carry out the company’s day to day business decisions. Additionally, they should confirm that if a company only has one director then the quorum for such decisions shall be one. Alternatively, the company can appoint at least one additional director to ensure that the minimum requirement for quorum will be met.  You should also consider the company passing a resolution to ratify past decisions of the sole director.

 

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