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Clarke & Son Blog​

Model Articles and Sole Directors

corporate

In recent months, as a result of two decisions handed down in the High Court, uncertainty has arisen as to whether a private company can operate with a sole director, where that Company makes use of the Model Articles of Association. A company’s Articles of Association are “a set of rules all company officers must follow when running their companies”. The Model Articles of private companies limited by shares are Articles that are set by the Secretary of State under the Companies Act 2006. Articles of Association are adopted on incorporation and many companies choose not to amend these Model Articles.

 

In the recent case of Hashmi v Lorimer-Wing [2022], the judge held that Model Article 11(2) created a requirement for a Company to have more than one director to make lawful decisions. As a result, sole directors could not lawfully make decisions for a company when operating under the Model Articles. To enable the Company to be able to operate, a sole director had to either appoint a new director, disapply Model Article 11(2) or amend the Model Articles. Since this judgment, Clarke & Son have worked with Companies to amend their Model Articles to ensure sole directors are not acting beyond the scope of their powers provided to them by their Articles of Association. In this case, although Model Articles the judge made it clear that the Model Articles used had a bespoke Article.

 

In the more recent High Court case, Re Active Wear Limited [2022], the ruling contrasts with that handed down in the Hashmi case. In the judgment, the Deputy Judge distinguished between the facts of both cases, stating that the factor influencing the judgment in the Hashmi case was the existence of that bespoke article, whilst also noting there was no apparent equivalent in the Model Articles. The Articles in question in Active Wear were Model Articles, which had been adopted without any amendments. Accordingly, the Deputy Judge determined that where Model Articles have been adopted without alteration or amendment, Model Article 7(2) disapplies Model Article 11(2) when a company had a single director and the Company were therefore able to operate with a sole director. The Deputy Judge stated that Article 11(2) was disapplied because both Articles 7 and 11 were contained in the same section of the Model Articles; directors’ decision-making.

 

As both Hashmi v Lorimer-Wing and Re Active Wear Limited were heard in the High Court, each judgment has the same authority and is binding. What is clear from the judge’s decision in Active Wear, is that an amendment to the Model Articles to include bespoke provisions, relating to directors’ decision-making, is key to determining whether sole directors are acting beyond the scope of their Articles of Association.

 

Please contact our Corporate Commercial team via email: mail@clarkeandson.co.uk or call us at 01256 320555 if you would like to discuss your Company’s articles of association.

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