Model Articles Work for Sole Directors
Since the 2022 case of Hashmi v Lorimer-Wing (also known as Fore Fitness Ltd), there has been understandable nervousness regarding sole director companies using the Model Articles for private limited companies.
This case questioned whether under the Model Articles for private limited companies, the minimum number of directors required for a company to function was in fact two. Whilst this was contrary to what was previously accepted legal wisdom, the general legal consensus was that for sole director companies that used standard, unamended Model Articles, there was a risk that their boardroom decisions could, following this case, be challenged and declared invalid.
The recent High Court decision in KRF Services (UK) Ltd [2024] EWHC 2978 (Ch) has, however, held that a company which had adopted the Model Articles without modification was able to operate and take decisions while it had only one director. This has created some much-needed clarification and creates a straightforward position that should be easy to understand.
Considering this, we have updated our Guidance Notes and Information Pages as they relate to sole directors explaining this recent case and how the contradictory case law on the subject has now seemingly been resolved in KRF Services Ltd. We have also updated the Explanatory Note to Auditors regarding changes to Articles (Sole Director Companies).
The key takeaways following this case for sole director companies are:
- If a company’s articles include a requirement for a minimum number of directors, the only thing a sole director can do is to appoint further directors.
- The Model Articles do not themselves contain a requirement for a minimum number of directors.
- Where a company has adopted the Model Articles without amendment, (or with amendments that do not introduce a minimum director requirement), a sole director can take decisions on behalf of the company.
Our view remains that notwithstanding this welcome legal clarification, sole director companies should always ensure that if the intention is that the company should be able to operate with only one director, the articles should make this crystal clear and should not contain any provision that could potentially be seen as setting a minimum number of directors. In the meantime, we wait to see if and when the Court of Appeal confirms the interpretation in KRF Services Ltd.
KRF Services (UK) Ltd [2024] EWHC 2978 (Ch) can be accessed here.
The contents of this Newsletter are for reference purposes only and do not constitute legal advice. Independent legal advice should be sought in relation to any specific legal matter.