'Model' articles of association are the standard articles of association a company can use and are prescribed by the Companies Act 2006.
In recent months there has been much commentary on the tension between model article 7(2) and model article 11(2) regarding the ability of sole directors to make decisions on behalf of the company.
Model article 7(2) states that if a company only has one director, the “general rule” does not apply, and the single director may take decisions without regard to any of the provisions of the articles relating to directors’ decision-making.
Whereas model article 11(2) states:
‘‘The quorum for directors’ meetings may be fixed from time to time by a decision of the directors, but it must never be less than two, and unless otherwise fixed it is two.’’
Earlier this year the High Court passed a judgment in Hashmi v Lorimer-Wing [2022] EWHC 191 (CH) (Hashmi).
The controversial decision held that where a company with model articles has a sole director the requirement in 11(2) remains. They went further and suggested any private company with this tension should amend their model articles specifically by deleting article 11(2).
Before this case it was generally accepted that a sole director with unamended Articles had the right to make decisions on behalf of the company, but the decision in Hashmi appeared to open the door to future and retrospective challenge of decisions taken by sole directors under the Articles.
In Hashmi the articles were bespoke and had a specific provision which stipulated a quorum of two directors and so this may account for the departure from what had generally been accepted as the position prior to the decision.
In the more recent case of Re Active Wear Ltd [2022] EWHC 2340 (Ch) (Active Wear) the deputy judge found where there is a sole director, and no other provision requiring more than one director, article 11(2) is disapplied by article 7(2).
Following the decision in Active Wear it seems as though common sense may have prevailed. Both Active Wear and Hashmi were decisions made in the High Court, Active Wear therefore casts doubt on Hashmi rather than specifically overturning the case, so the tension is still potentially there.
If you are a company with a sole director, using model articles, you may want to consider amending your articles to clarify this point (particularly if you are considering updating your articles anyway, or perhaps if there are significant decisions or transactions on the horizon).
Russell-Cooke's corporate and commercial team can assist with all aspects of reviewing and amending articles of association. If you believe this may affect your company, please contact a member of the team on 020 3826 7550 or complete our online enquiry form.