If your company has a sole director and has adopted an unmodified version of the Model Articles of Association for private companies limited by shares, you may want to consider changing your articles of association or appoint another director as soon as possible.

The recent High Court decision in the case of Hashmi v Lorimer-Wing (also known as Re Fore Fitness Investments Holdings Ltd) [2022] EWHC 191 (Ch) (02 February 2022), found that where a company has (a) a sole director, and (b) has adopted the Model Articles of Association for private companies limited by shares, Model Article 11(2) and 11(3) apply requiring that a quorum for board meetings must, at the least, be two and, accordingly, a sole director only has the power to restore the number of directors to such amount as is required to meet the minimum quorum requirements for board meetings.

The court considered the following key provisions of the Model Articles of Association for private companies limited by shares, which, historically, had generally been regarded as allowing a sole director to make any decision that a quorate board of directors would have been allowed to make:

  • Model Article 7(1), which notes that any decision of the directors must be taken either at a board meeting or by unanimous decision. This is known as the general rule;
  • Model Article 7(2), which caveats Model Article 7(1) and notes that if the company has only one director and there is no requirement within the articles of association of the company to have more than one, the general rule mentioned above does not apply. This has, historically, been considered to mean that sole directors can take decisions on their own and can disregard the “provisions of the articles relating to directors’ decision-making”;
  • Model Article 11(2), which covers the required quorum for directors’ meetings for decisions taken to be valid. It notes that the quorum “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“; and
  • Model Article 11(3), which requires the directors to either appoint further directors, or call a general meeting for the shareholders to appoint further directors in case the total number of directors is less than the quorum required.

Until Re Fore Fitness investment Holdings Ltd, the general approach has been to consider Model Articles 11(2) and 11(3) as part of the general rule, which meant that if Model Article 7(2) applied, they could be disregarded.

The court noted that “a provision in the articles requiring there to be at least two directors to constitute a quorum logically is a requirement that the company in question has two directors in order to manage its affairs”.

More importantly, the judge also stated “amendment is required for the Model Articles to permit for a single director to run a company”.

Important takeaways:

  • If you are looking to set up a new company, ensure that your company’s articles of association are properly drafted. Specifically, ensure that if the intention is to operate the company with a sole director, the articles make that clear, for example, by amending Model Article 11(2).
  • If you already have a company with a sole director, you should:
    • review your company’s articles of association to check whether they are bespoke articles of association or include Model Articles 7 and 11 in an unmodified form; and
    • if you have adopted the unmodified Model Articles of Association, consider whether it is necessary for the company to operate with a sole director. If so, ensure that you amend your company’s articles of association to make this clear.