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24 Oct 2022 Industry News

What is the position now for sole directors & the model articles?

In the recent case Re Active Wear Limited (in administration) [2022] EWHC 2340 (Ch), the High Court was again faced with a company led by a sole director which had adopted the model articles. The issue in question was whether the sole director had validly appointed an administrator.

Earlier this year, in Re Fore Fitness Investments Holdings Ltd [2022] EWHC 191 (Ch), it was held that despite the inclusion of model article 7(2) at least two directors of the company were required in order to make a valid decision. This was at odds with the way in which many companies (and their solicitors) had previously interpreted the model articles.

Model article 7(2) states that where a company only has one director, and its articles do not require it to have more than one director, that director may take decisions “without regard to any of the provisions of the articles relating to directors’ decision-making”. This was generally seen (until Re Fore Fitness) to disapply model article 11(2) which states that the quorum for a director’s meeting must never be less than two.

Thankfully, Re Active Wear has now provided some reassurance, as it was decided in this case that the sole director of the company could validly make decisions.

The important difference between the two cases is that in Re Active Wear, the company had adopted unamended model articles. In Re Fore Fitness, the model articles were used, but there was also a bespoke article 16 which said that the quorum for board meetings was at least two. This meant that the company could not rely on the wording in 7(2), as the specific inclusion of bespoke article 16 (in addition to the model articles) was interpreted as requiring it to have more than one director. As such, decisions made by a sole director were invalid.

The Re Active Wear case provides comfort to sole directors of companies which use the model articles that their decisions will be valid. The two cases together also serve as an important reminder to ensure that your company’s articles of association are fit for purpose.

Hilary Wilkinson is an Associate in the Corporate team at Boodle Hatfield and a member of the firm’s specialist Entrepreneurs Group.