17th March 2023

Decisions by companies with a sole director – maintain a cautious approach

Piers Larbey

Partner

You may be familiar with the recent case of Hashmi v Lorimer Wing [2022] EWHC 191 in which the High Court determined that the model articles of association, which apply to a large number of private companies, would need to be amended if the company has a sole director. However, it was not entirely clear on the point of whether or not a sole director, without the company's articles of association having been amended or a second director being appointed, could properly act on behalf of the company, which caused some anxiety to most of the legal profession.

In Active Wear Ltd, Re [2022] EWHC 2340, the High Court reconsidered the interpretation of the relevant articles in the model articles of association, finding that the model articles should not be construed as imposing a requirement for a company to have a minimum of two directors so that sole directors may take decisions on their own and that no change to the model articles was necessary.

Although this decision is very much welcomed, there is still some uncertainty surrounding this area as it only related to the situation where there had never been more than one director. Also, as a decision of the High Court, there is the possibility that a future court may not follow the ruling in Active Wear.

As such, until the situation has been clarified it may still be prudent to take a cautious approach to amend the articles of association to resolve the position and to pass a resolution to ratify any earlier decisions of a sole director (we have seen some Banks request private limited companies carry out this exercise before making loans to such companies). It is hoped that the courts will be asked to ultimately determine the issue to avoid the ongoing uncertainty.