Model Articles of Association – suitable for sole directors?

Liam Arrowsmith, Commercial Solicitor | 22nd August 2022

The recent case of Hashmi v Lorimer-Wing [2022] EWHC 191 has cast doubt over a widely accepted interpretation of the Model Articles and decisions taken by sole directors.

Director decision-making and quorum

Model Article 7 deals with decision-making by directors and requires directors to take decisions collectively unless ‘(a) the company only has one director, and (b) no provision of the articles requires it to have more than one director…the director may make decisions without regard to any of the provisions of the articles relating to directors’ decision-making.’

Model Article 11 sets out the requirement for a quorum at directors’ meetings which ‘may be fixed from time to time…but it must never be less than two, and unless otherwise fixed it is two.’ If a quorum is not achieved then the only decision a sole director can make is to appoint further directors or call a general meeting to enable the shareholders to appoint further directors.

Since the inception of the Model Articles in 2008, there had been much debate on the relationship between Articles 7 and 11 and how, in practice, each could apply concurrently.  Guidance issued by the Department of Business, Industry and Skills and the generally accepted position was that for private companies with one director that had adopted the Model Articles, Article 7 allowed for the sole director to take decisions without regard to Article 11 which imposed a requirement for a quorum of two directors at directors’ meetings. Article 11 did not impose a requirement for a minimum number of directors.

Outcome of Hashmi v Lorimer-Wing

However, in its decision in Hashmi v Lorimer-Wing, the High Court has determined that the requirement for a quorum of two directors as set out in Article 11 does impose an obligation on the company to have more than one director. This means that sole directors cannot rely on Article 7 to overcome quorum requirements set out in Article 11. This interpretation of the interplay between the Articles poses issues for sole-director companies that have, or intend to, adopt unrevised Model Articles.

In Practice

Following the High Court’s decision, sole directors of private companies that have adopted Model Articles should consider the following:

• Firstly, the shareholder(s) of the company may, by passing an ordinary resolution, appoint a second director to ensure that any meetings of the company meet the current quorum requirements of Model Article 11, or
• the Model Articles may be amended in circumstances where there is a sole director to allow for a quorum of a meeting to be one. Articles can be amended by the shareholder(s) passing a special resolution.

Once the Company is compliant with its articles by undertaking one of the above options it should also ratify any previous decisions made by the sole director via the passing of a shareholder resolution to ensure that they are not invalid if challenged in the future.

If you have any questions regarding this article or to find out how we can help, please contact our Commerical team who will be happy to help.