The implications of the High Court ruling on private companies with a sole Director

In the recent case of Hashmi v Lorimer-Wing [2022], the High Court has determined that a private limited company operating under the Model Articles must have a minimum of two Directors, and that Model Articles require amendment to permit a single Director to make decisions.

Prior to this ruling, the widely accepted interpretation of the Model Articles has been that under article 7(2), as long as the company has a sole Director and no provision of the articles requires it to have more than one Director, a sole Director was able to make decisions alone without the need for a quorate board meeting. It was also understood that model article 11(2), which states that the quorum may be fixed from time-to-time by a decision of the Directors, but must never be less than two, and unless otherwise fixed it is two, only applied in the circumstances where the company had more than one Director.

As a result of the ruling in the Hashmi v Lorimer-Wing case, the decisions made by a sole Director may be called into question. This applies to companies that are operating under pure Model Articles or under bespoke articles which also include articles analogous to the Model Articles in relation to the directors’ decision-making.

It is hoped that the Government will look to amend the Model Articles to clarify the meaning of the conflicted articles 7 and 11, or that the decision in Hashmi v Lorimer-Wing may be appealed in due course and that a different ruling may be made in that case.

In the meantime, should you have any concerns regarding the validity of the decisions made by a sole Director, the following solutions are available to mitigate any potential problems:

• Appoint at least one additional Director to ensure that the minimum quorum requirement will be met for future board meetings. Unless the company’s articles are also amended to permit the sole Director to make decisions, the company will need to maintain the minimum number of Directors going forward.
• Adopt amended articles of association which permit a sole Director to make decisions.

If the company has been operating with a sole Director at any time relying on the previous interpretation of the Model Articles, you should also consider the company passing a resolution to ratify the sole Director’s past decisions. It is advisable to seek advice as to which decisions require ratification.

If you would like to discuss any of the above, our team will be able to assist and to discuss these options in more detail. Please get in touch with Vesna Sowden using the details on this page, or Hunter Yamanşef at hunter.yamansef@blickrothenberg.com