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High court ruling has implications for sole directors

Author: ICAEW Insights

Published: 25 Aug 2022

A recent case resulted in a determination that a private limited company operating under Model Articles must have at least two directors and that decisions taken by a sole director were invalid.

A recent legal case, Hashmi v Lorimer-Wing [2022] EWHC 191 (Ch), has determined that private limited companies operating under Model Articles (see below) must have a minimum of two directors, creating implications for small businesses. 

In Hashmi v Lorimer-Wing, Hashmi had raised an unfair prejudice petition under section 994 of the Companies Act 2006. Lorimer-Wing filed a counterclaim against Hashmi for a number of reasons, such as breach of directors’ duties. 

The case ended up at the High Court, which ruled that Model Article 7(2) only permitted a sole director to make decisions for the company if there are no other provisions within the articles that require more than one director. When the quorum for directors’ meetings is set at two, or more, the Articles require at least two directors to make decisions for the company. 

The decision has wide potential implications for companies with one director using the Model Articles, meaning that some of their decisions could be called into question. 

“While the case is fact-specific, it appears to apply to all companies that adopt the relevant Model Articles unamended (or with amendments that do not address the issue),” says Charles Worth, Head of Business Law for ICAEW. “This is a widely unexpected decision and companies that adopted the Model Articles and have a sole director may wish to consider their position. They may wish to appoint (and retain) an additional director or amend the Articles. They may also wish to ratify past decisions of the sole director.” 

Any members with questions about the implications of the ruling should seek legal advice as soon as possible.

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