Is it Possible for a Company with Model Articles of Association to Operate with a Sole Director?

Is it Possible for a Company with Model Articles of Association to Operate with a Sole Director?

This has been a longstanding question in the legal world. Historically, inconsistent and contradictory case law did not give a clear answer. However, the High Court case of KRF Services (UK) Ltd [2024] seems to have offered more clarity on the Court’s view on this topic.

The Old Position

One of the reasons as to why the answer to this question has been uncertain is because historically there has been conflicting case law. These being Hashmi v Lorimer- Wing and Fore Fitness Investment Holdings Limited [2022] and Re Active Wear Limited [2022].

In the case of Fore Fitness the company tried to issue a counterclaim against Hashmi. Fore Fitness had Model Articles with bespoke amendments, one of these imposed a minimum number of directors needed to attend meetings for a decision to be valid. In this instance the court held that a sole director did not have the power to issue a counter claim. The reason was because the company had incorporated amended Model Articles a sole director did not have sufficient power to make the decision by himself.

They did not have the power to make such a decision, as multiple directors would be needed to validate the decision, as per their amended Model Articles.

In contrast, in Re Active Wear, the company was incorporated with a sole director but used unamended articles. Here the court determined that as the company adopted unchanged articles and always had a sole director they were allowed to act and make decisions independently. This was seen as different to the Fore Fitness case as the articles had not been amended to increase a minimum requirement for directors.

The issue that came from this was that this decision was only able to be relied on if there had only ever been one director.  If the company had two at any time it could not be relied on and it was likely that the decision in Fore Fitness would prevail.

KRF Services (UK) Ltd [2024]

In this more recent case, a sole director was attempting to file an application for administration. The Company had previously had more than one director but they all resigned following sanctions being imposed on the company.

The High Court found in favour of the sole director and that he was able to apply for administration. This was because he confirmed that Model Article 7(2) exists to disapply all of the directors decision-making provisions found in Article 11.

So what is Model Article 7(2)? This article states that a sole director can make decision without following Article 11. Article 11(2) states that there is a requirement for the minimum of two directors in order to form a quorum.

What does this mean?

The new ruling in KRF gives support to Re Active Wear. It clarifies that when a company adopts the Model Articles with no modification then a sole director can make decisions without any regard to Article 11(2) and the quorum requirement.  There are two important steps that were highlighted by the court. These are:

• The company has only one director;
• There were never any provisions in the articles that required more than one director.

If both exist, then a sole director would be able to rely on Article 7(2) as well as the judgments in KRF and Re Active Wear.

How can we assist?

If you are unsure on how your articles have been adopted and whether you are able to operate and make decisions as a sole director, then please do reach out. Our commercial and employment team have vast experience and will be happy to assist you.