Model Articles again deemed suitable for sole director companies

A recent decision of the High Court in Re KRF Services (UK) Ltd [2024] EWHC 2978 (Ch) has provided further and stronger authority that the model articles for private companies are suitable for companies with a sole director appointed, clarifying the position following recent cases on this subject.

Background

The case of Hashmi v Lorimer-Wing (Re Fore Fitness), which we blogged about here, suggested that the model articles for private companies (the Model Articles) were not suitable for companies with a sole director appointed and, accordingly, that decisions taken by a sole director of a company with the Model Articles adopted would be invalid.

The judgment in the case of Re Active Wear, which we blogged about here, reached the opposite conclusion – that the Model Articles were suitable for companies with a sole director appointed. However, that judgment also included commentary that this would not be the case if a company had ever had more than one director appointed at any one time.

The case of Re KRF Services (UK) Ltd involved the question over whether a company had validly brought an application for an administration order. The company had adopted the Model Articles in their unamended form. The company's decision had been made by its sole director, following the resignation of all of the other directors – i.e. the same fact pattern that the commentary in Re Active Wear had stated meant that a sole director would not be able to validly make a decision.

As a reminder, Article 7 of the Model Articles states:

(1) The general rule about decision-making by directors is that any decision of the directors must be either a majority decision at a meeting or a decision taken in accordance with article 8.

(2) If—

(a) the company only has one director, and

(b) no provision of the articles requires it to have more than one director,

the general rule does not apply, and the director may take decisions without regard to any of the provisions of the articles relating to directors’ decision-making.

Article 11(2) of the Model Articles states:

(2) The quorum for directors’ meetings may be fixed from time to time by a decision of the directors, but it must never be less than two, and unless otherwise fixed it is two.

Judgment

The Deputy Judge hearing the case held that the sole director of the company was able to make decisions on his own and, accordingly, the decision to apply for an administration order was valid.

The Deputy Judge held that the commentary in Re Active Wear, which had stated that a sole director would not be able to validly make decisions if there had ever been more than one director appointed at any one time, was obiter, meaning that he was not bound by precedent in respect of this point and therefore free to reach the opposite conclusion.

Analysis

This judgment provides welcome further clarity that the Model Articles are suitable for companies with a sole director appointed. In particular, the tension between Article 7(2) and Article 11 of the Model Articles is resolved unambiguously, with the statement in the judgment that "where Article 7(2) applies, as it does in the case before me, Article 11 as a whole is disapplied".

While this position was already supported by the Re Active Wear judgment, that judgment had suggested that this was not the case if there had ever been more than one director appointed at any one time. The present judgment helpfully concludes that such comment was obiter, and reaches the opposite conclusion, meaning that the Model Articles are suitable for companies with a sole director appointed irrespective of the previous number(s) of directors appointed.

Like the concluding part of any good trilogy, this case seemingly provides a satisfying conclusion while wrapping up all remaining threads. Of course, this decision (like the decision in Re Active Wear) only applies where a company has the Model Articles applied in their unmodified form, so there remains some material for a sequel or spin-off.