Every company incorporated in the UK must have articles of association. This document forms the company’s constitution and governs its management and internal affairs. To make matters easier for people wishing to incorporate companies, there are model articles which can be adopted providing a suggested structure. The current Model Articles have been around, with minimal amendment, since October 2009, and can be adopted as a whole, in part, or not at all.
But how many people choosing to adopt them actually know what they contain?
The point that has probably caused the most discussion amongst lawyers concerns the number of directors that a company is required to have. Whilst a company can legally have just one director, Model Article 11(2) states that quorum for directors’ meetings is two. However, Model Article 7(2) states that if a company has only one director, then that director may take decisions without regard to any of the provisions of the articles relating to directors’ decision-making.
This apparent contradiction could have disastrous consequences for a company, as any decision taken at a meeting where quorum was not present, is invalid.
So how many directors does it take to make a decision?
Many assumed that Model Article 7(2) took precedence over Model Article 11(2), otherwise what was the point of its inclusion? The question has come before the High Court in two notable cases. In Re: Fore Fitness Investments Holdings Ltd [2022] EWHC 191 (Ch) it was decided that the sole director did not have authority to make decisions, but in Re: Active Wear Ltd [2022] EWHC 2340 (Ch) it was decided that he did.
In the later case of Re: KRF Services (UK) Ltd [2024] EWCH 2978 (Ch), the High Court attempted to clarify these seemingly opposing decisions with reference to the history of each particular company, but where does this leave sole directors?
The simple answer is that no one knows, so companies should tread carefully. The best solution is to avoid the problem altogether. This can be achieved either by appointing a second director, or by amending the articles to allow quorum of one. A correctly constituted board of directors can then also ratify any decisions made previously, in order to avoid any later challenge to their validity.
Please don’t hesitate to contact our Corporate & Commercial team at Davies and Partners should you wish us to review your articles of association, or if we can assist in any other way. Diana Eames: diana.eames@daviesandpartners.com
