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Model Articles are Articles of Association which apply automatically unless modified or replaced by bespoke articles.  If Model Articles are adopted, decision making by the directors is governed as follows: –

1. • Decisions must be passed by a majority or unanimously by all eligible directors (Model Article 7(1)).
   • If a company has only one director and its Articles of Association do not require it to have more than one  director, the director can make decisions without having regard to the articles relating to directors’ decision-making (Model Article 7(2)).
   • The quorum for directors’ meeting may be fixed from time to time but it must never be less than two and, unless fixed, it is two (Model Article 11(2)).
   • If at any time the total number of directors is less than the quorum required, the directors must not take any decisions other than to appoint further directors or to convene a general meeting to enable the shareholders to appoint further directors (Model Article 11(3)).

It was widely accepted that Model Articles 11(2) and 11(3) did not apply to sole director companies due to Model Article 7(2) superseding the provisions of the Model Articles which relate to directors’ decision making.  However, the recent High Court decision has brought this into question.

The High Court held that Model Article 11(2), which requires at least two directors to constitute a quorum, was a requirement for the company to have two directors.  Therefore, the fall-back provision in Model Article 7(2) could not apply which renders the use of unamended Model Articles by sole director companies invalid.

Why does this case matter?

The two main points from this case are: –

1. • The Model Articles are not suitable for adoption by private companies with a sole director; and
   • Any decisions taken by a sole director with basic Model Articles adopted may be considered invalid (unless the decision of the director was to appoint a further director under Model Article 11(3)).

What does this case mean for you?

To avoid challenges to the validity of directors’ decisions, sole directors of private companies with standard Model Articles adopted are being strongly urged to consider:

1. • Amending the articles to allow the sole director to make valid decisions in the future; and
   • Passing a shareholder resolution to ratify any actions taken by a sole director already (as any amendment to the articles will not have retrospective effect).

How can we help?

We are offering a fixed fee of £450 (plus VAT) to: –

1. • Provide new Articles of Association, to comply with the law and ensure that future decisions of a sole director are valid;
   • Register the Articles with Companies House; and
   • Supply a template shareholders’ resolution, to ratify any previous decisions made by a sole director.

Nalders has a dedicated and committed team of business law specialists in Cornwall who are ready and waiting to advise you on any employment, company or commercial arrangements. Feel free to get in touch with  Dale Band, Gayle McDermott, Lee Middleton, Luke Smith, or Dan Barnden or by using our message system for more information.

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