Companies with a sole director: what does the case of Hashmi v Lorimer-Wing mean?

Posted Friday 16th September 2022

In the recent case of Hashmi vs Lorimer-Wing the High Court has somewhat unexpectedly issued a judgment which has implications for any private company which has adopted, or which has bespoke articles of association based on, the Model Articles for Private Companies.

Specifically, the Court has determined that the unamended Model Articles do not permit a single director to exercise general decision-making powers with respect to the company on their own.

As a result, a private limited company in this situation must either appoint a second director or must amend its articles to explicitly allow decision-making by a sole director.

The Court’s interpretation of the Model Articles

In reaching its decision, the Court reviewed the bespoke articles of the affected company – and the Model Articles in general – and considered the conflict – which has long been recognized among corporate lawyers – between Model Article 7(2) which allows a company to be managed by a sole director provided that there are no other provisions in the articles which require more than one director, and Model Article 11(2) which requires that the quorum for director’s meetings must never be less than two directors.  The Court also considered article 16.1 of the Company bespoke articles which required more than one director for a board meeting to be quorate.

The Court began with the position that articles of a company are to be considered as a written contract binding on the company and its members, and following common law principle, the intention of the parties are to be construed by reference to what a reasonable person having all the background knowledge would have understood the wordings of the contract to mean. Based on this approach, the Court concluded that:

1. bespoke article 16.1 – like Model Article 11(2) – required more than one director for board meetings to be quorate and this should be construed as a disapplication of Model Article 7(2); and
2. accordingly, for a company with Model Articles to have a sole director to manage it, the Model Articles need to be amended to disapply Model Article 11(2).

Implications of the ruling

The ruling highlights the debate among corporate lawyers on the apparent conflict between Model Articles 7(2) and 11(2).  Prior to this case, there was no industry consensus on these conflicted articles but the dominant interpretation was that Model Article11(2) was applicable only in case of a company having more than one director.

According to this ruling, for a private company having Model Articles to have a sole director who can take decisions, the Model Articles need to be expressly amended including deletion of Model Article 11(2). This ruling may have profound implications on companies with sole directors and Model Articles. It is feared that any decision taken by a sole director of a private company with Model Articles may now be challenged.

Going forward 

It is hoped that the government will amend the Model Articles to address the conflict between Model Articles 7(2) and 11(2). Equally, this ruling may be appealed in due course and the issue may come up in a higher court, which may give a different ruling.

In the meantime, the general advice for companies with Model Articles and a sole director would be either to appoint at least one more director or to amend its articles to disapply Model Article 11(2) and thereby allow the sole director to take decisions; it may also be advisable to ratify any past decisions made by a sole director.

If you have any queries or require any advice on the above, please get in touch with Matthew Overton or Arnab Ray-Chaudhuri

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This article is for reference purposes only. It does not constitute legal advice and should not be relied upon as such. Specific legal advice about your specific circumstances should always be sought separately before taking or deciding not to take any action.

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