Can A Director Go It Alone? Very Possibly Not! - Poonam Melwani KC And Paul Henton

• Published date: 04 November 2022
• Subject Matter: Corporate/Commercial Law, Corporate and Company Law, Directors and Officers, Shareholders
• Law Firm: Quadrant Chambers
• Author: Ms Poonam Melwani KC and Paul Henton

OVERVIEW

Section 154 of the Companies Act 2006 specifically permits private companies to have a single director and s.20 of the Act provides that the Model Articles of Association apply if no other articles are registered. Small companies, and many SPVs with a sole director, regularly do not register any other articles so that the unamended Model Articles apply by default.

Two 2022 first instance judgments have considered the proper construction of the unamended Model Articles and - with conflicting reasoning - throw into question whether a sole director can effectively act and/or whether a sole director can effectively act if the company has ever had more than one director.

Confused? Read on. These judgments are significant and pending further clarification companies with sole directors should consider amending their Articles and/or appointing a further director. Ratification of previous decisions needs also to be considered. The ramifications of decisions by sole directors being found to be ultra vires and of lawyers acting for a company without proper corporate authority are obviously serious and wide-ranging.

The Model Articles

Article 7 of the Model Articles under the heading "Directors to take decisions collectively" provides as follows

"7(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".

Stopping there, it is obvious that the articles must then be looked at to see if there is a provision requiring the company to have more than one director. Intuitively, one would not expect the unamended Model Articles, which contemplate that the company can have only one director, to have any provision requiring more than one director. Obviously, bespoke additional clauses might contain such a provision, but one would not expect the Model Articles to have such a provision.

What then of Article 11 which provides as follows:-

"Quorum for directors' meetings.

11(1) ...

(2) The quorum for a directors' meeting 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...