Interpreting model articles #1
The recent High Court judgment in the case of Re Active Wear Ltd  EWHC 2340 (Ch) highlighted inconsistencies in the drafting the Model Articles where a company has a sole director. In this case R had been the sole director since the company’s incorporation. In March 2022 the company became insolvent, and R appointed administrators pursuant to paragraph 22 of Schedule B1 of the Insolvency Act 1986.
The company had adopted the Model Articles without amendment.
The relevant Model Articles were as follows.
Article 7 - Directors to take decisions collectively
(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.
(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 8 - Unanimous decisions
(1) A decision of the directors is taken in accordance with this article when all eligible directors indicate to each other by any means that they share a common view on a matter.
(2) Such a decision may take the form of a resolution in writing, copies of which have been signed by each eligible director or to which each eligible director has otherwise indicated agreement in writing.
(3) References in this article to eligible directors are to directors who would have been entitled to vote on the matter had it been proposed as a resolution at a directors’ meeting.
(4 A decision may not be taken in accordance with this article if the eligible directors would not have formed a quorum at such a meeting.
Article 11 - Quorum for directors’ meetings
“(1) At a directors’ meeting, unless a quorum is participating, no proposal is to be voted on, except a proposal to call another meeting.
(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.
(3) If the total number of directors for the time being is less than the quorum required, the directors must not take any decision other than a decision –
(a) to appoint further directors, or
(b) to call a general meeting so as to enable the shareholders to appoint further directors.”
Section 154 of the Companies Act 2006 states that the minimum number of directors for a private company is one and the Model Articles prescribe no minimum number.
In this case R had produced signed board minutes authorising the appointment of administrators in circumstances where there had in reality been no meeting. She could instead have produced a written resolution under Article 8, but had she done so the question as to quorum would still have arisen.
Because of the inconsistency between model Article 7 which appears to give a sole director full authority to take decisions and Article 11 which seems to suggest that a quorum of two is required, the joint administrators applied to court for a declaration that their appointment was valid and in accordance with the company’s articles. The judge held that the appointment was valid on the basis that, where a company has only ever had one director, Article 7(2) overrides Article 11(2) such that the quorum becomes one.