Sole directors and their power to make decisions

The result of a UK court case in 2022 cast doubt on the ability of a limited company sole director to make decisions where the company is using Model articles of association. This came as a surprise to industry experts. While subsequent cases in 2022 and 2024 helped reduce the uncertainty that followed the earlier ruling, directors should ensure their companies have suitable articles in place.  

This post summrises these court cases and explains the implications for sole directors. It also discusses the steps directors should take to make sure their decision-making is valid in accordance with the articles of association.  

Sole directors and the Model articles of association

To incorporate a private limited company and remain in ‘good standing’ with Companies House, at least one ‘natural’ person must be appointed as a director. If a company operates with just one director, that person is referred to as a sole director. 

The articles of association are the rules dictating how a company must be managed. This governing document includes sections covering the powers and responsibilities of the company’s directors and members (shareholders). 

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The Model articles of association were introduced on 1 October 2009 and updated on 28 April 2013. These are the standard default articles, which are suitable for most (but not all) small private companies in the UK.  

When setting up a company, the Model articles will apply automatically unless you provide your own version. Most new companies adopt these default articles.  

What happened in 2022 with regard to sole director decisions?

In 2022, the Hashmi v Lorimer-Wing court case questioned if a sole director could pass board resolutions in accordance with the rights set out within the Model articles or whether the company required at least two directors to form a quorum for board meetings and decisions. 

Mr Lorimer-Wing, the sole director of Fore Fitness Investments Holdings Limited, was using a modified form of the Model articles, which included an amendment that explicitly specified at least two directors were needed to make any decision at a board meeting.  

The case arose when Mr Lorimer-Wing attempted to challenge an unfair prejudice claim brought against the company by Mr Hashmi, a shareholder and former director of the company.  

Mr Hashmi questioned the validity of the counterclaim since Mr Lorimer-Wing was the sole director when he made the decision to counterclaim. The judge ruled in favour of Mr Hashmi, the shareholder, which industry experts considered a surprising outcome. 

The problematic articles in Hashmi v Lorimer-Wing

The issue in the Hashmi v Lorimer-Wing case centred around the following two model articles: 

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.

(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.

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.

To put it simply:

Article 7: If a company has a sole director, that director can make board decisions. 

 Article 11: For a directors’ meeting to be valid, at least two directors must be present. 

As you can see, the two articles appear to contradict each other.  

To add further confusion, Fore Fitness Investments Holdings Limited had amended the Model articles by including bespoke article 16, which outlined the requirement for two directors to be present at directors’ meetings. 

Nonetheless, the contradiction between articles 7 and 11 remained. 

Why wasn’t this a problem before?

As we touched on, the Model articles of association have been in place since 2009. Since then, the general industry view and commentary was that the model articles enabled sole directors to operate effectively. 

Article 7 very much took precedence over Article 11, meaning that a sole director could make decisions for the company. It only became problematic due to the unexpected result of the Hashmi v Lorimer-Wing case. 

Developments since Hashmi v Lorimer-Wing

Since Hashmi v Lorimer-Wing, further cases have been brought before the court to consider the same issue. Specifically, the cases of Active Wear Ltd [2022] and KRF Services (UK) Ltd [2024], the outcomes of which have helped resolve concerns regarding the decision-making ability of a sole director of a company with model articles. 

Active Wear Ltd [2022]

In the case of Active Wear Ltd [2022], the court had to consider the issue in relation to a company that had adopted Model articles without any modification and only ever had one director.  

The focus of the case was whether the sole director’s decision to appoint administrators was valid. The judge held that Model Article 11(2) is specifically disapplied by model article 7(2) in situations where the company has only one director and no other provisions in the articles require more than one director.  

The judge determined that the circumstances of the case were different from Hashmi v Lorimer-Wing because Activewear Ltd had only ever had one director and was using unmodified Model articles (which, unlike the previous case, did not have separate modifications requiring two directors to be present at a meeting for it to achieve a quorum).  

KRF Services (UK) Ltd [2024] 

In the more recent case of KRF Services (UK) Ltd [2024], the company adopted unmodified model articles and originally had more than one director. Following the 2019 Russia Sanctions Regulations, the company was subject to asset-freezing restrictions and found itself with only one director. The company was unable to pay its debts, leading the sole director to make an application to the court to place KRF into administration.   

The court considered whether the sole director’s resolution was a valid decision and if making an administration order was a breach of the Sanctions Regulations. The judge held that the sole director had the power to validly pass the resolution and that appointing administrators was not a breach of sanctions.  

This case made it clear that the number of directors the company once had is irrelevant and that Model article 7(2) will override Model article 11(2).  

Following this case, concerns regarding the decision-making ability of a sole director of a company with model articles have largely abated. Nevertheless, the model articles continue to retain the apparent discrepancy, so further challenges are not ruled out. As such, companies may want to consider the ramifications of having a sole director and their use of the Model articles.

The ramifications of having a sole director

As highlighted by the judgement in Hashmi v Lorimer-Wing, there is potential for shareholders to dispute certain decisions taken by a sole director (even retrospectively) if a company’s articles are not drafted properly.  

If you’re a sole director and sole shareholder (meaning you own and run the company by yourself), you may find that some banks and other lenders are unwilling to lend to you, as future shareholders can theoretically question your choices. Similarly, suppliers may be hesitant to work with you. 

Even if your company has two directors, you are still at risk because one of the other directors could resign, leaving you with just one director for a period of time or indefinitely. 

I have a company with a sole director – what should I do?

If you’re the sole director of a UK company, we recommend one of the following actions to protect your company and the validity of your decisions: 

1. Adopt new articles providing for sole director decisions

By addressing the cause of the problem – the contradiction in the model articles of association – your sole director company can operate in a way that ensures future decisions are legitimate. 

At Rapid Formations, we offer an Article Amendment Service (£169.99 + VAT). Call our Company Secretarial Team on 020 3984 5385 for more information. 

Upon adopting the amended articles, you should consider shareholder ratification for previous decisions made by a sole director in the company. This can be done at a general meeting or by arranging a written shareholders’ resolution. 

Forming a new company as a sole director? 

Customers who form a company through Rapid Formations are provided with a modified set of articles, which include clarifications to demonstrate a sole director’s ability to make decisions. These articles come as standard with all of our company formation packages.  

2. Ensure your company has at least two directors appointed

The normal criteria for appointing a director still stand. The person needs to consent to act in such a capacity and adhere to the responsibilities of being a company director. 

However, you will still only be one resignation away from potential trouble, so adopting new articles is the safer option.   

Thanks for reading

We understand if you still have questions about sole directors and their power to make decisions. Please comment below – we’ll be more than happy to help. 

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