Sole directors DO have the power to run companies, but only in certain circumstances

This is an update to our recent article Sole Directors: new law means you may not have the power to run your business.

Company law doesn’t experience many changes, so it is unusual to have two changes on the same topic in a matter of months. However, the first change mentioned in our earlier update really caused a disturbance, so to have the same topic reach the High Court again has brought about some welcomed clarification, although it still leaves some ambiguity for sole directors.

Our first update was about the case Re Fore Fitness Investments Holdings Ltd [2022] EWHC 191 (Ch) and how that case suggested sole directors of private companies had no power to make decisions in respect of their company where their company had the Model Articles for Private Companies as part of their articles of association.

What is now clear?

As a result of a more recent case, Re Active Wear Ltd [2022] EWHC 2340 (Ch), the position has thankfully been clarified for sole directors of companies that just have the unamended Model Articles for Private Companies as their sole articles of association: sole directors of such companies can on their own make valid decisions and pass valid resolutions in respect of the company.

What is not so clear?

Where the position is less clear is where a company has the Model Articles for Private Companies as the basis of its articles of association, but these are amended or added to by bespoke articles of association.

It is pretty common in company practice for a company’s articles of association to say something along the lines of:

'The Model Articles for Private Companies shall apply to the company, except in so far as they are modified or excluded by, or are inconsistent with, these Articles.'

The High Court in the most recent case, Re Active Wear Ltd, distinguished the first case, Re Fore Fitness Investments Holdings Ltd, on the basis the company in Re Fore had amended Model Articles as its articles of association.

The prevailing legal view is therefore where a company has amended articles of association based on the Model Articles, the amendments could be deemed to disapply the provisions in the Model Articles which empower a sole director.

What you need to do

If you are a director of a company and:

• you are the sole director; and
• the company has modified or amended Model Articles as its articles of association,

you'll need to get your articles of association reviewed by a company law solicitor to ensure you that your past and future decisions are valid and binding on the company.

How we can help

We can review your company’s articles of association, and then if they do need amending, make the necessary amendments. Our articles of association amending service fees are equivalent to 1 hour of legal support. Get in touch on 0800 689 1700, email us at  enquiries@harperjames.co.uk or fill out the short form below with your enquiry.