Hashmi v. Lorimer-Wing [2022] EWHC 191 is a recent case that exposed anomalies within the Model Articles and raised concerns about the legality of decisions made by private corporations who operate with sole directors.
What Are The Model Articles?
The articles of association are a business’s primary constitutional instrument and operate as a legal agreement between a shareholder and the company as well as, a shareholder, and the firm to which they are related.
They are publicly published documents that governs a company’s operations and outlines the steps that must be performed if management disagrees with a particular course of action. A company may choose to incorporate, alter or entirely exclude the model articles.
It is crucial that the articles work as envisioned since they provide the basis of a company’s specific governance, regulating directorate-level reasoning and the procedures through which directors interact with the company’s shareholders.
As the standard articles of association that may be selected upon creation of a limited company in Wales and England, the former Table A articles were superseded by the Model Articles found in the Companies Act of 2006. Model Articles are essentially basic guideline documentation for limited corporations, that are used frequently in the early stages of a business before any significant developments inside its division of share ownership or decision-making framework.
Hashmi v Lorimer-Wing
To introduce the proceedings of the case, Lorimer-Wing fired Hashmi, the director of a company. Hashmi subsequently filed a complaint under the Companies Act 2006(s 994) for unfair prejudice. The complaint was then counter claimed by Lorimer-Wing which alleged that Hashmi had violated her duty as a company director.
The third remaining director resigned not long after the complaints were filed leaving Lorimer-Wing as the only director still in office.
The articles under the courts consideration used by the company, was a combination of both tailored articles and the model articles, fixing the quorum for any director like meetings to two, as outlined in the model articles.
According to the judgment, Model Article 7(2) only gave a single director the authority to make decisions for said firm in the absence of any other stipulations in the articles requiring the appointment of multiple directors. A minimum of two directors are needed to make decisions on the company’s behalf whenever the attendance for directors’ meetings has been fixed at two.
Additionally, the articles restrict the directors’ authority by permitting the lone director to be allowed to only take action to nominate another director or assemble a gathering of the company’s shareholders or members when there are insufficient directors to form a quorum. The counterclaim from the company in this case was rejected because the sole director had lacked the authority to make decisions.
The Outcome
This ruling may render decisions made by a lone director of a business whose articles fully or substantially include the Model Articles unlawful and unenforceable.
The same defence would hold true if there were more directors in office than what would constitute a quorum for a directors’ gathering. Depending primarily on the other terms of the company’s articles of organisation, it might be possible for the shareholders to resolve the matter through a special resolution.
