Hashmi v Lorimer-Wing 2022: What Does It Mean for Sole Director Companies?

A shareholder legally filed to invalidate a claim made by a sole director company because the model the company had adopted was based on model articles of association requiring at least two board members to form a quorate meeting as per Article 11(2).  

The case of Hashmi v Lorimer-Wing [2022] EWHC 191 (Ch) has highlighted where there are inconsistencies in the Model Articles for private companies with sole directors, potentially putting those directors at risk of not being able to make decisions lawfully.   

The background to this case is that Hashmi was removed as a director of the Company by Lorimer –Wing and Hashmi subsequently raised an unfair prejudice petition under section 994 of the Companies Act 2006. Lorimer-Wing counter claimed against Hashmi for, amongst other things, breach of directors’ duties.  The board decision was annulled on the basis that a sole director made it and thus the board meeting would not have been quorate in line with its own Articles . The judge ruled in the favour of the shareholder. The decision comes as a surprise, especially for single-director companies.  

The consequences of this decision will continue to affect all companies that operate with a single director. While there is potential for that decision to be appealed or indeed for the government to amend the model articles, that doesn’t assist those sole-director companies now. But what can a sole director run company do to help reduce the risk?   

Appoint a New Director 

The simplest approach to solving the issue of sole director companies is to appoint a new director, and as per Article 11(2), the requirements for forming a quorate meeting, i.e., at least two board directors, will be fulfilled. However, it is essential that the newly appointed director is fully capable And aware of his/her obligations and duties as a director. 

Amendment of Associated Articles 

If appointing a new director does not seem feasible for your company, then you could look to t amendment your articles of association.  

You can simply revise any associated model articles that consider clause 11(2) inapplicable. Consequently, all decisions made by the sole directors remain valid. Some of the issues that can be addressed in the revisions include:  

• Pre-emption rights of shareholders on share transfers 
• Provisions that allow a quorate meeting to be formed with the presence of only one director at general and board meetings 
• Provisions that allow the appointment of a person that can take on the role of acting director in the absence of the current one
• Enable a sole director to vote and form part of the quorum where a conflict of interest arises in certain circumstances  

The members of a company can request a meeting or get written permission from the company to circulate written resolutions for the amendment to the model articles..  

Where a resolution is passed it will need to be filed with Companies House within 15 days.  

Get Retrospective Approval for Past Decisions 

Whether you appoint a new director or opt for the amendment of associated articles, both options don’t have any influence on the past decisions made by a single director. So, what can sole director companies do to ensure the previously made decisions aren’t at risk of being challenged? An ideal solution would be to get retrospective member approval.  

A written resolution by shareholders will be sufficient to prevent past decisions from being challenged in the future.