A private company needs only one director – unless its Articles of Association say otherwise.
This might seem obvious, but past High Court cases created confusion about whether a sole director could legally act. This was especially uncertain for companies that once had multiple directors.
The latest ruling in Re KRF Services (UK) Ltd (2024) has cleared things up (for now). It confirms that a sole director can run a company with Model Articles, even if it once had more than one director.
The confusion over sole directors
This issue comes from two conflicting High Court cases:
- Re Fore Fitness (2022): ruled that a sole director in a company with unamended Model Articles could not act, even if the company never had more than one director.
- Re Active Wear (2022): softened the stance, allowing a sole director to act – but only if the company had always had just one director.
This left many companies in a legal grey area, especially those which had once had multiple directors. Were their sole directors acting lawfully? Could their decisions be challenged?
Legal Framework: Companies Act 2006 and the Model Articles
The Companies Act 2006 states that every private company must have at least one director who is an individual. While corporate directors are allowed, at least one must be a real person (a natural person).
Case breakdown: how the Courts have interpreted the Model Articles
The Model Articles, which apply unless changed (amended), include the following:
- Article 7(2): if a company has only one director, they can make decisions alone – unless the Articles specifically require more than one director.
- Article 11(2): the quorum for directors’ meetings must always be at least two, unless set differently.
- Article 11(3): if the number of directors falls below the quorum required, the directors can only act to appoint new directors or call a shareholder meeting to appoint further directors.
For a long time, legal experts believed Article 7(2) overruled Article 11(3) for sole directors. But the Re Fore Fitness case challenged this view, causing uncertainty for businesses, banks and investors.
Re Fore Fitness – the alarm bell
This case involved a company that used the Model Articles but also had a bespoke provision requiring two directors for a board meeting.
After the company was left with just one director, a legal challenge was raised against a decision made by that sole director. The High Court ruled that, because of the bespoke provision, the sole director could not act.
This ruling triggered a wave of concern:
- companies rushed to amend their Articles to ensure sole directors could act.
- banks required these amendments before approving loans.
- M&A transactions closely examined single-director status, adding warranties – or even indemnities – if the target company had a sole director.
- companies passed shareholder resolutions to ratify past decisions of sole directors, reducing potential legal risk.
Re Active Wear – a partial fix
This case involved a company that had always had just one director. The High Court ruled that in this situation, Article 7(2) took precedence, allowing the sole director to act.
However, the ruling included additional judicial commentary to the effect that, if a company had ever had multiple directors, Model Article 11(3) would still apply, meaning that a subsequent sole director would not have authority to act alone unless the Articles were amended.
This left businesses in a difficult position. If a company had ever had more than one director, its sole director might not have authority – unless its Articles were expressly amended.
Re KRF Services (UK) Ltd – the final word (for now at least)
The latest case, Re KRF Services (UK) Ltd, has settled the matter – for now. The company once had three directors but was left with one. The sole director appointed administrators, and the court had to decide if this was valid.
The ruling? Yes, it was valid.
The High Court confirmed that Article 7(2) overrides Article 11(3) when a company has only one director. It clarified that a company with Model Articles can legally operate with a sole director, even if it previously had more than one.
This decision aligns with common sense – after all, the Companies Act 2006 allows private companies to have just one director.
What this means for your business
- If your company has amended Model Articles, a sole director can now legally act alone, regardless of how many directors it had before. No amendments are needed.
- If your company has modified Articles, review them carefully to ensure they don’t unintentionally require multiple directors.
- If you’re unsure about your Articles, now is the time to check and amend them if needed to avoid future legal challenges.
Concluding thought
Thanks to Re KRF Services (UK) Ltd, businesses finally have clarity. A sole director can now run a company with unamended Model Articles, no matter how many directors it had before. But if your company’s Articles have been amended, review them carefully – there may still be restrictions that need fixing.
How PaperRock can help you
At PaperRock Documents, we offer high-quality legal document templates for businesses and professionals. Each document is available for single purchase and comes with a detailed explanatory guide.
Our Articles of Association Template for Wholly-Owned Companies includes amendments to the Model Articles, ensuring there’s no uncertainty resulting from the Re Fore Fitness and Re Active Wear cases.
