The case of KRF Services (UK) Ltd (Company) provides much needed clarity amongst the longstanding default provisions of the Model Articles of association. The Company had multiple directors throughout its lifespan. However, after financial sanctions were imposed on the Company's ultimate beneficial owner, it ended up with a single director with no one else willing to be appointed. Consequently, voluntary winding up of the Company was sought by the sole director in May 2024, due to the difficulties associated with the penalties imposed on the Company.
Although the merits of the application were not disputed, preceding case law on the matter suggested that because the Company had adopted the Model Articles in their entirety without any amendment, the sole director may lack the authority required to make such an application. Model Article 7(2) states that a sole director may take decisions ‘without regard to any of the provisions of the articles relating to directors’ decision making’, however by way of apparent conflict, Model Article 11(2) provides that the minimum number of two directors is required for a meeting to be quorate.
The question, therefore, was whether a sole director was able to unilaterally take decisions on behalf of the Company, or whether the Company was required to have more than one director for the voluntary winding up decision to be effective.
In the case of KRF Services (UK) Limited, the judge agreed that, where a company has adopted the Model Articles but has modified them to require a minimum number of directors, a sole director cannot exercise all powers of the company. However, the judge concluded that, where a company has adopted the Model Articles without modification, a sole director can take all decisions of the company, and it does not matter how many directors the company has had in the past.
Therefore, as the law presently stands, provided the Model Articles have been adopted without modification, a sole director has authority to make a voluntary winding up application under Model Article 7(2).
Key points for private limited companies
1. Individuals planning to establish a new company should ensure that the company's articles are properly drafted. If the intention is for the company to operate with only one director, the articles should clearly state this.
2. Existing companies should review their articles of association, especially if they have adopted Model Articles 7 and 11, whether in their original or modified form. If a company needs to function with a sole director, it must ensure that its articles explicitly allow this or, at the very least, do not include provisions that imply a minimum number of directors.
3. Companies that have historically operated with only one director may want to seek advice on whether any past decisions made by the sole director are, or could be considered, void.
If you require advice about corporate governance, please do not hesitate to contact our Corporate and Commercial team on tel: 01892 515022.
This blog is not intended as legal advice that can be relied upon and CooperBurnett LLP does not accept any responsibility for the accuracy of its contents.
