In the matter of: Active Wear Limited

The court determined whether the sole director of a private company governed by the unamended Model Articles could, acting alone, appoint administrators. The judgment applied ordinary principles of contractual construction to the company's articles and concluded that, under Article 7(2) of the Model Articles and having regard to section 154 of the Companies Act 2006, a sole director may take decisions without regard to the articles' decision-making provisions. The court therefore declared the appointment of administrators by the sole director valid.

The court also addressed a procedural defect in the statutory declaration attached to the notice of appointment. Applying the insolvency practice direction (September 2021) and rule 12.64, the judge held that the defect was formal only and exercised the court's discretion to declare that the defect did not invalidate the administration.

Background and parties: Active Wear Limited was a private company incorporated on 1 June 2015 and, at all relevant times, had a single director, Ms Marion Rabate. By April 2022 the company was insolvent in its existing state. Ms Rabate executed documents purporting to appoint two licensed insolvency practitioners as joint administrators; those documents used standard form minutes that purported to record a board meeting though no such meeting had taken place. The respondents did not attend the hearing.

Nature of the application: The applicants sought declarations that the purported appointment of administrators by the sole director was valid and that acts done by the appointees following appointment were valid; alternatively the court was asked to validate the appointment. The court was also asked to determine whether a formal defect in the statutory declaration included with the prescribed notice of appointment invalidated the appointment.

Issues framed by the court:

• whether, on construction of the unamended Model Articles (in particular Articles 3, 7 and 11) and having regard to section 154 of the Companies Act 2006, a sole director may by herself take decisions including the appointment of administrators;
• whether the decision-making/quorum provisions in the Model Articles (notably Article 11) are inconsistent with Article 7(2) so as to prevent a sole director acting;
• whether the statutory declaration accompanying the appointment was fatally defective because it was made remotely without the required attestation and, if so, whether the court should exercise its power under rule 12.64 to relieve the defect.

Court's reasoning and disposition: Applying the ordinary principles of contractual construction (as explained in Arnold v Britton and Cosmetic Warriors Ltd v Gerrie), the judge concluded that Article 7(2) of the unamended Model Articles unambiguously permits a sole director to take decisions "without regard to any of the provisions of the articles relating to directors' decision-making" so long as no article requires more than one director. That meant the decision of the sole director to appoint administrators was effective. The court considered and distinguished the decision in Re Fore Fitness Investments Holdings Ltd, attributing the different result there to the presence of bespoke articles requiring a two‑person quorum. On the statutory declaration defect, the insolvency practice direction (September 2021) permitted remote declarations provided certain attestation requirements were met; here the form did not strictly comply but the remote swearing had been conducted without technical defect. The court exercised its discretion under rule 12.64 to declare the formal defect not to invalidate the administration. The court declared the appointment valid and that subsequent acts of the administrators were valid.

Wider comment: The judgment notes the uncertainty caused by the Fore Fitness decision but emphasises that the present ruling applies to companies governed by the unamended Model Articles; bespoke articles requiring multiple directors may lead to a different outcome.

This first instance application succeeded. The court declared that the appointment of the administrators by the company's sole director was valid because, under the unamended Model Articles, Article 7(2) permits a sole director to take decisions without regard to the articles' decision-making provisions. The court also exercised its discretion under rule 12.64 to declare that a formal defect in the statutory declaration did not invalidate the appointment, so acts done by the administrators were valid.