In the matter of: Active Wear Limited

Under unamended Model Articles, a private company with only one director may make decisions without regard to the articles governing directors’ decision-making, including quorum requirements, unless the articles require the company to have more than one director. A bespoke article requiring a minimum quorum may produce a different result. Where a statutory declaration in insolvency proceedings contains a formal defect arising from remote execution, the court may preserve the proceedings under rule 12.64 if the defect has not caused substantial injustice which cannot be remedied by a court order.

Active Wear Limited was governed in its entirety by the Model Articles for private companies limited by shares. Its sole director purported to appoint two administrators without holding a board meeting. The applicants sought a declaration that the appointment was valid, together with relief concerning a defective statutory declaration made remotely.

The principal issue was whether article 7(2) permitted a sole director to make the appointment despite the quorum provisions in article 11. The court also considered whether the formal defect in the statutory declaration invalidated the administration.

1. Construction of the Model Articles. The articles were to be interpreted using ordinary contractual principles, having regard to their natural and ordinary meaning, the other provisions, purpose, factual and commercial context, and commercial common sense. The relevant approach was stated in Cosmetic Warriors Ltd & Anor v Gerrie [2017] EWCA Civ 324 and Arnold v Britton [2015] UKSC 36.
2. Article 7(2) disapplied the general rule that directors’ decisions must be made by a majority at a meeting or under article 8 where the company had only one director and no article required more than one director. That disapplication extended to the provisions governing directors’ decision-making, including article 11’s quorum requirements. Reading article 11(2) as preventing article 7(2) from operating would deprive article 7(2) of practical meaning.
3. Re Fore Fitness Investments Holdings Ltd [2022] EWHC 191 (Ch) was distinguishable because the company there had a bespoke article requiring a quorum of two directors. The present company had no equivalent provision. The court also considered that, where the number of directors falls to one from a higher number, article 11(3) applies; article 7(2) applies where there has never been more than one director.
4. The sole director was therefore entitled to appoint the administrators, and the appointment was valid.
5. The remote statutory declaration was formally defective because the authorised person did not attest that it was made by video conference and the declaration did not state that fact. The video conference had operated without technical defect and caused no apparent substantive prejudice. Under rule 12.64, the court declared that the defect did not invalidate the administration or the appointment.
6. The appointment and subsequent acts of the administrators were declared valid.

First instance decision. No prior appellate decision is stated in the judgment.