Active Wear Ltd
| Jurisdiction | England & Wales |
| Judge | Martin |
| Judgment Date | 26 July 2022 |
| Neutral Citation | [2022] EWHC 2340 (Ch) |
| Docket Number | Case No: CR-2022-001212 |
| Court | Chancery Division |
In the Matter of:
[2022] EWHC 2340 (Ch)
DEPUTY HIGH COURT JUDGE John Martin QC
Case No: CR-2022-001212
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
The Rolls Building
7 Rolls Buildings
Fetter Lane
London EC4A 1NL
Amit Gupta (instructed by Browne Jacobson LLP) for the Applicants
The Respondents did not appear and were not represented
(As Approved)
JUDGE This application raises for determination the validity of the purported appointment by its sole director of administrators of the respondent company. If the outcome is that the appointment was not valid, the court is asked to make orders having the effect of validating the appointment.
The company, Active Wear Limited (“AWL”), was incorporated under the provisions of the Companies Act 2006 on 1 June 2015. Although it had some initial success, by March 2022 it had become apparent that AWL could not survive in its existing state.
AWL has at all relevant times had only one director, the first applicant, Marion Rabate (“Ms Rabate”). On 22 April 2022 she executed documents purporting to appoint the second and third applicants, Hugh Francis Jesseman (“Mr Jesseman”) and Claire Howell (“Ms Howell”) as joint administrators of AWL. These documents were provided to Ms Rabate by Antony Batty & Company LLP, at which both Mr Jesseman and Ms Howell are licensed insolvency practitioners. It seems that little thought was given to the suitability of these documents, which appear to be standard form documents without suitable adaptation. In particular, the document purporting to appoint administrators takes the form of a minute of the meeting of the board of directors of AWL, reportedly chaired by a man and recording that a quorum was present. In reality, however, there was no meeting and the decision was taken by Ms Rabate alone in her capacity as sole director. The principal question arising on this application is whether or not she was entitled to do that.
The answer to that question depends on the proper construction of AWL's Articles of Association. Those articles are, under the default regime prescribed by section 20 of the 2006 Act, the Model Articles prescribed for private companies limited by shares by schedule 1 of the Companies (Model Articles) Regulations 2008. The Model Articles apply in their entirety. No amendment or adaptation was made when AWL was incorporated or subsequently. Of relevance to this application are the articles contained in Part 2 of the schedule, dealing with directors and consisting of articles 3 to 20. Part 2 is sub-divided into three sections defined by cross-headings: directors' powers and responsibilities (articles 3 to 6), decision-making by directors (articles 7 to 16) and appointment of directors (articles 17 to 20). The statutory instrument contains no provision stating that the cross-headings are not to be used as an aid to construction.
Article 3 provides that:
“Subject to the articles, the directors are responsible for the management of the company's business, for which purpose they may exercise all the powers of the company.”
Article 7, headed, “Directors to take decisions collectively,” is of particular importance. It is in the following terms:
“(1) The general rule about decision-making by directors is that any decision of the directors must be either a majority decision at a meeting or a decision taken in accordance with article 8.
(2) If —
(a) the company only has one director, and
(b) no provision of the articles requires it to have more than one director,
the general rule does not apply, and the director may take decisions without regard to any of the provisions of the articles relating to directors' decision-making.”
Article 8, headed, “Unanimous decisions,” provides for decisions to be made “when all eligible directors indicate to each other by any means that they share a common view on a matter”. Article 9 deals with calling directors' meetings, and article 10 deals with participation in directors' meetings.
Article 11, headed, “Quorum for directors' meetings,” is again of relevance and is in the following terms:
“(1) At a directors' meeting, unless a quorum is participating, no proposal is to be voted on, except a proposal to call another meeting.
(2) The quorum for directors' meetings may be fixed from time to time by a decision of the directors, but it must never be less than two, and unless otherwise fixed it is two.
(3) If the total number of directors for the time being is less than the quorum required, the directors must not take any decision other than a decision —
(a) to appoint further directors, or
(b) to call a general meeting so as to enable the shareholders to appoint further directors.”
Article 12 deals with chairing directors' meetings; article 13 deals with casting votes; article 14 deals with conflicts of interest; article 15 requires records of decisions to be kept; and article 16 gives the directors a discretion to “make any rule which they think fit about how they take decisions”.
In construing these articles, it is relevant to have in mind that section 154 of the 2006 Act provides that a private company must have at least one director — in contrast with a public company, which must have at least two.
The approach to articles of association is not controversial. In Cosmetic Warriors Ltd & Anor v Gerrie [2017] EWCA Civ 324 it was made clear that the articles, being a statutory contract between the members and between each member of the company, must be construed in accordance with the ordinary principles that apply to the interpretation of any written contract. Those principles are conveniently found set out in the judgment of Lord Neuberger P, in the well-known case of Arnold v Britton [2015] UKSC 36, at paragraph 15:
“When interpreting a written contract, the court is concerned to identify the intention of the parties by reference to ‘what a reasonable person having all the background knowledge which would have been available to the parties would have understood them to be using the language in the contract to mean’ … And it does so by focussing on the meaning of the relevant words … in their documentary, factual and commercial context. That meaning has to be assessed in the light of (i) the natural and ordinary meaning of the clause, (ii) any other relevant provisions of the lease, (iii) the overall purpose of the clause and the lease, (iv) the facts and circumstances known or assumed by the parties at the time that the document was executed, and (v) commercial common sense, but (vi) disregarding subjective evidence of any party's intentions.”
Applying these principles, it appears to me plain that, under the terms of the unamended Model Articles, a sole director of a private company may take on his or her own any decision relating to the conduct of the affairs of the company. That, as it seems to me, is the unambiguous effect of Article 7. Where the company has only one director, as section 154(1) of the 2006 Act permits, and no provision of the articles requires it to have...
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