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Sole Directorship in Limited Companies

Sole directorship in Limited Companies – what you need to know

A landmark case has brought into question the ability of sole directors to make decisions within their own companies where standard articles of association have been used.

As a landlord, the recent judgement passed by the high court could have a big impact on limited companies including SPVs and even affect your borrowing situation.

Here’s what you need to know…

Holdings Ltd, Hashmi v Lorimer-Wing [2022] EWHC 191), a shareholder claimed unfair prejudice against the firm, which was overturned by the company’s director. As the decision was made without consultation of the wider board, the counterclaim was brought to a high court ruling as a breach of standards in line with the company’s articles of association.

Sole Directorship in Limited Companies

If a company is set up with a sole director, as is often the case with SPVs, that director is solely responsible for the company’s decisions. However in the case of Hashmi v Lorimer-Wing the company had both the model article 7(2), which permits a sole director to make decisions alone provided that there is no requirement in the articles for the company to have more than one director, AND article 11(2), that stated that the quorum for a meeting of the directors shall not be less than two unless otherwise fixed.

As both conflicting articles were present in the company’s articles of association, the judge ruled in favour of the shareholder and the company’s counterclaim was struck out, stating that due to the inconsistency the director didn’t have the sole right to make the counterclaim. 

Setting a precedent for future rulings, all limited companies now need to ensure they have crystal clear clarity in their articles of association and it may even mean that they need to be updated or a second director has to be appointed if stated as such. 

Sole Directorship in Limited Companies

So why is this so important to Limited Company landlords?

With rates changing so fast in the current market, if there are any discrepancies regarding articles of association in your legal searches it could add unexpected delays to the process and mean that your rate is not secured in time. In a worst-case scenario, any delay could cause an existing mortgage offer to expire or you could face considerably higher mortgage costs as a result.

Not something any of us want, so what can you do?

Don’t worry, this doesn’t mean you can’t be the sole director of your company, it simply means that if you hold any property in a limited company you need to ensure that the articles of association are accurate, consistent, clear and in line with your directorship structure. 

To check your documents and make any updates, we strongly recommend that you speak to your solicitor and inform Companies House as soon as possible, as any delays could cause unintended consequences.

To stay one step ahead, a quick check now could save unnecessary delays for any current or future applications, so it is well worth it. 

If you would like to discuss this further with one of our Buy to Let specialists, you can chat with the team today.

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