In this case, the High Court considered the validity of a sole director’s out-of-court appointment of administrators. The Court ruled that the appointment of administrators, based on the decision of a sole director of a company with unmodified model articles, was valid. This was a divergence from the High Court previous ruling in Re Fore Fitness Investment Holdings Ltd  (“Fore Fitness”), where it had been held a sole director was not properly authorised to make a valid decision on behalf of the company.
Active Wear Ltd (“Active Wear”) was incorporated in June 2015 and showed warning signs of insolvency in March 2022. In April 2022, the sole director sought to appoint joint administrators of Active Wear.
In assessing the principal issue of whether the sole director was entitled make a valid decision to appoint administrators, the Court considered the construction of Active Wear’s Articles of Association. The entirety of Part 2 of Schedule 1 of the Model Articles was of relevance to the Court for this application, as it pertained to directors’ powers and responsibilities and decision making by directors.
The following key provisions of the Model Articles were of particular importance to the Court:
The Court held that the sole director’s decision to appoint administrators was valid because as the Model Articles were unmodified. Article 7(2) applied and that meant Article 11(2) and Article 11(3) were disapplied.
In its decision, the Court recognised the contradiction between this ruling and that in Fore Fitness. However, the Court did emphasise the following key factual differences:
This decision reduces the uncertainties prompted by the ruling in Fore Fitness and will be welcomed by sole directors of companies with unmodified Model Articles as it clarifies their decision-making powers. The Court’s decision in Fore Fitness turned on the fact that there was a modified article specifically disapplying Model Article 7(2).
In practice, this case highlights the importance of carefully reviewing and understanding the articles of a company in determining whether decisions are valid. This applies not only to decision making surrounding an insolvency event, but to wider company decisions as well.