The High Court was faced with the question of whether a company which had adopted the Model Articles without modification was able to operate with a sole director.
Background:
The company was incorporated on the 3rd of September 2018 and was, until recently, providing management services for the benefit of the family of Dr. Viatcheslav Moshe Kantor, a Russian businessman who is currently residing in Tel Aviv. All the company shares were owned by KRB PTC Ltd., a company which had been incorporated in the Isle of Man to act as trustee of the KR Family Office Trust.
Dr. Kantor, who was the settlor of that trust and one of its beneficiaries, was subject to sanctions under Regulation 5 of The Russia (Sanctions) (EU Exit) Regulations 2019. There was an application for an administration order issued on the 15th of May 2024 by the company itself and Mr. Paillardon, in his capacity as the company's sole director, as the other directors had since resigned. No other persons were willing to be appointed as additional directors.
The financial sanctions also severely impacted the company’s business to the point that, in May 2024, Mr. Paillardon applied to the Court to place the company into administration.
Decision:
The High Court concluded that a company (KRF) which had adopted the Model Articles without modification was able to make decisions while it had only one director. The resolution was deemed valid and effective, despite the company being designated or controlled by a sanctioned person. The Court distinguished the Re Active Wear Limited [2022] ruling by noting that the principles established in that case only apply in the event that there had only ever been a single director in the entirety of the company’s existence.
The Judge considered the long-running tension between Model Articles 7(2) and 11(2). The Court, having analysed previous judgements, ruled that Model Article 7(2) takes precedence over Model Article 11(2). However, if the company adopted the Model Articles, but modified them to require a minimum number of directors, then a sole director cannot exercise all powers of the company under Model Article 7(2). The Judge also noted that the Model Articles need to be internally consistent. The fact that the company had more than one director in the past was however irrelevant.
The Court also considered in detail the proper construction of Regulations 11 through 15 and 19. While not binding on the Office of Financial Sanctions Implementation (OFSI), the appointment of administrators by the Court did not, in principle, breach those provisions.
Implications:
This decision fully resolves the tension arising between Model Articles 7(2) and 11(2) by ruling that Model Article 7(2) takes precedent. However, if the articles have been modified to include a minimum number of directors, then a sole director could not exercise all powers. However, the Model Articles themselves do not contain a requirement for a minimum number of directors. Consequently, a sole director can take decisions if the company had adopted the Model Articles without amendments.
Regarding the sanctions, they do not prevent the courts from granting an administration order for a company connected to a designated person.
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