The case of Re Fore Fitness Investments Holdings  EWHC 191 (Ch) reported in February of this year caused some interest and alarm amongst the corporate legal profession as it appeared to suggest that if a company had adopted the standard Model Articles of Association, it could not technically operate with only one director without breaching those articles and thus actions of the company may be subject to challenge as being ultra vires.
In the unreported case of Re Active Wear Limited (in Administration), the High Court has ruled that an out-of-court administration appointment, was validly made by a sole director of a company which had adopted the standard Model Articles of Association, thereby distinguishing the Re Fore Fitness case.
This is a sensible judgement and gives business efficacy to the realities of the business world. Many companies adopt the standard Model Articles of Association and do not think twice about them further down the line when one of the two directors resigns perhaps due to ill health or retirement reasons, just leaving one remaining director to continue to run the business. Creditors’ interests clearly are served by the option of an administration proceeding being available to a financially distressed company as well as the other insolvency options (eg liquidation and voluntary arrangement) and, in this case, the Court was clearly keen to ensure that technical niceties did not get in the way of the bigger picture of ensuring creditors’ interests were best served by the administration proceeding.
This is another example of the Courts being willing to help the general body of creditors overcome apparent hurdles to a strategy that is clearly in their interests and professional advisors to distressed company should take comfort in the notion that if the advice is the right advice for financial stakeholders, the law will generally do its best to provide help when needed.