Section 155 of the Companies Act 2006 (Act) provides that a company must have at least one director who is a natural person. But imagine a limited company with only two directors, one being a natural person and one being a corporate director. What happens when the ‘natural person’ has resigned as a director, or died and you are left with a sole corporate director?
What happens when you are left with a sole corporate director?
Firstly, the company would be in breach of section 155(1) of the Act. In those circumstances, the Secretary of State may direct the company to make the necessary appointment. If the company fails to comply, an offence is committed by the company and every officer of the company who is in default.
In the interim, neither the Act, model articles nor present case law explicitly requires that the directorship of a sole corporate director automatically ceases or must be terminated however, it is unlikely that a sole corporate director could continue to act where the company is aware of the breach. Therefore a natural person should be appointed as a second director as soon as possible so that the breach is remedied.
What if the sole corporate director has already purported to make decisions as the sole director in breach of the Act?
If the sole corporate director has acted in good faith, section 161 of the Act may apply to retrospectively validate those acts, even if it has since been discovered that the sole corporate director’s appointment was defective, or that it had ceased to hold office, or that it was not entitled to vote on the matter in question.
Please note however, this is not a defence but a mechanism to protect third parties against a company relying on a person’s lack of entitlement to act as a director in order to avoid its obligations – it will not protect the director with the defective appointment in dealings with the company.
If you need advice on corporate governance, please contact me at s.li@teacherstern.com or +44 (0) 20 7611 2362.
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Sing Li
Senior Associate