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When a sole director is left holding the baby

30th June 2021

The maximum number of directors that a company can have will vary from company to company, and is usually set out in the company’s articles of association.  However, all companies registered in England and Wales must have at least one.

So what happens if you are the sole director of a company, but you wish to resign?  Can you?

As a director you owe fiduciary duties to the company to act in its best interests, and to put the interests of the company ahead of your own.  It would therefore seem that resigning and leaving the company to fend for itself, without anyone to take over the reigns, would be a breach of those duties.

However, there are other issues in play.  In particular, the requirement that a person must be willing to take on the responsibilities of the director role, and cannot be forced to do so against their will.

Sometimes the company’s articles of association will require a sole director to ensure that another person is appointed to the board before he resigns, but this is a relatively uncommon provision and is not one that is included in the standard Model Articles of Association contained in the Companies Act 2006.

What this means is that, subject to the company’s articles of association, a sole director can resign leaving the company without any directors, and can do so without breaching their fiduciaries duties.

Some may say that a director has a moral or ethical duty not to abandon the company in this way, but it is not always easy to make provision for a new director to take over, as that requires the exiting director to find someone else that is willing to take on the role.

What will happen to the Company?

If the sole director resigns, the company will be in breach of sections 154 and 155 of the Companies Act 2006, which require all companies to have at least one director.

In accordance with section 156 of the Companies Act 2006, the company would be directed by the Secretary of State (via Companies House) to appoint at least one director.

It would be up to the shareholders to rectify the situation and make sure that a director is appointed in accordance with the process set out within the articles of association.

If the company fails to appoint a director, an offence is committed by the company and every officer of the company.  This would include the company secretary (if there is one), but not the former director whose resignation triggered the breach.

The company could be struck off the register at Companies House, and have its assets sold or transferred to be held by the state, requiring an application to be made to rectify the position.

Therefore, to complete the metaphor, a director left “holding the baby” is not obliged to take care of it and can abandon it if they wish.

If you are a director or shareholder and require support, advice or assistance in respect of your company, Ansons Solicitors Dispute Resolution and Corporate teams are here to help. Associate Director, Adam Pike can be contacted on 01543 431197 or email apike@ansonssolicitors.com

 

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