Business

(All references in this article to any company or companies are to private companies limited by shares)

All private companies limited by shares must have articles of association; a company’s articles of association is effectively its ‘rule book’, containing the rules which govern how that company is run. The ‘Model articles for private companies limited by shares’ (the ‘Model Articles’) has been created as a ‘default’ set of articles of association; a company can adopt its own ‘bespoke’ articles of association, adopt the Model Articles with amendments made to it, or adopt the Model Articles without any amendments. A company must register its articles of association with Companies House. If a company does not register any articles of association, the Model Articles will apply to that company.

Section 154 of the Companies Act 2006 makes it clear that a private company limited by shares can have a sole director.

It had been understood that a company could be managed by a sole director with the Model Articles being its articles of association. However, the High Court case of Hashmi v Lorimer-Wing [2022] has established that this is not the legal position. In this case, court proceedings were instigated by Hashmi against Lorimer-Wing and a private company limited by shares of which Lorimer-Wing was the sole director (the ‘Company’), and the Company filed a counterclaim against Hashmi. The Company was governed by an amended version of the Model Articles; the Company’s bespoke Article 16 stated, amongst other things, that the quorum for a board meeting of the Company is two directors, and it amended Model Article 11(2) by imposing some different rules regarding the Company’s directors’ meetings.

Model Article 7, which applied to the Company, states:

“7.—(1) The general rule about decision-making by directors is that any decision of the directors must be either a majority decision at a meeting or a decision taken in accordance with article 8.

(2) If—

(a) the company only has one director, and (b) no provision of the articles requires it to have more than one director, the general rule does not apply, and the director may take decisions without regard to any of the provisions of the articles relating to directors’ decision-making.”

Model Article 11, which applied to the Company insofar as it had not been amended by the Company’s bespoke Article 16, states:

“11.—(1) At a directors’ meeting, unless a quorum is participating, no proposal is to be voted on, except a proposal to call another meeting.

(2) The quorum for directors’ meetings may be fixed from time to time by a decision of the directors, but it must never be less than two, and unless otherwise fixed it is two.

(3) If the total number of directors for the time being is less than the quorum required, the directors must not take any decision other than a decision—

(a) to appoint further directors, or

(b) to call a general meeting so as to enable the shareholders to appoint further directors.”

Hashmi sought for the counterclaim filed by the Company to be struck out by the court. The court struck out the counterclaim. One of the judge’s reasons for striking out the counterclaim was that, as the sole director of the Company, Lorimer-Wing did not have the authority to direct the Company to file the counterclaim. In reaching this decision, the judge applied the legal principles governing the interpretation of written contracts. The judge decided that due to the Company’s articles of association stating that the quorum for directors’ meetings is two (Model Article 11(2) and the bespoke Article 16.1), a minimum of two directors would be required to direct the Company to file a counterclaim; a sole director in these circumstances could only appoint further directors or call a general meeting so as to enable the Company’s shareholders to appoint further directors in accordance with Model Article 11(3). The judge expressly stated in Hashmi v Lorimer-Wing [2022]: “…amendment is required for the Model Articles to permit for a single director to run a company, but consider that such amendment would need to include the deletion of Model Article 11(2).” This is contrary to a previous understanding that Model Article 7(2)(a) and (b) prevails over Model Article 11(2), enabling a sole director of a company governed by the Model Articles to manage that company; the judge in Hashmi v Lorimer-Wing [2022] even recognised: “…Practical Law was more definitive in saying that Model Article 7(2) should prevail over Model Article 11(2)…”

Whilst the judge reached a different conclusion in Hashmi v Lorimer-Wing [2022], arguably, the very purpose of Model Article 7(2)(a) and (b) is to accommodate companies which are governed by the Model Articles and have a sole director at the time of incorporation, or subsequently enter into a state of having a sole director, so that such sole directors in these circumstances can manage the companies they are directors of “…without regard to any of the provisions of the articles relating to directors’ decision-making” (Model Article 7(2)(b)), such as those contained in Model Article 11, and so Model Article 7(2)(a) and (b) should prevail over Model Article 11(2). Whilst the judge reached a different conclusion in Hashmi v Lorimer-Wing [2022], arguably, a company’s articles of association should have to contain an express article stating that that company must have at least two directors, in addition to Model Article 11(2), in order to prevent Model Article 7(2)(a) and (b) enabling a sole director to manage that company.

Whilst the presence of the Company’s bespoke Article 16 might have affected the judge’s reasoning in relation to Model Article 7 and Model Article 11 in Hashmi v Lorimer-Wing [2022], it is clear that this judgment applies generally to the interpretation of Model Article 7 and Model Article 11.

There are multiple ramifications of the judgment in Hashmi v Lorimer-Wing [2022]. If a company is to have a sole director at the time of incorporation, a version of the Model Articles which amends or deletes Model Article 11(2) to explicitly enable that company to be managed by a sole director should be adopted. The shareholders of a company governed by the Model Articles which has a sole director should amend or delete Model Article 11(2) to explicitly enable that company to be managed by a sole director. The shareholders of a company with a sole director, governed by the Model Articles, should ratify any (purported) decisions taken by its sole director to prevent the validity of that director’s decisions being questioned in the future.

This guide is for general information only and does not constitute legal advice. If you would like to discuss anything in this article, please get in touch. 

What is a Shareholders’ Agreement?

It is common for shareholders of a company to enter into a written agreement with one another which will govern how they will behave in relation to their company. This is known as a Shareholders’ Agreement. The company itself may or may not be a party to this agreement.

It is not compulsory for the shareholders to enter a shareholders’ agreement and it is for each shareholder to enter freely into the contract if he/she decides it is in their interests to do so. Generally though, it is preferable if all shareholders enter into the agreement so that they are all bound by its terms. The importance of entering into the agreement is that it will bind all the parties to the terms and the usual remedies for breach of contract will be available if any of the parties breaches them.

A shareholders’ agreement typically sets out the shareholders’ rights and obligations, regulates the sale of shares in the company, describes how the company will be run, protect minority shareholders, and define how key decisions will be made. Some of these matters will also (or alternatively) be dealt with in the company’s articles of association. We would recommend that you enter into a shareholders’ agreement when you set up your company and issue the first shares. You will also be putting in place the company’s constitution at that time (the articles). Shareholders’ agreements and articles of association should be drafted in such a way as to complement one another ensuring they do not conflict and that between them the internal affairs of the company are regulated in such a way that is fit for purpose and reflects the wishes of the shareholders.

Typical Clauses

Below are a few examples of provisions which would be included in a typical shareholders’ agreement:

• An undertaking that the company will not amend its articles without the consent of all parties.
• Similar undertakings regarding changes in capital or share capital structure.
• Requirements on unanimity among shareholders for major decisions (i.e. the sale of the business).
• Restrictions on borrowing an offering security over the company’s assets.
• Agreements regarding further financing for the company.
• Agreement on dividend policy (i.e. sharing profit).
• Any disputes between shareholders to be referred to arbitration.
• Agreement not to compete with the company’s business.
• Agreement on treatment of intellectual property rights.
• Provisions dealing with the departure of a shareholder.
• Provisions for the resolution of deadlock decision-making.

What are the benefits?

A shareholders’ agreement can deal with matters which are personal to the shareholders. Including such personal rights in a shareholders’ agreement means that they become contractually enforceable, whereas this would not be the case if they were included in the company’s articles and reliance placed on the contract under section 33 of Companies Act 2006.

A shareholders’ agreement can provide protection for minority shareholders by reserving certain decisions, such as the ability for the company to issue further shares, which can only be made with the unanimous consent of all the shareholders. 

Also, a shareholders’ agreement being a private contract does not need to be made publicly available. Contrast this with the articles of association of all companies, which must be filed at Companies House and can be read by anyone. The shareholders’ agreement therefore allows for confidentiality.

This guide is for general information only and does not constitute legal advice.  If you would like to discuss anything in this article please get in touch.

As of writing, over 10 million people in the UK have received a first dose of the coronavirus vaccine.  For some, this shows that some sense of normality may return to the workplace in the not-too-distant future.

But can an employer require his employees to be vaccinated or refuse employment to those who are not?

This seems to be the stance taken by Pimlico Plumbers. The national plumbing company announced they were taking a ‘no jab, no job’ policy and were instructing their lawyers to work on writing the requirement into employment contracts.  However, the matter is not as simple as this.

Below are some thoughts on three key questions employers have regarding the vaccine.

Can employers impose a mandatory vaccination policy to staff?

While this may depend on the workplace and the employee’s role, this will be incredibly unlikely. 

By virtue of the Public Health (Control of Disease) Act 1984, the government have a range of powers to take action to prevent, control or safeguard the public against ‘infection’.  Although, the government is specifically prohibited from requiring anyone to undergo medical treatment, including vaccination.  The government has also reassured the public that they will not enforce any mandatory vaccination programmes.

Considering this, it is highly unlikely UK employers will be looked at favourably should they compel staff to receive vaccinations.

Understandably, employers will likely support their staff in getting the vaccination.  However, some employees may have reasons for refusing the vaccination, i.e. the individual is unable to be vaccinated owing to an underlying health condition or it would be in contravention of their religious or philosophical beliefs.  If an employer’s vaccination policy adversely affects or undermines individuals from a protected group under the Equality Act 2010 (age, sex, race, disability and religion or belief), it will potentially be discriminatory and may encompass high-value compensation claims.

Employers are under a general duty, pursuant to the Health and Safety at Work Act 1974, to take reasonable steps to reduce workplace risks to their lowest practical level.  What this means in a COVID world is that employers should encourage staff to be vaccinated and educate them of the advantages of this towards their health and others in the workplace so that they may make their own informed decision. 

This is a more risk-averse approach that encourages staff to voluntarily take-up of the vaccine. 

Can I discipline or dismiss staff that refuse to be vaccinated?

Again, these situations will require a close analysis of the facts on a case-by-case basis and before taking any such action, it is recommended that you seek legal advice.

Employers are entitled to make ‘reasonable management requests’, which in this case would be asking staff to take up the vaccine.  In cases where it is existing workplace policy to be vaccinated or necessary for someone to responsibly do their job, then an employer may justify disciplinary action if an employee refuses such a request.  An example of this would be where an employee works in the health or care home sectors, it would be reasonable to request a vaccination if this will reduce the risks of passing infection. 

It is much less likely to be a ‘reasonable management request’ where the employee has limited contact with others, is able to work from home or there are alternative measures to reduce the risks of workplace transmission. 

Moreover, employers should be reminded of the need to be flexible with staff and their employees have the right to appeal any dismissal they deem unfair.

Can I refuse employment to individuals who have not been vaccinated?

There is some possibility to this, however, employers still run a major risk of claims, particularly discrimination, being brought against them. 

It may be too early to consider such a measure, especially as the government does not plan on rolling out vaccines for the younger generations until autumn later this year.

This a contemporary, and rather controversial, legal issue. While we await any further government guidance or legislation on the matter, we strongly recommend that employers obtain advice before making any decisions.

Please note, this guide is for general information only and does not constitute legal advice.  If you would like to discuss anything in this article, please get in touch. 

The World has changed.

Worrying about Brexit and freedom of movement seems like a distant memory. The pubs were closed in Dublin on St. Patrick’s day. There is no live sport anywhere in the world. Theaters, bars and restaurants are empty.

New expressions have arrived in the English language; “Self- isolate” is now said more often than “selfie”.

“Force majeure” may also become a significant part of our vocabulary in the coming weeks and months.

Force majeure is the happening of events outside the control of the parties to a contract. For example, this could be natural disasters, the outbreak of hostilities, and, of particular relevance today, epidemics and pandemics. It is usual for parties to provide in a contract that such events will not make the defaulting party liable if they prevent it from performing its obligations. The concept is derived from civil law but is not fully recognised under common law, which means the wording of any force majeure clause is particularly important.

Normally a breach by a party of its obligations under a contract for  non-performance or delayed performance would result in that party being liable to pay the other party the losses that they suffer as a result of the breach. However, if this was caused by an event outside their control and where that circumstance is addressed by a force majeure clause in the contract (which usually includes a list of events) then the party relying on the clause may be able to avoid liability that might have arisen from the breach. In the absence of an express clause, the common law doctrine of frustration may apply.  Frustration only applies in certain restricted circumstances where performance has become impossible. It offers limited relief and remedies to the parties.

If you have any queries about force majeure please contact Graham Young (email: gyoung@cheyneygoulding.co.uk, phone: 01483 796002 or 07967333328).

Cheyney Goulding LLP is a firm of solicitors in Guildford, Surrey. 

This guide is for general information only and does not constitute legal advice. 

An evaluation of some challenges that climate-related risks will create for businesses and the officers controlling them.

Climate change has become one of the leading socio-economic issues for businesses to consider moving into the new decade.  The increase in greenhouse gas and C02 emissions is evident as are the corresponding climate-related risks, which have been supported by scientific research.  Global warming’s role in the melting of ice caps has led to global average sea levels rising 3 inches in the last 25 years.  Furthermore, extreme weather events, including droughts, fires and storms, have almost doubled since recorded figures in 1980.   Indeed, the Australian wildfires furthers these facts and shows that climate change cannot be ignored.

Public awareness of climate change has developed significantly over recent years.  Fuelled by environmental pressures and protests, such as the Extinction rebellion movement, 2019 arguably saw climate activism become ‘mainstream’.  Perception is shifting from organisations solely linked to fossil fuels, such as oil and gas, to a recognition that all sectors bear responsibility, including the financial industry.    

The first truly globally binding treaty on climate change is sealed within the Paris Agreement 2015. This is arguably another attempt at a concerted effort towards a shared world target for climate change resilience.  The Agreement commits international communities and authorities to hold global warming to no more than 2 degrees above pre-industrial levels.  Development in eco-friendly technology and societal sentiment undoubtedly influenced these negotiations, however, companies of all levels are still unclear how any new eco targets will impact their business operating costs, the viability of products they serve and the future of their supply chains.  Equally, the Paris Agreement offers no sanctions if a country falls short of the targets, so, arguably confuses businesses as mere ‘policy without teeth’. 

Calls for action have not gone unnoticed by the UK government and regulators.  The Climate Change Act 2008 set the foundations for the UK’s approach to tackling the issue.  Laws have recently been passed amending the UK’s domestic climate change targets for a tougher and more ambitious goal of ‘net-zero’ greenhouse emissions by 2050.  This commitment means the government hopes that overall carbon footprint will be reduced, and any emissions will be balanced by equivalent schemes and innovation to offset these gases from the atmosphere. 

Additionally, given the UK has recently left the EU, there are opportunities for legislation.  Suspected government plans of a Carbon Emissions tax are somewhat likely to be introduced within the coming years, to replace the EU’s Emissions Trading System.  It is rumoured this will touch and concern a wide spread of taxable corporations from large publicly trade companies to high street businesses.  Furthermore, Parliament is currently reading drafts of the Emissions Reduction Bill.  This aims to place provisions for air quality in affected zones within legislative footing, which will be enforced by fixed penalties for offences under this Bill.  While this shows initial steps made for clearer laws and sanctions, any timetable for new measures coming into force cannot be predicted.  The lack of any stable policy environment makes it challenging for businesses to plan and take decisive action with certainty.

On top of the growing public outcry, banks, creditors and financial investors are increasingly sceptical of the ‘carbon footprint’ of companies they invest in.  Legal & General echoed this sentiment by making it the ‘top of its investment agenda’ and has since divested funds away from companies that fail to act on climate change risks.  Equally, RBS has recently announced its ambition to become ‘climate positive’ by 2025.  They will work on this through their financing activities, namely, cutting funding to businesses that emit large amounts of carbon dioxide or where more than 15% of its activities relate to fossil fuels.  As a result of climate risks, the finance sector is transforming and reallocating capital towards more currently attractive and sustainable opportunities that promote environmental, social and governance (ESG) objectives.   

For businesses, a review of corporate governance and social responsibility should be placed at the top of the agenda.  Preparing strategies against climate risks is no longer exclusive for the environmentally, or simply image, conscious. 

While it is arguable that pubic and listed companies will feel greater scrutiny from stakeholders, clients and regulators, all businesses will be urged to report on their environmental impact in the future.  It is clear, from the UK government at least, that authorities will crack down on companies and their officers for failing to take adequate responsibility towards the nation’s ‘net-zero’ target.   Organisations that can set targets and demonstrate how they manage risks offer a more favourable profile to the public and the wider business world.

While there is still much uncertainty, it is undeniable that climate change is creating further challenges for business moving forwards in the form of litigation, corporate governance and regulation.  Climate change risks are real and ignoring or not taking proper advice may lead to significant consequences.   

What is the “gig economy”?

The term “gig economy” predominantly refers to areas of the employment market with the defining characteristic of offering short-term contracts/freelance work in place of more permanent jobs. Depending on the perspective of the onlooker this can be seen as either, an environment offering workers greater flexibility with regard to employment hours, or it could be seen as an exploitation/loophole, used to obtain labour, and in return provide very little in the way of workplace protections.

As a result of this bipolar view, employment tribunal hearings regarding individuals within the gig economy is on the rise.

Recent Employment Tribunal decisions:

Whilst tribunal decisions regarding employment status are by no means novel, there does appear to be a shift in their focus. Decisions historically laid emphasis on whether an individual was classified as an employee or worker. More recently, decisions have been increasingly focused on the distinction between an individual being engaged on a self-employed basis, and that of a worker.

Recent tribunal decisions such as, Aslam, Farrar and Others v Uber [2015], and Pimlico Plumbers Ltd and Mullins v Smith [2018] are clear indicators for the way in which tribunals are beginning to lean towards favouring the individuals bringing claims, rather than their employers. As such it is key that employers understand the potential difficulties they may face when operating within the gig economy.

Risks employers face hiring staff as self-employed contractors:

Since self-employed contractors and employees are at opposite ends of the spectrum in regards to employment protection, the distinction is often more obvious than that of self-employed contractors and workers. The issues regarding the “worker test” that have arisen as a result of UK case law, is that tribunal decisions are often dependant on the facts of the case in question. This in turn can make it difficult to ascertain with certainty whether an individual can truly be classified as a self-employed contractor.

This lack of certainty, alongside the recent run of tribunal decisions in favour of individuals/workers, highlight the risks that employers may face when engaging with individuals hired on an allegedly self-employed basis, then later found to classify as workers, whom would therefore be entitled to numerous employment rights including but not limited to:

• Paid holidays;
• National minimum wage;
• Limitation on working time; and
• Right to seek trade union.

Perhaps the largest risk employers need to consider when hiring staff within the gig economy is that when an individual is successful in claiming workers status the company is potentially exposed to larger claims by their entire workforce. For example, claims in regard to unpaid statutory holiday.

With current estimates of the UK being home to 1.1 million gig workers, it is essential that employers remain informed as to the potential repercussions they may face when dealing with self-employed contractors, and understand that greater levels of clarity are required in regard to arrangements made within the gig economy.