As a property investor or developer, setting up a limited company is often an option for managing your portfolio. However, recent legal rulings have highlighted the importance of ensuring that your company’s structure and documentation, particularly the Articles of Association, are in order.
The Case of Hashmi v Lorimer-Wing [2022] EWHC 191
In this landmark case, a sole director’s decision to make a counterclaim on behalf of the company was challenged by a shareholder. The shareholder argued that the director acted unfairly, claiming that the decision was made without proper consultation. When the case reached the high court, it was found that the company’s Articles of Association had conflicting rules.
The company had two key articles in its constitution:
- Article 7(2): Allowed the sole director to make decisions alone, provided there was no requirement for more than one director.
- Article 11(2): Stated that a quorum for a board meeting required at least two directors.
This inconsistency led the court to rule against the sole director, establishing that decisions made without the necessary quorum were not valid. The counterclaim was struck out, setting a precedent for similar cases in the future.
What Does This Mean for Limited Company Landlords?
As a property investor, this ruling could have direct implications for your business. Many property investors use Special Purpose Vehicles (SPVs) or limited companies to manage their investments. If your company has a sole director, as is often the case, it’s crucial to ensure that your Articles of Association are consistent and clear.
Failure to address conflicting clauses in your company’s constitution could lead to significant delays during legal processes, such as securing mortgages. Any delay in mortgage completion could lead to higher rates, an expired mortgage offer, or even a failed transaction.
What You Can Do to Avoid Issues
- Review Your Articles of Association: Ensure they are consistent and in line with your directorship structure. If you are the sole director, verify that there are no conflicting clauses like those in the Hashmi v Lorimer-Wing case.
- Update Your Documents: If necessary, update your Articles of Association to reflect the current structure of your company. You may need to add a second director if required or amend your company’s quorum requirements.
- Consult Your Solicitor: It’s always best to seek legal advice to ensure that your company is compliant with the latest regulations and rulings.
- Notify Companies House: Once any updates are made, notify Companies House to ensure your company’s details are accurate and up to date.
Why Acting Quickly is Important
BTL Mortgage rates are fluctuating rapidly in the current market, and any legal discrepancies could lead to delays in securing finance. Being proactive and ensuring your company documents are accurate will help you avoid costly delays and ensure your mortgage process runs smoothly.
Take action today and avoid the pitfalls seen in the Hashmi v Lorimer-Wing case. For property investors and developers, staying on top of your legal structure is key to avoiding unexpected costs and delays.