All companies have a constitution largely made up by its articles of association (articles). For many companies these are generally based on ‘standard’ articles known as Table A or, for the more recently incorporated companies, Model Articles. The articles provide a structure for the management of the company by, for example, regulating the internal matters of the company including, how shares may be transferred, the holding of board and shareholder meetings, the general powers and duties of the directors and the appointment or removal of directors.
In April 2013, the Mental Health (Discrimination) Act 2013 (MHDA) came into force. This amended certain provisions of the Model Articles by removing provisions that require the automatic termination of a director’s office if that director’s rights or powers are restricted by a court order on mental health grounds.
If your articles are based on a previous set of Model Articles or Table A then your articles may therefore be discriminatory.
You are not obliged to amend your articles to ensure that they are compliant with this new law, however, you may want to bear in mind that a director who has been removed from office on these grounds (or any equivalent of it) could bring an action against the company based on discrimination. You should certainly no longer rely on the provision and the potential liability is uncapped for such a claim.
Any prudent buyer will seek to pass any potential liability back to the seller. Ensuring you know the current law and dealing with any potential problems now could help reduce any unknown risk post-sale.
Ansons Solicitors has a team of specialist corporate lawyers who can assist with all aspects of corporate law from general contracts, terms and conditions of business and articles of association to company reorganisations and the buying and selling of businesses. For more information on our services please contact Hilary D’Cruz, head of the corporate team, on 01543 466660 or by email firstname.lastname@example.org or visit www.ansonsllp.com