How Outdated Articles of Association Could Cause a Deadlock When Valuating Shares

A company’s articles of association are a public document filed at Companies House that outlines the management and internal affairs. It is common for a new private company limited by shares to adopt the model articles contained in Schedule 1 to the Companies (Model Articles) Regulations 2008 (SI 2008/3229I) on incorporation. The Model Articles offer a standard set of rules and guidelines which contain provisions such as:

• the directors’ powers and responsibilities;
• the appointment and termination of directors; and
• share transfers and transmission of shares. 

Our Corporate Solicitors will go on to explore how outdated articles of association could cause a deadlock situation when appointing authorities for the valuation of shares.

This is generally carried out under the President’s Nomination Scheme. In the absence of a contractual mechanism (i.e., in the absence of a provision contained in a company’s articles of association) for selecting the independent expert where the parties are unable to agree on this, the court has no power to intervene to make the appointment, and there is a significant risk that the determination process will break down as a result.

Since 2020, ICAEW will only take applications where both parties (rather than a single application by either party) agree to use the ICAEW President’s Nomination Scheme, known as a joint application. The independent expert will be nominated from a firm in the ICAEW directory.

Generally, the ICAEW will only accept single applications where one party has first obtained a Court Order (which can lead to additional expenses and time at the hand of the parties). This is to ensure that all parties concerned in the valuation of the shares in the company are involved in the process of determining the valuation.