RE: Remove a director25 Dec 2020 02:31
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Removal of Directors: Removing a Director from a CompanyThinking Of Removing A Director? Make Sure You Get It Right!
The principal role of a director (or “manager”) is to manage a company in such a way as to maximise the benefits to its shareholders (or “owners”), whilst ensuring that the company complies with all applicable laws and regulations. In many companies, regardless of size, directors are often both the owners and managers, hence the common term, “owner managed businesses”.
Therefore, it is a serious matter of concern for a company if a director is underperforming or if he or she is at odds with the strategies which the majority of the company’s management have adopted. In such circumstances, there may be no alternative option for the company other than to seek the removal of such a director.
In many companies, the power to remove a director from office is granted to the board of directors or to a majority of the shareholders under the company’s articles of association. For these companies, removing a director will require the board or a majority of the shareholders to serve written notice on the director in question.
For companies that do not have such powers enshrined in their articles of association, the Companies Act 2006 provides a statutory procedure to allow the shareholders agreement to remove a director by passing an ordinary resolution (i.e. anything over 50%) at a general meeting of the company.
In both cases, such removal is subject to any rights and protections the director may have under any contract of employment or service agreement, so it must never be assumed that it will be without cost to the company, particularly if during the removal, any such contract is breached.
The Statutory Procedure
The procedure for removing a director by ordinary resolution is set out in sections 168 and 169 of the Companies Act 2006.
A shareholder wishing to propose a resolution to remove a director must give special notice of his intention to the company. On receipt of this special notice, the board of directors must call a general meeting of the shareholders of the company to consider the proposed resolution. This general meeting must take place no earlier than 28 days from the date the company received the special notice.
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