It is usual that company directors are also shareholders and/or employees of the company. Therefore, if you are considering removing a director from your company, we recommend that you seek expert advice so that the correct procedures are carefully followed. Where the required procedural steps are not strictly managed, the company can be exposed to a shareholder dispute, unfair prejudice claim or even an employment law claim.

 

The legal framework for the removal of a director in the UK, is set out in the Companies Act 2006 (Act), specifically, sections 168 and 169. The Act provides that a director can be removed by shareholders, the board of directors, or the Court. You must first identify the ground(s) for removal and gather evidence to support the case.

 

Grounds for removal of a director

 

A director’s general duties are set out in sections 170 to 177 of the Act. Directors have a fiduciary duty to act in the best interests of the company and its shareholders. There are several grounds on which a director may be removed, such as:

1. Breach of fiduciary duties.
2. Conflict of interest.
3. Misconduct / misbehaviour.
4. Insolvency or bankruptcy.
5. Shareholder disputes.

 

Articles of Association

 

The first document you need to consult is the company’s articles of association and/or shareholders’ agreement. It may be that they prescribe a process for the removal of a director, and this is likely to be simpler than the statutory process, which has strict notice and timescale requirements.

 

The statutory procedure can be defeated by a provision in your company’s articles of association granting a particular shareholder or group of shareholders enhanced voting rights on a resolution to remove certain directors.

 

The Statutory Process

 

Through this process, the shareholder(s) must start by giving “special notice” of their intention to remove the director, to the company. This notice must be given at least 28 clear days before the proposed shareholders’ meeting. The company will then be obliged to forward a copy of such notice (or “resolution”) to the director concerned.

 

The director concerned has the right to make representations to the board (if written, at a reasonable length and this must be circulated to the board and members) and to speak about his/her proposed removal at the meeting. The board may also make representations to the shareholder(s).

 

At the meeting, the resolution to remove the director will succeed if a majority (more than 50%) of shareholders in attendance vote in favour of removing the director.

 

The relevant notice, resolution, minutes and Companies House filings must be carefully prepared and record all necessary points. You must also file Form TM01 at Companies House. This is an example of the most basic and straightforward statutory procedure. However, all companies have varying corporate and ownership structures, meaning the steps involved in the removal procedure have to be tailored for each case, accordingly.

 

We appreciate that this can be a daunting task. For this reason, we recommend that you get in touch with our team at Muldoon Britton so that you are thoroughly advised and avoid mistakes that could invalidate the procedure and wasted costs for the company.

 

Once you do terminate a director’s appointment, the company will still need to pay the director any compensation or damages owed, despite the removal.

 

Removal of a director can include complex procedural steps and compliance on behalf of the company. At Muldoon Britton, our specialist lawyers will consider you specific case in detail and ensure that you are thoroughly advised and guided throughout the process, so that your interests and the company’s interests are thoroughly protected, while achieving the required outcome as efficiently as possible.