Can you remove a company director without their consent?6 Aug 2020
The short answer to the question ‘Can you remove a company director without their consent?’ is ‘yes’, but, in practical terms, ‘it depends’, and there are strict procedures to follow if you want to avoid possible legal claims.
This article outlines the circumstances that might lead to removal of a director and describes the correct procedures to follow. However, the situation can be complex and it may be important to take professional advice before proceeding.
Why remove a director?
Directors have a responsibility to manage a business in a way that maximises its value for shareholders and complies with all industry regulations and legal requirements. If a director fails to meet those requirements, there may be a case for removal.
There are also other circumstances that may make a director unfit to continue. The Insolvency Service, for example, lists a number of situations that may lead to disqualification of a director:
Failing to prepare and file annual accounts with Companies House
Using money or assets belonging to the company for personal benefit or gain
Failing to submit tax returns or pay HMRC tax or other money due.
Although those circumstances are related to failure of duties, you may also find that a director is making decisions that are out of line with your overall strategy or decisions that pose a risk to the business. This can make it difficult to build and maintain an effective management team, which can be detrimental to the long-term success of your business.
How to remove a director
In some situations, following discussion, a director may recognise their failings and offer their resignation. However, if that does not happen and you decide to remove the director without their consent, you must follow the correct procedures.
This ensures that you comply with company law and any individual contractual obligations. It also reduces the risk of any legal action against your company if the director feels they have been unfairly removed.
There are three main ways to remove a director:
Under your company’s Articles of Association
Using the statutory procedures of the Companies Act 2006
Through disqualification by a third party, such a court or the Insolvency Service.
Related: How To Read A Company Balance Sheet
Using the Articles of Association
The Articles of Association are specific to your business, so check them carefully to ensure they include provision for removing a director without their consent.
The Model Articles of Association, for example, gives a board of directors or a majority of shareholders the power to remove a director in the following circumstances:
The director ceases to be a director according to the provisions of the Companies Act 2006
The director is prohibited from being a director
The director faces a bankruptcy order
A medical practitioner treating the director informs the company that the director has become physically incapable of carrying out their duties
The director has offered their resignation.
If any of those circumstances apply, you must give the director written notice of the decision to remove them.
Using statutory procedures
If your company’s Articles of Association do not include powers to remove a director, you can use the statutory procedures set out in Section 168 of the Companies Act 2006 - Resolution to remove the director. The act states:
A company may by ordinary resolution at a meeting remove a director before the expiration of his period of office, notwithstanding anything in any agreement between it and him.
Special notice is required of a resolution to remove a director under this section or to appoint somebody instead of a director so removed at the meeting at which he is removed.
A vacancy created by the removal of a director under this section, if not filled at the meeting at which he is removed, may be filled as a casual vacancy.
A person appointed director in place of a person removed under this section is treated, for the purpose of determining the time at which he or any other director is to retire, as if he had become director on the day on which the person in whose place he is appointed was last appointed a director.
This section is not to be taken:
as depriving a person removed under it of compensation or damages payable to him in respect of the termination of his appointment as director or of any appointment terminating with that as director, or
as derogating from any power to remove a director that may exist apart from this section.
To use these statutory procedures, you or a shareholder must call a general meeting of shareholders with voting rights to vote on passing the resolution — a written resolution is not acceptable.
You must give shareholders and the director a minimum of 28 days’ notice of the meeting and allow the director to attend the meeting, where they are allowed to make representations. The director is also allowed to make written representations and these should be circulated to shareholders and read at the meeting.
A majority vote is required for the resolution to proceed and for the director to be removed. At the meeting, you must take minutes and retain a copy of the minutes and the resolution at your company’s registered address. Within 14 days of the resolution, you must inform Companies House of the director’s removal.
Find out about our Shareholder’s Agreement services.
Disqualification by a third party
The matter may be taken out of your hands if a director does not meet their legal obligations and faces disqualification for being unfit to hold office. The decision can be taken by any of the following bodies:
The Insolvency Service
The Competition and Markets Authority
The earlier section ‘Why remove a director?’ set out some of the circumstances considered by the Insolvency Service.
If a director faces a complaint about their actions, they will receive written notification from the third party. They can then choose to wait for the verdict of the third party, defend themselves against the complaints or resign to avoid any further action.
If they resign voluntarily, they are effectively disqualifying themselves. Following disqualification, their details are added to the Register of Disqualified Directors at Companies House.
Complications in removing a director
Although there are established procedures for removing a director without their consent, there may be circumstances that complicate the matter.
The director is an employee of your company - Although a director may have a service contract as an employee, they can be removed without their consent under the provisions of the Companies Act. However, in their capacity as an employee, they may attempt to make a claim for wrongful or unfair dismissal.
The director is a shareholder of your company - If the director is also a shareholder, they can use the provisions of Section 994 of the Companies Act to challenge the decision to remove them. For example, the director may claim that they are an integral part of the management of the company, particularly if the business operates as a partnership. Therefore any attempt to remove them may prejudice their rights as a shareholder.
Support from Accounts & Legal
At Accounts & Legal our experienced small business solicitors understand employment and commercial law issues and can provide expert advice on your rights to remove directors as well as drafting shareholders’ agreements and Articles of Association that incorporate the appropriate provisions and procedures.
For further information please contact us on 0207 043 4000 or email@example.com.
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