A director can primarily be removed by an ordinary resolution of the company's shareholders, which is a statutory right that cannot be excluded. Additionally, directors can be removed through provisions in the company's Articles of Association, resignation, disqualification, or in cases of death or incapacity.
Statutory Removal by Shareholders
The most fundamental way to remove a director is through a statutory procedure requiring an ordinary resolution of the shareholders in a general meeting. This means that the holders of more than 50% of the voting shares must agree to the removal. This crucial right of removal by the shareholders is enshrined in company law and cannot be excluded or overridden by the company's Articles of Association or any agreement between the company and the director.
The Process of Statutory Removal
Removing a director via shareholder resolution involves specific legal steps to ensure fairness and compliance:
- Special Notice: Before a resolution to remove a director can be put to a general meeting, the company must receive "special notice" of the intention to propose it. This notice must be given at least 28 days before the meeting at which the resolution is to be moved.
- Board Meeting to Call General Meeting: Upon receiving the special notice, the board of directors must convene a general meeting of shareholders.
- Shareholder General Meeting: At the general meeting, the resolution for removal is proposed. The director in question has a right to be heard at this meeting and can make written representations to be circulated to shareholders (unless the court orders otherwise).
- Ordinary Resolution Vote: Shareholders then vote on the ordinary resolution. If more than 50% of the votes cast are in favour, the director is removed.
- Companies House Notification: Once removed, the company must notify Companies House of the director's cessation of office using form AP01 (for appointment) or TM01 (for termination of appointment) within 14 days.
For more details on the legal framework, you can refer to the Companies Act 2006 on legislation.gov.uk.
Other Methods of Director Removal
While statutory removal by shareholders is the most common and robust method, several other avenues can lead to a director's removal:
Removal under the Articles of Association
A company's Articles of Association may contain specific provisions for the removal of a director. These provisions often detail circumstances under which a director can be removed by a board resolution (rather than a shareholder resolution) or automatically cease to hold office. Common grounds might include:
- Breach of duties.
- Persistent absence from board meetings.
- Bankruptcy.
- Mental or physical incapacity.
- Being prohibited from acting as a director.
Important Note: Any removal process outlined in the Articles must not conflict with the statutory right of shareholders to remove a director by ordinary resolution.
Resignation
A director can voluntarily resign from their position. This is usually the simplest method of removal. While the Articles might specify notice periods, a director can typically resign by providing written notice to the company. It's crucial for the company to formally accept the resignation (often by board resolution) and update Companies House.
Disqualification
A director can be disqualified from holding a director's office by a court order, typically due to misconduct or insolvency issues. Reasons for disqualification can include:
- Breach of director's duties.
- Fraudulent trading.
- Failure to keep proper accounting records.
- Wrongful trading.
- Misconduct in previous company failures.
A director who is disqualified is legally prohibited from acting as a director for a specified period, effectively removing them from office. Information on director disqualification can be found on GOV.UK.
Death or Incapacity
In the event of a director's death, their office automatically ceases. Similarly, if a director becomes mentally or physically incapable of performing their duties, the Articles of Association often provide for their automatic removal or a process for the board to remove them.
Practical Considerations and Legal Implications
Removing a director, especially against their will, can have significant legal and practical implications:
- Service Agreements: Directors often have service agreements (employment contracts) with the company. Removal from directorship does not automatically terminate their employment contract. The company could face a claim for wrongful dismissal or breach of contract if proper procedures are not followed, or if the contract terms are violated.
- Shareholder Agreements: In smaller companies, shareholder agreements might contain specific clauses relating to director removal, which could include buy-out provisions for the director's shares.
- Reputational Impact: The removal of a director, particularly a contentious one, can impact the company's reputation and internal morale.
- Board Dynamics: The process can be disruptive to board dynamics and require careful management.
Summary of Director Removal Methods
| Method | Initiated By | Key Requirement | Legal Basis | Potential Issues |
|---|---|---|---|---|
| Statutory Shareholder Vote | Shareholders | Ordinary Resolution (more than 50% voting shares agree), Special Notice | Companies Act 2006 | Potential for wrongful dismissal claim, director's right to be heard |
| Articles of Association | Board/Automatic | Specific conditions met (e.g., bankruptcy, absence) | Company's own Articles | Must not override statutory shareholder right, potential for dispute over interpretation |
| Resignation | Director | Written notice to the company | Mutual agreement/Director's choice | Notice period requirements in contract/articles |
| Disqualification | Court Order | Misconduct, insolvency offences | Company Directors Disqualification Act 1986 | Legal proceedings, significant penalties |
| Death/Incapacity | Automatic/Board | Death, or medical confirmation of incapacity | Companies Act 2006, Articles of Association | Medical evidence for incapacity |
Navigating director removal requires careful adherence to legal procedures and consideration of contractual obligations to minimize risks and ensure a smooth transition.
