Removal Of A Director: How To Remove A Director From A Company.

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.

Notice of the general meeting is then sent to all shareholders and to the director in question. This director may make written representations in response to the proposal to remove him and, if practicable, the company must circulate these representations to the shareholders prior to the meeting.

At the meeting itself, the director facing removal is entitled to speak in respect of the resolution and to have any written representations he has made read to the meeting. The resolution to remove the director is passed by a simple majority (i.e., anything over 50%) of those shareholders who are entitled to vote, voting in favour.

Yes. The procedure under the Companies Act 2006 applies notwithstanding any agreement between the company and the director, so if the director is also an employee of the company, the fact that he or she has a service agreement with the company will not prevent him or her from being removed as a director.

However, depending on the circumstances, a court may find that removing the director from office amounted to constructive dismissal, thus opening the door to the former director bringing a claim for wrongful and/or unfair dismissal against the company.

A further potential difficulty arises if the director is also a shareholder in the company.

Section 994 of the Companies Act 2006 allows a shareholder to petition the court on the grounds that the affairs of the company are being or have been conducted in a manner which is unfairly prejudicial to its shareholders or some part of them. This is commonly referred to as an “unfair prejudice” claim. The question of what amounts to unfair prejudice has been the subject of much deliberation by the courts over the years and the concept has been applied in a variety of scenarios.

These have included the situation where a director has been removed from office in a company which the court has deemed to be a “quasi-partnership”.

A quasi-partnership, as the name suggests, is a company which was intended to be operated as a partnership between the shareholders and in which it was reasonable for each shareholder to expect to remain involved in the management of the company. Many owners managed businesses could be considered quasi partnerships.

If the court accepts that a company is a quasi-partnership then it may also decide that any director removed from office, and thus excluded from the management of the company, has been the victim of unfairly prejudicial treatment in their capacity as a shareholder.

In such circumstances, the court has wide powers and could, for example, order that the director be reinstated or, more likely, that the shares held by the deposed director are purchased by the other shareholders at market value.