Director removal

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Introduction.

Shareholders who are not also directors have limited powers to affect the direction and the day to day running of a company.

However, one of the powers that a shareholder does have is to remove a director or directors. There does not need to be a need to prove that the director was acting wrongfully, it just requires a vote or more than 50% of the shareholders at a general meeting to call for the removal of the director or directors.

How do shareholders normally remove a director?

The steps are set out under company legislation in the Companies Act 2006.

Shareholders can remove a director by passing an ordinary resolution at a meeting of the company. However, this is not as straightforward as it sounds, and the notice requirements for the meeting and resolution are quite specific.

• the shareholders proposing the resolution must serve special notice on the company of the proposed resolution to remove the director, and that notice must be given to the company at least 28 days before the meeting at which the resolution will be heard;
• once the company itself has received the shareholders notice, then the company must send formal notice of the meeting to all shareholders within 21 days from receipt by the proposing shareholders;
• when a company sends notice of the meeting to shareholders, it is usual for notice of the proposed resolution to be included at the same time;
• if for any reason this isn’t possible, then shareholders need to be given at least 14 clear days’ notice of the resolution before the meeting itself. This is a particularly serious and fairly unusual resolution and will affect both the company and the director or directors. It is therefore not appropriate for a short notice procedure.

The director who is proposed to be removed must also be provided with a copy of the notice of the meeting and the proposed resolution. They are entitled to make representations, either in written format in advance of, or at, the meeting of shareholders, or both, as to why they don’t believe that they should be removed. They may also attend the meeting and make oral representations.

If the director wants their representations to be sent to the shareholders in advance of the meeting, then they should provide these to the company in writing. The company will then forward those representations to the company’s shareholders, if possible before the meeting.

Shareholders meeting to remove directors

More than 50% of the shareholders eligible to vote must pass the resolution for it to be valid.

If there is a shareholders’ agreement in place, then there may be weighted voting in play, which may affect whether the director is removed or not, depending on the popularity or otherwise of that director with certain shareholders, and depending on the shareholding of the director.

• If a director is also an employee of the company, which is usually the case, then the company will need to deal with the removal of the director as an employee.
• It is important that legal advice is taken on the employment rights of the director as an employee, to avoid that director taking a claim against the company as an employee, even if they have been legitimately removed as a director through the shareholders’ resolution procedure.

Contact us today for assistance

At Francis Wilks & Jones we deal on a day-to-day basis with all matters of company legislation and procedure, including shareholders meetings and resolutions. It is vital that if shareholders wish to remove a director, that they follow the correct procedure, or the resolution could later be found to be invalid and the director will remain in role. If you are a shareholder considering removing a director, speak to one of our expert team today to review your options as soon as possible.

Francis Wilks & Jones were responsive, available at all times to deal with any of my queries and very reassuring. I would definitely recommend them to deal with proceedings brought on behalf of shareholders – they understood our practical needs.

A shareholder we helped bring unfair prejudice proceedings against a fellow shareholder who had been interfering with the management of the company and damaging its value