Removing a director from a company requires careful consideration, depending on the circumstances.
I'm going to show you the grounds for removal, the notification process and what happens once the director has been removed. We will also explore the consequences of removing a director without proper grounds, as well as how to appoint a new director.
What are the grounds for removing a company director?
Generally, a director may be removed by the shareholders if there is a "just and reasonable cause".
In some cases, this may be due to misconduct, gross negligence or dereliction of the director's duties.
Additionally, a director may be removed if they are bankrupt, convicted of a serious offence or deemed unfit to continue in their role. If the company is not performing well, the shareholders may also remove the directors in order to make a change in leadership.
However, it is important to note that removal of a director should only be done as a last resort after all other options have been exhausted. This is because removal can be disruptive to the company and may result in legal action. As such, it is important that the grounds for removal are carefully considered before taking the next step.
A company's articles of association or model articles sets out the powers and responsibilities of directors.
The directors service agreement or director's service contract acts like an employment contract for directors and detail the role and responsibilities for the company director concerned.
Some common responsibilities of existing directors include:
- acting within the company's constitution
- work towards the success of the company
- avoid conflicts of interest
According to the Companies Act 2006, a company must have at least one director. If the sole director leaves, the company must find a new director to replace them. This happens either before or at the same time as the resignation or removal.
What is the process for removing a company director
You should check the legal documents that roles and responsibilities of the company director. This will make clear the nature of the director's employment in both the director's service contract and company articles.
A company's board of directors is responsible for overseeing the organisation's management and making strategic decisions on its behalf.
To remove a director, it depends on the agreements at the time of the director's appointment.
In some cases, a resolution may need to be passed by the shareholders. In this case the shareholders can vote and then send a written notice to the director concerned.
Other times, a court order may be required. Regardless of the specific process, it is important to make sure that all legal requirements are met before moving forward with removing a director from their position. Doing so will help to avoid any potential challenges or difficulties down the road, as well as legal challenges from the removed director.
The removal is subject to the rights and protections that the company directors may have. For example, company directors may also be employees or shareholders, which need to be taken into consideration when removing company directors, as this may mean they have different agreements in place.
The Statutory Procedure
Removing a company director can be done through a statutory process outlined in sections 168 and 169 of the Companies Act 2006.
A shareholder wishing to remove a director must give special notice of their intention to the company, which then has 28 days to call a general meeting.
At this meeting, shareholders will vote on the proposed resolution. If it is passed by a simple majority, then the director will be removed from their position.
However, if the resolution is unsuccessful or if there are not enough shareholders present to pass the resolution, then the director will remain in their role. Therefore, it is important for those proposing a resolution to ensure that they have the support of a majority of shareholders before moving forward with the statutory process for removing a director.
At the meeting, the director who is being removed can speak and have any written representations read. The resolution to remove the director is passed if more than 50% of shareholders who are allowed to vote, vote in favour.
What if the removed director is also a shareholder?
Under section 168 of the Companies Act 2006, a shareholder can apply to the court to have a company director removed on the grounds that they have been involved in serious misconduct or are otherwise unsuitable to continue serving in their role.
This statutory procedure provides a mechanism for shareholders to hold directors accountable and ensure that the affairs of the company are being conducted in a fair and transparent manner.
If a director is also a shareholder in the company, there is a potential conflict of interest which could lead to unfair prejudice against other shareholders. Consequently, it is important to carefully consider whether such an arrangement is in the best interests of the company and all its stakeholders before proceeding.
A quasi-partnership 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.
A large number of owner managed businesses could be considered quasi partnerships.
In recent years, there have been a number of court cases involving directors who have been removed from their positions in quasi-partnerships.
These cases have typically arisen when the shareholders have disagreed on the direction of the company, and one group has sought to remove the other from power.
While the outcome of these cases has varied, they have generally served to clarify the rights and obligations of directors in quasi-partnerships.
How do you go about notifying the director of their removal
When notifying a director of their removal from a company, it is important to be clear and concise in your communication.
Begin by stating the reason for the removal, and then provide any relevant details. Be sure to include information on what will happen next, such as who will be taking over their role.
It is also important to be respectful and professional in your language, even if the situation is difficult. Remember that this person is likely going through a tough time, and they deserve to be treated with dignity.
What happens once the director has been removed
Once the director has been removed from a company, the next step is to fill the position.
While there are a number of ways to do this, the most common method is to appoint an interim director. This person will serve in the role until a permanent replacement can be found. In some cases, the interim director may be someone who is already employed by the company. In other cases, the position may be filled by an outside consultant. Regardless of who is appointed to the role, the interim director will be responsible for overseeing the day-to-day operations of the company and making sure that it runs smoothly in the absence of a permanent director.
You need to let Companies House know about the termination of a director's appointment.
Are there any consequences for removing a director without proper grounds?
If a company removes a director without proper grounds, there may be legal consequences. The director may be able to sue the company for wrongful dismissal, and the company may be required to pay damages.
In addition, the company may lose the goodwill of its shareholders and directors, and it may have difficulty recruiting new directors. As a result, it is important for companies to carefully consider their reasons for removing a director before taking action. Otherwise, they may find themselves facing serious repercussions.
What is the process for appointing a new director
The process for appointing a new director in a company in the UK begins with the board of directors. They will first decide whether they want to appoint an internal or external candidate. If they decide to appoint an internal candidate, they will put together a shortlist of candidates and begin the interview process.
Once they have identified a pool of suitable candidates, they will begin the interview process. The final decision will be made by the board of directors, and the new director will be formally appointed at the next shareholders’ meeting.
How can you protect yourself against wrongful removal as a director?
You can be disqualified as a director if you don't meet your legal responsibilities. This may result in you being on the disqualified directors register
As a company director, you have a lot of responsibility and authority.
But with great power comes great risk - particularly when it comes to the possibility of being removed from your position by shareholders. So what can you do to protect yourself against wrongful removal?
First and foremost, it's important to have a clear understanding of the procedures and requirements for removal set out in your company's articles of association.
The company's articles should make clear your position should any attempt to remove you be made. It's also a good idea to keep communication lines open with all shareholders, even those who may be unhappy with your performance. By maintaining a good relationship with them, you may be able to dissuade them from taking any drastic action. Finally, it's always a good idea to document everything - this way, if there is ever any question about your removal, you will have evidence to back up your case.
Can a company operate with only one director?
While most companies have multiple directors, it is possible for a company to operate with only a single director. In some cases, this may be due to the unique structure of the business or the specific expertise of the director.
More often, however, it is simply a matter of convenience or cost-savings. Regardless of the reason, a single-director company can be just as successful as a more traditional business. The key is to ensure that the director has the necessary skills and experience to effectively manage the company. Additionally, it is important to have strong communication and governance mechanisms in place to help keep the business on track. With careful planning and execution, a single-director company can be a thriving enterprise.
For more advice on director removals get in touch here.