Question: I am the majority shareholder of a private limited company. How do I remove a director from the board of directors?
A: In the first instance, if the removal of a director is consensual, then the director may resign unilaterally by tendering his resignation in writing.
The Articles of Association of a company may provide for some or all of the directors to retire automatically by rotation at the company’s AGM. This occurs most frequently in the case of public limited companies, although the articles of some private companies may also provide for retirement of directors by rotation.
In the absence of consent, a director of a company may be removed from the board of directors in the following ways:
- Automatic removal
A company’s articles will usually specify circumstances where a director will automatically be removed from office, e.g. where the director is adjudged a bankrupt, becomes incapacitated or of unsound mind, or is convicted of an indictable offence.
A person may be restricted or disqualified from acting as a director under the Companies Act 1990. A restricted or disqualified director can have no involvement in the promotion, formation or management of any company for the duration of his restriction/ disqualification. This will often trigger automatic removal under a company’s articles.
- Removal by shareholders
A company’s articles may give the shareholders and/or the directors the power to remove a director. Removal by the directors is done by resolution of the board of directors. The directors must exercise this power in the best interests of the company and not for ulterior motives. Removal by the shareholders may be done by ordinary or special resolution, depending on what the articles provide.
Shareholders have a general power to remove a director under section 182 of the Companies Act 1963, by passing an ordinary resolution to that effect at a general meeting. The general meeting must be held on extended notice of 28 days and the director is entitled to receive a copy of the notice of the resolution and has the right to be heard at the general meeting.
It is very important to note that, irrespective of the method of removal or resignation, consideration needs to be given to any contractual or employment rights, which the outgoing director may have. For example, section 182 of the Companies Act 1963 expressly preserves any right to damages or compensation which the director may have concerning his termination. A director may have a claim for unfair or wrongful dismissal. Detailed advice should be taken before proceeding with any removal.
This article provides an outline of the various options. Appropriate legal advice should be sought in all circumstances.