Removal of a Director Reminder
s.168(1) CA 2006 Permits company’s shareholders to remove a director of their company by passing an OR (over
50%) at a GM.
s.510(1) CA 2006 Permits the shareholders to remove the auditor of their company by passing an OR at a GM.
Removing directors from office
By the end of this Workshop you should be able to:
1. Advise on the procedure to remove a director from office as a director and terminate the employment of a
director by terminating his/her service contract.
2. Explain the difference between terminating an executive director’s service contract and removing him/her from
the office of director.
Directors are officers of the company and may also be employees – so you may have to get rid of them in two
different ways
Ways a director can leave office
Resignation D can give notice to the company at any time (MA18(f))
o Subject to their employment contracts and notice periods in order to avoid liability for
breach of contract
Automatic If D becomes ill or bankrupt, they are prohibited from being a D (MA18(a))
disqualification If D becomes physically and mentally unable to act and will be for 3 months (MA 18(d))
If composition is made with a creditor in satisfaction of director’s debts (MA18(c))
Removal by the If using amended Articles, there may be a power to remove a fellow D - expel
board o If so, Ds removing the other director must act bona fide in the best interests of the
company (s172)
o This power must be used for proper reasons, e.g gross negligence or failure to perform
duties properly
There is no default provision for this in the MAs
Removal by Member’s Rights
shareholders Members have the right to remove a D at any time at a GM by OR and this right cannot be removed
by amending the articles/anything in the service contract (s168(1))
Cannot use WR procedure (s288(2)(a))
Members must give company “special notice” (s168(2)), and s312(1) says it must be:
o Given 28 clear days before GM (“clear” defined in s360 as not day of)
o Show formal notice of intention
o At the RO
o If intending to appoint a replacement, include this in the notice
Directors Rights
D under threat must be immediately given a copy of special notice (s169(1))
D then has the right to make written representation to the members (s169(3))
The D may also speak at the GM irrespective of whether they are a member (s169(2))
Procedure
Co-Operative Board of Directors: s168
This will only happen if a majority of the board votes in favour of calling the meeting
They will respond to the s168 special notice by calling a GM in the usual way (s312(2))
14 clear days’ notice of the GM is required
o Does not matter if this is held within the 28 days clear notice of the special notice
, requirement – shareholder will have been deemed to give proper notice in this situation
(s312(4)
To remove, the resolution must be passed by OR
Consider whether a GM has already been called (esp. if Ds refuse to cooperate); if so, D’s may agree
by majority to consider the special notice if there are still 14 clear days until the GM (s312(3))
Un co-operative Board of Directors s303
Members owning at least 5% of the voting shares can force directors to hold a GM (s303) – serve
notice in prescribed form
As soon as directors receive notice, Ds have 21 days to call the GM (s304(1)(a))
The GM must be held within 28 days of being called (s304(1)(b))
D’s receive notice on [X]. Last day on which they may call a GM is [X+21 days = [Y]]. If called on that
day, then [Y+ 28 days] is the last day on which GM may be held
D’s still refuse to cooperate with s303 and refuse to call GM: Members call it themselves under s305
by giving 14 clear days’ notice under s305(4). It must be held within 3 months from when the
directors first received the s303 notice to call under s304.
Protection? Shareholders should check the company’s articles to see if there is a Bushnell v Faith clause:
o Special article that gives D who are also shareholders weighted voting rights on a resolution
for their removal
e.g the D might have 10x the usual votes on the resolution
o Possible to remove the special clause by passing a SR under s21 CA 2006 at the GM, or
whether the D has been given special voting rights against this too – if so, D cannot be
removed against his will
Is it a fixed term service contract?
o Amount of compensation if dismissed? Could be very costly for business esp. If long term
fixed contract
Shareholders agreement:
o (if D’s are also shareholders)
o Agree not to vote against specified directors on a motion to dismiss any of those directors
If the D has made a loan to the company
o And is expressed to be repayable if the D loses his position
o Acts as a financial disincentive to dismiss him
Effect of If D removed, automatically loses any executive role that he might occupy within the company (exec
removal role dependant on him being a D)
Still retains any accrued employment rights, incl. those from service contract
o SC between the now ex director and company not invalidated by removal as a D – still
binding on both parties
o Company could therefore prima facie breach its obligations, leading to a claim of wrongful
dismissal
e.g, by preventing the D from completing his duties and earning a salary
o (see below)
Potential claims If company has, prima facie, has breached employment by preventing director from doing his job by removing
where director his executive role. The company is vulnerable to claims for:
is also an Wrongful dismissal (common law claim)
employee Unfair dismissal (statutory)
Redundancy (statutory)
Remember: the issue of employment rights applies only to a director who is employed by the company – ie
an executive director.
3. Explain the potential claims which might arise on the dismissal of a director as an employee or the removal of a
director from office.
s.168(1) CA 2006 Permits company’s shareholders to remove a director of their company by passing an OR (over
50%) at a GM.
s.510(1) CA 2006 Permits the shareholders to remove the auditor of their company by passing an OR at a GM.
Removing directors from office
By the end of this Workshop you should be able to:
1. Advise on the procedure to remove a director from office as a director and terminate the employment of a
director by terminating his/her service contract.
2. Explain the difference between terminating an executive director’s service contract and removing him/her from
the office of director.
Directors are officers of the company and may also be employees – so you may have to get rid of them in two
different ways
Ways a director can leave office
Resignation D can give notice to the company at any time (MA18(f))
o Subject to their employment contracts and notice periods in order to avoid liability for
breach of contract
Automatic If D becomes ill or bankrupt, they are prohibited from being a D (MA18(a))
disqualification If D becomes physically and mentally unable to act and will be for 3 months (MA 18(d))
If composition is made with a creditor in satisfaction of director’s debts (MA18(c))
Removal by the If using amended Articles, there may be a power to remove a fellow D - expel
board o If so, Ds removing the other director must act bona fide in the best interests of the
company (s172)
o This power must be used for proper reasons, e.g gross negligence or failure to perform
duties properly
There is no default provision for this in the MAs
Removal by Member’s Rights
shareholders Members have the right to remove a D at any time at a GM by OR and this right cannot be removed
by amending the articles/anything in the service contract (s168(1))
Cannot use WR procedure (s288(2)(a))
Members must give company “special notice” (s168(2)), and s312(1) says it must be:
o Given 28 clear days before GM (“clear” defined in s360 as not day of)
o Show formal notice of intention
o At the RO
o If intending to appoint a replacement, include this in the notice
Directors Rights
D under threat must be immediately given a copy of special notice (s169(1))
D then has the right to make written representation to the members (s169(3))
The D may also speak at the GM irrespective of whether they are a member (s169(2))
Procedure
Co-Operative Board of Directors: s168
This will only happen if a majority of the board votes in favour of calling the meeting
They will respond to the s168 special notice by calling a GM in the usual way (s312(2))
14 clear days’ notice of the GM is required
o Does not matter if this is held within the 28 days clear notice of the special notice
, requirement – shareholder will have been deemed to give proper notice in this situation
(s312(4)
To remove, the resolution must be passed by OR
Consider whether a GM has already been called (esp. if Ds refuse to cooperate); if so, D’s may agree
by majority to consider the special notice if there are still 14 clear days until the GM (s312(3))
Un co-operative Board of Directors s303
Members owning at least 5% of the voting shares can force directors to hold a GM (s303) – serve
notice in prescribed form
As soon as directors receive notice, Ds have 21 days to call the GM (s304(1)(a))
The GM must be held within 28 days of being called (s304(1)(b))
D’s receive notice on [X]. Last day on which they may call a GM is [X+21 days = [Y]]. If called on that
day, then [Y+ 28 days] is the last day on which GM may be held
D’s still refuse to cooperate with s303 and refuse to call GM: Members call it themselves under s305
by giving 14 clear days’ notice under s305(4). It must be held within 3 months from when the
directors first received the s303 notice to call under s304.
Protection? Shareholders should check the company’s articles to see if there is a Bushnell v Faith clause:
o Special article that gives D who are also shareholders weighted voting rights on a resolution
for their removal
e.g the D might have 10x the usual votes on the resolution
o Possible to remove the special clause by passing a SR under s21 CA 2006 at the GM, or
whether the D has been given special voting rights against this too – if so, D cannot be
removed against his will
Is it a fixed term service contract?
o Amount of compensation if dismissed? Could be very costly for business esp. If long term
fixed contract
Shareholders agreement:
o (if D’s are also shareholders)
o Agree not to vote against specified directors on a motion to dismiss any of those directors
If the D has made a loan to the company
o And is expressed to be repayable if the D loses his position
o Acts as a financial disincentive to dismiss him
Effect of If D removed, automatically loses any executive role that he might occupy within the company (exec
removal role dependant on him being a D)
Still retains any accrued employment rights, incl. those from service contract
o SC between the now ex director and company not invalidated by removal as a D – still
binding on both parties
o Company could therefore prima facie breach its obligations, leading to a claim of wrongful
dismissal
e.g, by preventing the D from completing his duties and earning a salary
o (see below)
Potential claims If company has, prima facie, has breached employment by preventing director from doing his job by removing
where director his executive role. The company is vulnerable to claims for:
is also an Wrongful dismissal (common law claim)
employee Unfair dismissal (statutory)
Redundancy (statutory)
Remember: the issue of employment rights applies only to a director who is employed by the company – ie
an executive director.
3. Explain the potential claims which might arise on the dismissal of a director as an employee or the removal of a
director from office.
