Director removals under “The Companies Act”

The 2006 Companies Act gives the right to shareholders to remove directors and replace them for any given reason (or even without a reason) as long as there is a majority vote in favour.

Something that may come as a surprise is that shareholders have a significant right to remove directors.

While the Articles may include provisions that simplify the process, the Companies Act takes precedence and this procedure applies to all companies.

Directors registered with Companies House must be removed according to the Companies Act procedure.

For directors not registered, other contractual arrangements may apply.

Requirements under “The Companies Act”

The Companies Act requires the process to commence with the shareholders giving “Special Notice” to the company outlining their intent to remove the director.

In practice, this means that notice must be given to the company at least 28 full days before the date of a proposed shareholders’ meeting to remove the director.

The 28-day notice

The 28-day notice period can be complicated; many companies address this by including alternative provisions in shareholders’ agreements, service contracts, or the Articles.

The company must still provide the director with a copy of the proposed resolution.

At least 14 days before the shareholders’ meeting, the directors must give notice to all shareholders.

During the meeting, the director being removed has the right to make their own representation to the company about their removal, but the board can also make a representation to shareholders.

During the meeting, a vote can be carried out in the form of a poll vote or (less likely) a basic show of hands, thus, the director will be removed if over half of the attending shareholders vote for the removal.

This process relies on a shareholders’ meeting being called after special notice is given.

If the board does not call a meeting, difficulties can arise; for example, if there are only two directors and one faces removal, the remaining director may not have the authority to call a meeting alone, even if most shareholders support the removal.

“Can this deadlock be reconciled?”

The Companies Act provides a procedure that allows shareholders to hold a vote to remove directors, even if the board does not call a meeting.

Shareholders holding at least 5% of the shares can call a meeting, and a majority vote at that meeting is sufficient to remove a director.

The Companies Act does not prevent directors from bringing other claims, in fact, directors who are also employees may have protection from unfair dismissal.

Directors who are also shareholders may be able to petition for unfair prejudice if the company’s affairs have harmed their interests or those of a group of shareholders.

It is important to review the articles of association, employment agreements, and any contractual rights before proceeding with a resolution.

Why you need legal guidance during this process

There is a wide range of reasons you may need when removing a company director; it is a fickle process that requires the utmost adherence to the law.

Clients often seek advice after other options have been explored, and our team at Orwins can help resolve director removal matters efficiently and with minimal disruption.

The process is detailed, with strict timescales and notice requirements set by the Companies Act, so you need legal assistance that understands this thoroughly.

Ultimately, a failure to follow the correct procedure can result in claims from directors, so the good news is that we have experience advising both companies and directors on removal matters.

Please contact us if you would like to discuss the legality of your scenario further, we’re here to help.