Removing a director

Things haven’t worked out and you need to get rid of a fellow director. Will showing them the door suffice? Or do you need to follow a set procedure?

Time to say goodbye

Directors cannot just get rid of a fellow board member. Removing a director from office requires a shareholder resolution, unless the articles state otherwise. There is a special procedure for doing this to balance the rights of the shareholders and those of the director being removed. If the director being removed is also a shareholder, they are entitled to vote on the resolution, and may even have weighted voting rights. Especially in smaller companies, this can lead to a deadlock situation that needs to be resolved by the court.

There are some situations in which a director is automatically removed from office which do not require a shareholder resolution. By law, a director who is disqualified from holding office or declared bankrupt is automatically removed. The articles usually provide for automatic removal in other circumstances as well, such as the director:

-          suffering from a mental or physical incapacity that prevents them from being able to hold office

-          being convicted of an indictable offence

-          committing certain breaches of duty

-          holding another office for profit; or

-          ceasing to hold qualifying shares.

Whether a director is removed by the shareholders or automatically, the company must update its own register of directors and inform Companies House. Its stationery and website may also need to be updated. The company’s bank will also need to be informed, as well as any other party that may be used to dealing with the director, e.g. customers and clients.

Other roles

Directors are often shareholders and employees of the company as well. Therefore, the correct employment law procedures must be followed to avoid any potential claims for unfair or wrongful dismissal. A company’s articles may require a director to transfer their shares on leaving office, in which case the share transfer procedure would also have to be followed.

Retiring or resigning?

The administrative requirements also apply where a director is retiring or resigning. Companies should check their articles to see whether the exiting director needs to transfer their shares, and follow any relevant retirement or resignation procedures in accordance with the director’s service contract/employment law.