Resignation of a director
relinquishing all claims

If a director leaves the company, whether by mutual consent or otherwise, the members of the company should, whenever possible, obtain their formal resignation.

Protect the company

If a director leaves, the company may be exposed to claims for compensation. This can be for wrongful dismissal, where insufficient notice was given to terminate the director’s contract, or for unfair dismissal, if the director was also an employee with over two years’ service or within two years if an automatic unfair dismissal occurs, e.g. disability, discrmination etc.

This problem may be overcome if a director formally resigns their office. That way, unless they have been forced to resign, it is a private matter with no claim normally arising against the company for compensation. Under those circumstances, the director should be encouraged to sign our form of letter which confirms that they have no claims against the company and that they have resigned of their own free will.

Note. If the director was an employee of the company with over two years’ service, they should sign a compromise agreement such that they waive their right to take the company to an employment tribunal.

Advice

If the director was also a shareholder, then any negotiation regarding compensation should also include agreement on a price for the acquisition of any of their shares. You may also need to take advice from your accountant regarding putting a valuation on the departing director’s shares.

Be careful

Minority shareholders have rights too. Don’t do anything that may have the effect of causing “unfair prejudice” to the minority shareholder, e.g. try to increase the company’s share capital in order to weaken the value of the minority shareholder’s shares.

The director’s resignation must also be recorded at Companies House by filing Form TM01 within 14 days of the date of change.