1. Check Your rulebook (Articles of Association) The first step is always to review your company’s Articles of Association. Most modern articles list specific trigger events, such as bankruptcy, mental health issues, or prolonged absence, that cause a director to lose their position automatically without needing a formal board or shareholder vote.
2. Use your statutory trump card Under the Companies Act 2006 (Section 168), shareholders have an absolute right to remove a director at any time by passing an ordinary resolution. This legal right typically applies regardless of any conflicting terms in the director’s service agreement, shareholders’ agreement or the company’s articles of association.
3. Respect the special notice period If you are using the statutory removal process, you must provide special notice. This means shareholders must give the company notice of their intention to propose the removal at least 28 clear days before the meeting where the vote will take place.
4. Give the Director a right to reply Fairness is built into the law; any director facing removal under the statutory process has a legal right to be heard. They can submit written representations to the company, which must usually be sent to all members, and they are entitled to speak at the meeting before the vote.
5. Review the service contract for hidden costs While you can remove a person as a director under the law, they may still have rights as an employee. A lawful removal from the board can still trigger a breach of contract claim or a claim for wrongful dismissal if employment is terminated without proper notice or a claim for unfair dismissal if certain statutory tests are met.
6. Shareholder rights to call a meeting – Under section 303-305 Companies Act 2006, shareholders holding at least 5% of the voting rights can require directors to call a general meeting and circulate resolutions, including for the removal of a director. If the board fails to act within the statutory timeframe, shareholders may call the meeting themselves and formally propose resolutions.
7. Mind the discrimination trap Even if a removal is technically legal, you must ensure the decision is not based on protected characteristics like age or disability. While executive directors have clear protection under the Equality Act 2010, the law may also protect non-executive directors if they are considered to hold a personal office.
8. Secure corporate information and handover A director’s right to inspect company books and records terminates the moment they leave office. A departing director may be required to take steps to deal with pressing matters or put the remaining board members in possession of essential information before their departure.
9. Update the public record promptly The company must notify the Registrar of Companies within 14 days of a person ceasing to be a director. You must file Form TM01 to ensure the central register at Companies House remains up to date.
10. Consider the amicable exit Formal removal may be confrontational and involves strict procedural hurdles. Most directors prefer to resign voluntarily by giving written notice; such a resignation is usually effective according to its own terms and does not require formal acceptance by the company unless the articles state otherwise.
For more information on directors duties and other corporate and commercial law queries, please contact Martin Donoghue at md@branchaustinmccormick.com.
