Removing A Director

There are two principal ways in which a board can remove a director from a company.

        1. Removing a director by ordinary resolution of members.  

Section 168(1) of the Companies Act 2006 (Act) provides that:

“A company may by ordinary resolution at a meeting, remove a director before the expiration of his period of office, notwithstanding anything in any agreement between it and him.”

This essentially provides the majority (anything over 50%) of a company’s shareholders the ability to immediately remove a director.  

For such removal to be valid, there are rules which must be adhered to:

1. The resolution to remove a director must take place at a meeting. The written resolution procedure cannot be used.
2. Twenty-eight days’ notice is required of a resolution to remove a director.
3. A copy of the resolution must be sent to the director whose removal is sought.
4. The director, whose removal is sought, has the right to protest against their removal, may address and circulate written representations in that meeting.

While section168 allows a company to remove a director, it will not deprive the removed director of compensation payable as a result of their removal.

The section168 power to remove a director cannot be taken away from the members. However, it is possible to make a removal more difficult by inserting a weighted voting rights clause in the company’s articles. Such a clause provides that, in the event of removing a director by resolution, the voting majority of the director being removed will be increased. 

A note that the model articles for private limited companies do not provide for weighted voting rights.

Notably, section168 does not derogate from any other power that may exist to remove a director, and the company can, via its articles, provide for other methods to remove a director.

        2. Removal of a director under the articles

The second method of removing a director from a company derives from a power of removal contained in the articles. The articles are the rules or contracts between a company and its members. 

The model articles (the standard provisions that control how a company is run) do not contain any other removal methods. 

However, many companies insert a provision in their company articles, stating that a director will be required to vacate the office provided all the other directors so require. Where a director is removed via such an article, there is no requirement to adhere to the procedural rules stated in section168 of the Act.

When confronted with a scenario involving the removal of a director from a private company, you should seek legal advice. There are key steps by which you must adhere to ensure that any removal of a director is lawful and minimises the risk of a potential claim and loss against the company