Disagreements between directors and shareholders can arise for many reasons, from strategic differences and poor performance to allegations of misconduct or a breakdown in working relationships. When these issues become serious, businesses often ask whether it is possible to remove a company director.
The answer is yes. However, the process must be carried out carefully and in accordance with the law, the company’s constitutional documents, and any contractual arrangements. Failure to follow the correct procedures for removing a director could expose the company to legal claims and further disputes.
At AFG Law, our dispute resolution team regularly advises businesses, shareholders, and directors on governance issues and director disputes, helping clients find practical and commercially sensible solutions.
Can a Director Be Removed?
In many cases, yes. The Companies Act 2006 gives shareholders the power to remove a director before the expiry of their term of office through a specific statutory process.
However, the ability to remove a company director may be affected by several factors, including:
- The company’s articles of association.
- Any shareholder agreement.
- The director’s service contracts.
- Employment rights and contractual obligations.
- The circumstances giving rise to the proposed removal.
Before taking action, it is sensible to obtain legal advice to understand the options available and the potential consequences.
Section 168 of the Companies Act 2006
In many companies, shareholders have the legal right to remove a director by voting on the issue. Under Section 168 of the Companies Act 2006, this is usually done by passing an ordinary resolution, which means that more than 50% of the shareholders who vote must support the proposal.
However, removing a director is not as simple as holding a vote. There are specific legal procedures that must be followed, including giving the required notice and allowing the director an opportunity to respond.
It is also important to remember that even if a director is validly removed from the board, they may still have rights under their service contract or other agreements with the company. In some cases, this could result in a claim for compensation or other legal issues, which is why obtaining legal advice before taking action is often advisable.
The Procedure for Removing a Director
The statutory procedure for removing a director includes a number of important steps.
Typically:
- A shareholder gives special notice of the proposed resolution.
- The company notifies the director concerned.
- The director has the opportunity to make written representations.
- The proposal is considered at one of the company’s general meetings.
- Shareholders vote on the resolution to remove a director.
Generally, at least 28 days’ special notice is required before the relevant meeting takes place, although the precise requirements should always be checked.
Failure to comply with the correct procedure can invalidate the removal or expose the company to additional legal risk.
The Director’s Right to Respond
A director facing removal is entitled to certain procedural protections. For example, they may submit written representations explaining their position and, in many circumstances, request that these are circulated to shareholders before the vote.
They may also have the opportunity to address shareholders at the meeting where the resolution is considered. These safeguards help ensure that the decision-making process is fair and transparent.
Do the Company’s Articles Matter?
Yes. The company’s articles of association often contain provisions dealing with the appointment and termination of directors. For example, the articles may specify circumstances in which a director is automatically removed from office, such as bankruptcy or prolonged absence from board meetings.
The articles may also regulate board decision-making or impose additional procedural requirements.
Reviewing the articles should therefore be one of the first steps when considering director removal.
What About Shareholder Agreements?
Many privately owned companies operate under a shareholder agreement in addition to their articles.
These agreements frequently contain provisions dealing with:
- Appointment and removal of directors.
- Voting rights.
- Deadlock situations.
- Exit arrangements.
- Share transfers.
Although a shareholder agreement cannot override the statutory rights under the Companies Act, it may create contractual obligations that need to be considered before action is taken.
Employment Law Considerations
Being removed as a director does not necessarily end a person’s employment. Many directors are also employees of the company and may have contracts of employment in addition to their role as office holders.
As a result, employment law considerations often arise alongside company law issues. For example, terminating a director’s employment without following the correct procedures could expose the company to claims for breach of contract or unfair dismissal, even if the individual has been validly removed from the board.
Similarly, service contracts may contain notice provisions or compensation clauses that need to be honoured. Businesses should therefore consider both corporate and employment issues before proceeding.
Can the Court Remove a Director?
In some situations, disputes concerning directors may involve the courts.
For example, a court order may be sought in relation to company governance issues or allegations of misconduct.
However, in many cases, the statutory shareholder procedure under Section 168 remains the primary mechanism for removing a director from office.
Minority Shareholders and Unfair Prejudice
Removing a director can sometimes form part of a wider shareholder dispute. If the removal unfairly prejudices the interests of a minority shareholder, it may give rise to claims under Section 994 of the Companies Act 2006.
Such claims can arise where the affairs of the company have been conducted in a manner that is unfairly prejudicial to the interests of shareholders. These disputes are often complex and require careful legal analysis.
Is There an Alternative to Formal Removal?
Formal removal is not always the best solution.
Depending on the circumstances, disputes may be resolved through:
- Negotiation.
- Mediation.
- Revised governance arrangements.
- Voluntary resignation.
- Share buyouts.
Exploring these options at an early stage can often preserve business relationships and reduce costs.
What Happens After the Director Is Removed?
Once a director has been validly removed, the company will usually need to update its internal records and notify Companies House of the change within the applicable filing deadlines.
The company should also consider whether further steps are required, such as appointing a replacement director, updating bank mandates, or revising signing authorities.
Where employment has also ended, separate HR and contractual matters may need to be addressed.
How AFG Law Can Help
Director disputes can be highly sensitive and may have significant consequences for businesses and those involved in their management.
At AFG Law, our experienced dispute resolution team advises companies, shareholders, and directors on all aspects of corporate disputes, including the procedures for removing directors, shareholder disagreements, governance issues, and negotiated exits.
Whether you are proposing a resolution to remove a director, responding to a proposed removal, or seeking advice on wider shareholder disputes, our team can provide practical guidance tailored to your commercial objectives and help you achieve the most effective outcome.