This article focuses on the removal of a director from office, and the procedure that needs to be followed, per section 168 of the Companies Act 2006.

Unfortunately, businesses and business partners do not always work out as well as first envisaged and this can have disastrous consequences for a company. In those instances, the best course of action might be to remove the person or people who are no longer aligned with the company’s values and vision.

Removal of a director

Director appointments can be terminated in the following ways:

  1. By resignation;
  2. In accordance with the company’s articles of association (articles);
  3. By operation of the law;
  4. By ordinary resolution under section 168 of the Companies Act 2006;
  5. Under contrast, such as a provision in a service agreement requiring the director to resign;
  6. By court order; and
  7. By death.

This article focuses on number 4 – the removal of a director from office – and the procedure that needs to be followed, per section 168 of the Companies Act 2006.

Under s.168, a company may, by ordinary resolution at a meeting, remove a director before the expiration of their period of office. The formalities under s.168 cannot be excluded under a company’s articles therefore it is imperative that the correct steps are taken. It is to be noted that unless the articles of the company permit otherwise, removal of a director is ultimately a decision of the shareholders.

Steps to take

  1. A shareholder or a group of shareholders who hold more than 5% of the voting shares in the company writes to the board of directors, asking that they call a general meeting of the shareholders/members. This request should propose the resolution to be passed, namely the removal of the director in question. The request must be given by way of “Special notice”. A section 168 resolution to remove a director will not be effective unless notice of the intention to move it has been given to the Company at least 28 clear days before the meeting at which it is moved and voted upon.
  2. The directors hold a board meeting and resolve to call the general meeting as requested. Directors are required to give notice of a meeting within 21 days of being asked to do so by the shareholders.
  3. The notice of the general meeting is sent to the shareholders and the director in question. The director who is the subject of the proposed removal is provided with the opportunity to provide written representations to be sent to the shareholders ahead of the meeting. Usually, 14 days must be given for notice of a meeting however the Special notice provision must be taken into account, therefore the meeting cannot take place unless 28 days have passed since the directors received the request at step 1.
  4. The general meeting takes place at least 14 days following the date that notice of the meeting is delivered. The director who is the subject of the proposed removal is permitted to give oral representations should they wish. A vote takes place, and if the vote to remove the director is 51% or more, then that director shall be removed from office.

Why must these steps be followed?

If the removal of a director is unlawful, it may be voidable and the director in question may be entitled to damages. This is one of the very rare occasions where the Court will interfere with the internal affairs of a company. 

Removal of a shareholder

Generally, once someone holds shares, unless they are tied to their employment or directorship, they are their assets and there is no way to forcibly remove them as a shareholder unless there is a shareholder agreement in place that says otherwise.

Acquiring those share will entail negotiations and offers to buy their shares – either by the remaining shareholders or by the company itself offering to buy them back. Should the shareholder refuse to give up their shares, the situation can become complex.

If you are involved in a director or shareholder dispute, or require advice when considering parting ways with a company, legal advice should be sought to ensure the least risk to you and your company.

Griffin Law is a dispute resolution firm comprising innovative, proactive, tenacious and commercially-minded lawyers. We pride ourselves on our close client relationships, which are uniquely enhanced by our transparent fee guarantee and a commitment to share the risks of litigation.  For more details of our services please email justice@griffin.law or call 01732 52 59 23.

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