The office of director may be vacated by statute, his or her death, or under a provision in either the Articles of Association of the company (referred to in this note as ‘Articles’) or a Shareholders Agreement.
Vacation by statute arises as follows:
- the director is below the minimum age (currently 16*);
- the director becomes bankrupt;
- the director is disqualified from being a director by a court order.
Further methods of vacating office may be included in the Articles, typically these are:
- if the director resigns;
- if the director becomes bankrupt or makes any compromise or arrangement with his or her creditors generally;
- if the director suffers from mental disorder;
- if the director is prohibited by law from being a director (which includes disqualification);
- or more rarely
- if the director fails to take up a share qualification required by the Articles;
- if the director is absent from board meetings for a specified period (typically six months).
Clearly, conflict with a director can be a difficult time for a company. The easiest way is normally to seek to persuade the director to resign in consideration for a severance package.
Alternatively the Company’s Articles may make provision for removal of a director.
However, if the foregoing is not practicable then the director may be removed by the following procedure:
- the member(s) wishing to remove a director must give “Special Notice” (Companies Act 2006 Section 168) to the company at least 28 days before the meeting at which the resolution is to be moved (Companies Act 2006 Section 312);
- on receipt of the notice the company must send a copy of the resolution to the director concerned. A board meeting must also be called to convene a general meeting;
- the company must give shareholders notice of the resolution at the same time and manner as it gives notice of the meeting or, if that is not practicable, by newspaper advertisement or other means allowed by the Articles, at least 14 days before the meeting;
- the director concerned is entitled to make written representations to the company and to request their notification to the members. The director may also speak at the meeting on the resolution concerning his/her removal;
- the board may, if it so wishes, make representations to the members whether they are for, or against the resolution, or even if they are divided. However, the proposers of the resolution may only make representations at the general meeting.
Removal of a director under these circumstances does not affect his or her rights to compensation for termination of the appointment which will depend on the wording of the contract. In addition, executive directors are employees of the company whether there is a written contract or not and their dismissal is governed by normal employment law.
For the purpose of unfair dismissal, the statutory procedures for removal of a director from office do not comply with the minimum requirements of the ACAS Code of Practice on Discipline and Grievances at Work. As a result, if a director is removed from office and this also terminates his/her employment, the dismissal will almost certainly be unfair. A director who is removed from office may therefore have a substantial compensation claim against the company.
If the director is also a shareholder then, depending on the circumstances they may also have a remedy for “unfairly prejudicial conduct” of the company’s affairs, under Section 994 of the Companies Act 2006.
It is recommended that professional legal advice should be sought in all cases.
* (there is no upper age limit since the repeal of CA 1985).
© Institute of Directors. All rights reserved.