Removing a Director from a Company
With reasonable cause, it is possible to have a director removed from a company before the end of their period of office. However, similarly to when appointing a new director, it is important to get the process right. This legal guide will cover the different reasonable grounds for dismissal as well as the statutory process for removing a director.
What are Reasonable Grounds?
There must be a just and reasonable cause to allow for the removal of a company director in the UK, all of which are documented in the Companies Act 2006. These include:
- Breach of Fiduciary Duties: If a director breaches their fiduciary duties, such as acting in a manner not in the best interests of the company, it can be grounds for removal.
- Insolvency: If a director is declared insolvent or bankrupt, they may be disqualified from acting as a director.
- Misconduct or Fraud: Misconduct, fraud, or any other criminal activities by a director can be grounds for removal.
- Conflict of Interest: Failure to disclose or manage conflicts of interest appropriately can be a valid reason for removal.
- Breach of Statutory Duties: Violating statutory duties outlined in the Companies Act 2006 can be grounds for removal.
- Incapacity or Ill Health: If a director becomes incapacitated or experiences a decline in health that affects their ability to fulfil their role, it may be reasonable to remove them.
- Persistent Breach of Company Policies: Continuously breaching company policies and procedures may warrant removal.
- Non-Performance or Negligence: Chronic non-performance or negligence in carrying out directorial duties could be grounds for removal.
- Loss of Legal Qualifications: If a director loses the legal qualifications required for the position, they may be ineligible to continue in the role.
Once reasonable grounds have been established, the next step is to start the statutory procedure to remove a director from a company.
Methods of Removing a Director
There are several legal routes to remove a director, depending on the company’s structure and governing documents:
1. By Ordinary Resolution: Section 168 Companies Act 2006
- Shareholders can remove a director by ordinary resolution (simple majority vote >50%) at a general meeting.
- A special notice (28 days) must be given to the company before the meeting.
- The director has the right to be heard before the vote.
2. Under the Articles of Association
- The Articles may contain specific provisions allowing removal (e.g., automatic removal on insolvency or breach).
- Always review the Articles before initiating the process.
3. By Shareholders’ Agreement
- A private shareholders’ agreement may include bespoke terms allowing for removal under specific conditions (e.g., loss of confidence, deadlock, or breach).
4. By Disqualification
- A director may be disqualified by court order for misconduct, insolvency, or unfit conduct under the Company Directors Disqualification Act 1986.
5. By Resignation
- In some cases, the company may encourage the director to resign voluntarily as an alternative to formal removal.
How to Remove a Director: The Statutory Procedure
Removing a company director in the UK involves a structured process in compliance with the Companies Act 2006 and the company's articles of association. Here is a general outline of the steps:
1. Review Articles of Association and Shareholders' Agreement
Refer to the company's articles of association and any shareholders' agreement to understand the procedures and requirements for director removal.
2. Call a Board Meeting
Arrange a board meeting and give proper notice to all directors in accordance with the articles of association. The purpose should be to discuss and vote on the director's removal.
3. Issue Notice of Meeting
Send a formal notice of the board meeting to all directors, stating the date, time, location, and agenda, including the proposed removal of the director.
4. Conduct the Board Meeting
Hold the board meeting and present the case for the director's removal. Allow the director in question to present their case as well. A resolution for removal should be proposed and discussed.
5. Pass a Board Resolution
If the majority of the board (as required by the articles of association) votes in favour of the resolution, pass a board resolution for the removal of the director. Ensure proper record-keeping of the resolution.
6. File Required Forms with Companies House
File relevant forms notifying the Companies House of the director's resignation or removal, typically using Form TM01 (termination of appointment) or Form TM02 (change of particulars for a director).
7. Update Company Registers
Update the company registers, including the register of directors, to reflect the changes.
8. Inform the Director
Notify the director in writing of their removal, outlining the reasons and the effective date of the removal.
9. Notify Shareholders
If required by the company's articles of association, notify the shareholders of the director's removal.
10. Update Other Relevant Authorities
Update other relevant authorities, such as HM Revenue & Customs (HMRC), if necessary, to reflect the director's removal.
Ordinary or Special Resolutions
In the UK, company resolutions are formal decisions made by the members (shareholders) or the directors of a company. Resolutions can be either ordinary or special, each having specific legal implications and requirements as per the Companies Act 2006.
Ordinary Resolutions
An ordinary resolution is a standard decision made by the shareholders or the directors, depending on the matter being considered. For shareholders, it typically requires a simple majority vote (more than 50%) of those present and voting. When companies issue an ordinary resolution, 28 clear days of special notice must be given to the director; this excludes the day the decision is given and a meeting is held.
Key points include:
- Ordinary resolutions are used for regular company business
- Shareholders usually vote on ordinary resolutions during general meetings
- The resolution is passed if more votes are cast in favour than against
- Certain matters, like the appointment or reappointment of auditors, usually require an ordinary resolution
Special Resolutions
A special resolution is a more significant decision that requires a higher majority of votes (usually at least 75%) from shareholders who are present and voting.
Key points include:
- Special resolutions are used for important decisions that significantly affect the company's structure or constitution
- Shareholders typically vote on special resolutions during general meetings
- The resolution is passed if at least 75% of the votes are in favour
- Key matters requiring special resolutions include amending the articles of association, changing the company name, altering share capital, or winding up the company
It's important to note that certain specific matters outlined in the Companies Act 2006 may require a higher majority or unanimity even beyond the typical 75% for a special resolution. Always consult the company's articles of association and seek legal advice to ensure compliance with the correct resolution procedure and voting requirements for the specific matter at hand.
Under the Articles of Association
A company’s Articles of Association outline the rules and regulations governing its internal management and operation. They often specify the process for director dismissals, and while the details can vary based on the company's specific Articles, there is a general outline of how director dismissals are addressed in UK law. Many follow a similar structure:
Notification and Board Meeting:
The Articles may require that any proposal to remove a director must be notified to all directors, and a board meeting should be convened to discuss the matter.
Special Notice:
The Articles might specify that the intention to remove a director must be given as a special notice to the company. This notice typically needs to be provided in advance of the meeting, as per the specified notice period.
Quorum and Voting:
The Articles will define the quorum required for a board meeting to discuss the director's removal. They will also outline the voting requirements, which may be a simple majority or a higher threshold, such as a special resolution (75% or more).
Director's Right to Address the Board:
The Articles may grant the director in question the right to address the board and present their case before the voting takes place.
Approval Process:
The Articles will describe the process for obtaining approval for the removal. This could involve a simple majority vote, a special resolution, or any other voting mechanism specified in the Articles.
Effective Date of Removal:
The Articles will typically state when the removal becomes effective, which could be immediately after the vote or at a later date as determined by the board.
Filling the Vacancy:
The Articles may detail how a vacancy created by the removal of a director is to be filled, whether by appointment by the board or election by shareholders.
Compliance with the Companies Act 2006:
The Articles will ensure that the process for director removal is compliant with the Companies Act 2006 and any other relevant legislation.
Removing Directors who are Shareholders
Removing a director who's a shareholder follows specific legal steps beyond the standard statutory process. This involves complying with both company law and the company's articles of association. Initially, a review of the company's articles of association is vital to grasp the internal procedures for director removal, especially when the director is a shareholder. Following this, a board meeting adhering to the articles of association is necessary. The board discusses and votes on a resolution for removal, usually requiring a majority vote from the directors as per the articles or bylaws.
Afterwards, a formal notice of the board's decision to remove the director is served, ensuring compliance with articles of association and relevant legal requirements. If stipulated by the articles or the director's shareholder rights, a shareholder meeting may be held, where a resolution for removal is proposed and voted on.
Upon a successful resolution, the essential forms informing Companies House of the directorship change are promptly filed, and the company's statutory registers are updated. This distinct process underscores the importance of aligning the company's articles of association with broader legal requirements. Seeking guidance from legal professionals well-versed in UK corporate law is crucial to navigating these procedures effectively and ensuring compliance with all pertinent legal provisions.
Removing Directors who are Employees
The same can be said about removing a director who is also an employee. The statutory approach centres on notifying Companies House and following legal guidelines, while this unique process requires adherence to both company law, particularly the articles of association, and employment law.
The process commences with a thorough review of the company's articles of association, detailing specific procedures and prerequisites for removing a director who holds both roles. A board meeting aligned with the Articles of Association convenes to discuss and vote on the resolution for the director's removal, ensuring compliance with both internal regulations and legal requirements.
Following the resolution passage, a formal notice is meticulously served, encompassing the director's removal from both positions, director and employee, aligning with the articles of association and pertinent legal frameworks. Updating the director's employment contract is a critical step, accurately reflecting their modified roles and responsibilities while maintaining their employee status, requiring adherence to employment laws.
Moreover, notifying HMRC and other relevant authorities about the changes in the director's employment status is crucial for tax and regulatory compliance, distinguishing this process from the standard statutory removal route.
Director Dismissal or Disqualification?
Director disqualification and director dismissal are distinct concepts, each with its own implications and procedures.
Director Disqualification
Director disqualification is a legal process enforced by the courts or the Insolvency Service, based on the Company Directors Disqualification Act 1986 (CDDA) and related regulations. It involves the prohibition of an individual from acting as a director or being involved in the management of a company for a specified period due to their unfit conduct or actions that may jeopardise the interests of stakeholders, creditors, or the public. Disqualification typically follows a thorough investigation into the director's actions, such as criminal convictions, misconduct, insolvency violations, or persistent breaches of company law.
Grounds for Disqualification
Directors can be disqualified if they are deemed unfit to be involved in the management of a company. This unfitness can be due to various reasons, including but not limited to:
- Conviction of a criminal offence related to the company (e.g., fraud or dishonesty)
- Persistent breaches of company law or insolvency law
- Failure to comply with tax-related obligations
- Mismanagement of company affairs, resulting in losses to creditors
Director Dismissal
Director dismissal, on the other hand, is a business decision made by a company's board of directors or shareholders to terminate the appointment of a director from their position within the company. The dismissal could be for various reasons, such as poor performance, breach of duties, conflict of interest, violation of company policies, or other justifiable grounds as per the company's articles of association or shareholder agreements.
Therefore, director disqualification is a legal action enforced by external authorities based on specific legal grounds and after an investigation, aiming to protect stakeholders and the business environment. Director dismissal, on the other hand, is an internal business decision made by the company's governing body or shareholders based on the director's performance, conduct, or other relevant factors concerning the company's operations and goals.
Can a Director Be Removed Without Their Consent?
Yes, a director can be removed without their approval through a shareholder resolution under section 168 Companies Act 2006, even if they object.
However:
- The proper notice and voting procedures must be followed.
- The director must be allowed to make representations before the vote.
- If the removal breaches their service contract or employment rights, they may bring a claim for wrongful or unfair dismissal.
Costs of Removing a Director
The cost of removing a director varies depending on complexity and dispute level:
| Type of Cost | Typical Range / Details |
| Companies House Filing (TM01) | Free |
| Legal Advice (Simple Case) | £500 – £1,000 + VAT |
| Contested Removal / Dispute | £2,000 – £10,000+ depending on litigation |
| Internal Administrative Costs | Minimal (meeting notices, minute-keeping, etc.) |
Directors’ Rights and Protections
Directors, especially those who are also employees or shareholders, have rights that must be respected:
- Employment Law: If the director is also an employee, dismissal must comply with employment law and unfair dismissal procedures.
- Service Contracts: Termination may require notice or compensation under the director’s service agreement.
- Shareholder Rights: A director-shareholder may still retain voting rights as a shareholder, even after removal.
- Reputational Impact: Companies should manage communication carefully to avoid defamation or breach of confidentiality.
What Happens After Removal
After the director is officially removed:
- Appoint a Replacement (if needed) through board resolution or shareholder vote.
- Update internal and public records, including Companies House, the company register, and HMRC.
- Secure company property and data, revoke access to systems, accounts, and email.
- Review corporate governance to prevent future disputes.
Risks and Disputes
Removing a director can trigger legal or reputational risks, such as:
- Claims for unfair or wrongful dismissal.
- Shareholder disputes or unfair prejudice petitions under section 994 Companies Act 2006.
- Damage to company morale or investor confidence.
Obtaining specialist legal advice early can mitigate these risks and ensure compliance.
How We Can Help
If your company is looking to dismiss a director on reasonable grounds, our qualified director dispute solicitors have years of experience supporting cases. This complex area of law is best navigated with expert knowledge, as many processes and regulations must be followed and considered. Contact our team of solicitors today on 0330 173 3980 or email us at info@witansolicitors.co.uk.
FAQ
Is it possible to dismiss a director from a company?
Yes, it is possible to dismiss a director from a company in accordance with the Companies Act 2006.
What steps should I take to remove a director from a limited company?
To remove a director from a limited company, follow the procedure outlined in the company's articles of association or shareholders' agreement. Typically, this involves passing a resolution at a general meeting.
Can a director be removed without their approval?
Yes, a director can be removed from a company without their consent if the removal is in line with the company's articles of association or shareholders' agreement and complies with legal requirements.
Who possesses the authority to dismiss a director?
The authority to dismiss a director rests with the shareholders of the company, who can pass a resolution for removal in accordance with the company's articles of association and the Companies Act 2006.
How do you remove a director from a company in the UK?
By passing an ordinary resolution under section 168 Companies Act 2006 after giving 28 days’ special notice.
What is the procedure under the Companies Act 2006?
Issue 28 days of special notice, hold a general meeting, pass an ordinary resolution, and file Form TM01 with Companies House.
Can a director be removed by shareholders?
Yes, shareholders have the authority to remove a director by ordinary resolution.
What if a director refuses to resign?
The company can still remove them by resolution; if they challenge it, legal action may follow.
