There may come a time when you want to remove a director from your company, for example if they are guilty of misconduct or simply neglecting their duties. These situations can be tense, but the process is a relatively simple one.
In this guide, we show you how you can remove a director from a private company in a number of different situations.
Contents:
- How to remove a director under the company’s articles of association
- How to remove a director by a member’s ordinary resolution
- How to remove a director using the courts and in law
- Other ways in which a director’s appointment can end
- Removing a director if they are also an employee
- Can a director be disqualified?
- Can you resign if you’re a sole or co-director of a company
- Notifying and changing directors’ details at Companies House
How to remove a director under the company’s articles of association
If you’re thinking of removing a director, the first document you need to consult is the company’s articles of association. This document is, in effect, your company’s guide book, setting out how the company will be run and structured. It often contains provisions that dictate how directors should resign or be removed from office.
A company that doesn’t have bespoke articles will have standard articles known as ‘model articles’.
Under article 18 of the model articles, a person will stop being a director immediately if:
- they resign
- a majority of the company shareholders or members vote them out
- they’re stopped from being a director by a court or in law
- if they become bankrupt or similar
- if they become physically or mentally incapable in the opinion of their doctor
- How to remove a director by voluntary resignation
Provided that the company’s articles don’t say otherwise, a director can voluntarily resign by notifying the company and their co-directors that they’re resigning.
They’ll have to follow the articles to see how they send the notices, to ensure that the resignation is valid and effective.
How to remove a director by a member’s ordinary resolution
You can remove a director before the end of their term of office by an ‘ordinary resolution’ of the company’s members or shareholders, even if this wasn’t what was originally agreed between the director and the company. An ordinary resolution is a resolution of the members (or of a class of members) of a company, passed by a majority of the eligible voters present at the meeting.
If you’re proposing to remove a director by ordinary resolution, the company’s board of directors will need to send the members what is called ‘special notice’ of the proposed resolution to remove a director at a member’s meeting. This notice is ‘special’ because you need to give extra notice than is usual for shareholder meetings.
If the removal of the director is time sensitive, you should factor in any additional timeframes for circulation of the notice, as the resolution to remove the director must be passed at a meeting and not by way of written resolution. You must also send a copy of that notice to the director you are proposing to remove.
Post COVID-19, many companies have decided to hold ‘hybrid’ meetings of those present in person and virtually. If, in order to meet your timeframe, you want to hold a ‘hybrid’ meeting, guidance suggests that you can pass an ordinary resolution in a hybrid meeting, even if your articles don’t expressly allow it, provided the articles don’t require that members be physically present, or prohibit electronic participation.
The director can be replaced by a new director at the same meeting, but it should be noted that this also requires its own special notice.
Once a director been notified of a company’s intention to end their term by way of ordinary resolution, the director is entitled to respond and to be heard at the meeting.
A director can make written representations to the company in support of their case and can ask that these are sent on to the company’s members. If this isn’t possible or doesn’t happen, the director can ask that the representations are read out at the meeting. It’s advisable to comply with the director’s requests to ensure that there is no question as to the validity of the resolution passed.
Even if you terminate a director’s appointment, you still need to pay them any compensation or damages they’re owed, despite the termination of their appointment.
If the director holds any other position that will be terminated at the same time as their role as director, for example if they are also the treasurer, they also can’t be deprived of any compensation or damages that might be payable to them because they hold that position.
How to remove a director using the courts and in law
A director’s appointment may be terminated by court order or because of a provision of law. There are various directions and orders that a court can make to stop a person from being a director, including where a shareholder alleges that the director is running the company in a way that is or could be unfairly prejudicial to the interests of some or all of the members.
A person can’t be a director if they’re going through the process of bankruptcy, or if a bankruptcy restrictions order or a debt relief restrictions order is in force against them. Also, someone cannot be a director if they are the subject of a moratorium period under a debt relief order or if a failure to pay under a county court administration order is made.
Usually the articles of a company will set out what happens if a director is removed in these ways. In many cases, the person will stop being a director immediately.
A company can still be bound by the acts of a director that has been removed. The acts of a person acting as a director will continue to be valid, in spite of the fact that the act occurs after it was discovered that the director had ceased to hold office.
Other ways in which a director’s appointment can end
As well as by resignation or by vote, a director can be removed through a variety of other circumstances. If a director dies, they will automatically be removed from the position of director. If this happens, the company can then decide whether to appoint another director to replace them.
Directors may also retire from office by rotation, a practice which is particularly common in public or listed companies. The most common way of doing this, according to the model articles for public companies, is for the director to retire from office at a relevant annual general meeting of the members of the company. This person can later be reappointed, if this is an option offered by the company’s articles.
Alternatively, (particularly in larger companies or companies within a large group structure) directors can be appointed for a fixed term that may be set out in the company’s articles or in an individual director’s service contract. When the term ends, the director’s appointment automatically terminates.
Removing a director if they are also an employee
Unless stated otherwise by the company articles, a director can continue to hold their office even after their employment has been terminated. However, as you might expect, this is often not something that the business wants to happen. To prevent against an employee becoming or remaining a director, a company can include a provision in a director’s service contract the end of their employment automatically triggers a requirement for them to be removed or to resign from office.
In the case of removing a director who is an employee, we advise you to take legal advice about the employment law, pensions law and tax law surrounding this situation and its consequences.
Can a director be disqualified?
Yes. Directors have general duties that they legally owe to the company as a result of their appointment as an officer, which include a duty to act within a director’s powers to promote the success of the company and to exercise reasonable care, skill and diligence.
In certain circumstances where they’ve not fulfilled these obligation, for example, they’ve committed fraud, broken the law relating to companies, or been convicted of a serious offence, a court can make a disqualification order against them to stop them becoming or remaining a director for a period of up to 15 years. Read a full list of matters to be taken into account when determining the unfitness of a director.
If a director is seen to have been neglecting their duties, there are a few ways in which they may be protected, if they’ve been validly acting on behalf of the company. It’s also common for a company to hold insurance policies that will provide protections for its directors. A court can also relieve a director either wholly or partially, from liability if it believes that there are reasonable grounds for doing so and it looks like the director acted honestly and reasonably.
Can you resign if you’re a sole or co-director of a company
Both a sole director and a co-director can resign from office. However, a private company must always have at least one director and a public company must always have at least two directors. The law also states that a company must have at least one director who is a natural person, i.e. not another company.
It therefore follows that the removal or resignation of a sole director will require further action by the company. A new director will need to be appointed before or at the same time as the resignation or removal. A company’s articles will usually make provision for the appointment of a new director following the end of an existing director’s appointment. The model articles state that a director may be appointed either by way of ordinary resolution or by a decision of the other directors (if there are any). The model articles also address the situation where, as a result of death, the company has no shareholders and no directors, in which case the personal representatives of the last shareholder to have died have the right, by notice in writing, to appoint a person to be a director.
Also, the removed director will still have continuing legal obligations. A person who stops being a director will continue to be bound by:
- the duty to avoid conflicts of interest in respect of the exploitation of any property, information or opportunity that they became aware of at a time when they were a director
- the duty not to accept benefits from third parties in relation to anything they did or did not do before they ceased to be a director
- confidentiality obligations that they will have been subject to during the course of their term in office
Notifying and changing directors’ details at Companies House
Once you’ve removed a director, you must notify Companies House of the change:
- a company must notify the registrar of companies of the removal of or resignation of a director within 14 days from a person ceasing to be a director
- notice should also be given to the registrar if there is any change in the details of a company’s register of directors or its register of directors’ residential addresses, and the date on which the change occurred
- a company will need to file a TM01 form either online or on in paper form
If these requirements are not complied with, an offence will have been committed by the company and its directors and company secretary, and they may be fined as a result.
If your company is listed, there are likely to be further notification and/or publication requirements that these companies will need to comply with.
