How to remove a director

Removing a director from a company can be a sensitive and legally complex process. Whether due to misconduct, loss of confidence, or a change in business direction, it's vital to follow the correct procedures to avoid disputes or liability.

Under English law, limited companies are generally free to set their own rules and procedures. This means that the starting point for removing a director will depend on whether the company has set it's own rules about removal of directors, so :-

• check any shareholder agreement you have in place.

• check whether you have standard (in which case this will not really help you unless you have a clear shareholder majority) or amended company articles of association; and

• check the terms of any director service agreement or employment contract for the director.

Most common processes to remove a director

• Ordinary resolution by shareholders - most common method under s.168 Companies Act 2006, requiring over 50% shareholder approval at a general meeting with special notice (28 days) given to the company, who must then notify the director and allow them to make representations.

• Board resolution - if the articles of association permit (many standard articles include grounds like failure to attend meetings, bankruptcy, or incapacity), the board can remove a director by simple majority vote without shareholder involvement.

• Automatic removal - directors may be automatically removed if they meet disqualification criteria set out in the articles (such as being absent from board meetings for a specified period) or become legally disqualified under the Company Directors Disqualification Act.

• Resignation - directors can voluntarily resign by giving notice to the company, though articles may specify notice periods or conditions.

Key procedural requirements include filing Form TM01 with Companies House within 14 days, updating the register of directors, and ensuring proper notice periods are followed. Directors removed under s.168 retain the right to speak at the meeting and circulate written representations to shareholders.

Potential risks of removing a director

In most small private companies, the directors are also shareholders. Unless you have made specific provisions in the company articles or a shareholder agreement, you cannot force a removed director to give up their shares.

This is why many companies include good leaver and bad leaver provisions in their articles or shareholder agreement.

Where a director has been removed and he/she believes this has been done as part of a strategy to also oust him/her as a minority shareholder, the options include an unfair prejudice claim.

If the director is also an employee and is either dismissed or resigns, this can also mean the risk of an unfair dismissal or wrongful dismissal employment law claim.