Overview and summary
As a director you may be considerting resigning for reasons such as strategic disagreement, loss of confidence in the board, personal circumstances, or to avoid potential conflicts of interest or liability.
Under English law, a director can resign by giving written notice to the company, typically by letter or email. No special form or board approval is needed unless the company’s articles say otherwise.The process usually involves giving written notice in line with the service agreement or articles, ensuring any board resolutions are recorded, and filing the resignation (Form TM01) at Companies House.
The implications and risks of resignation can be significant, including potential legal, financial, and practical risks. Directors may remain liable for past actions, including breaches of duty or wrongful trading, and could lose out on remuneration, bonuses, or share options.
It's good practice to file the resignation promptly with Companies House using Form TM01.
Potential risks of resigning as a director
Personal Guarantees - you may remain liable if you have given a personal guarantee for company borrowings unless you can get this cancelled or some form of relaible indemnity in place.
Conflicts of Interest - even after resigning, directors need to be careful about conflict of interest issues, possibly including exploiting opportunities they became aware of while in office and other conflict of interests.
Insolvency Risks - there are potential risks if you resign when the company is in financial difficulty. Directors who resign shortly before insolvency can still be investigated. Liquidators can look back at your conduct for up to 3 years. Resignation won't protect you from wrongful trading claims if problems existed during your tenure.
Post-termination restrictions - review your service agreement for restrictive covenants (non-compete, non-solicitation clauses). These restrictions typically remain enforceable after resignation. Consider negotiating about these terms as part of your departure. Breach of restrictions can lead to injunctions or damages claims.
Leaver clauses - bad leaver provisions may force you to sell shares at less than market value. Check shareholders' agreement for specific resignation consequences. Consider timing of resignation in relation to vesting schedules and understand dividend rights post-resignation.
Indemnities and insurance - review existing indemnities from the company, consider negotiating a specific resignation indemnity and check if your D&O insurance covers claims made after resignation
Before Resigning as a Company Director: Practical Steps and How We Can Help
Resigning as a director of a private company can have consequences well beyond notifying Companies House. Before resigning, you should understand what happens to your shares, employment, payments, personal guarantees, potential liabilities and negotiating position.
Timing can be critical. Resigning first and investigating the consequences afterwards may mean losing rights or leverage that could have been protected through a negotiated exit.
What should you do before resigning as a director? Steps are likely to include :-
Check the articles of association – These may contain important provisions dealing with resignation, removal, voting rights, conflicts and share transfers. We can review the articles and explain what resignation will actually trigger.
Review the shareholders' agreement – Resignation can trigger compulsory share transfers, good or bad leaver provisions, valuation mechanisms and other rights or restrictions. We can identify these consequences before you take an irreversible step.
Establish what happens to your shares – resigning as a director does not automatically mean you cease to be a shareholder, but the company's documents may require a transfer. We can advise whether you must sell, to whom and how the price should be calculated or challenged.
Check good and bad leaver provisions – how and why you leave can have a major effect on the price paid for your shares. We can advise on the definitions, valuation consequences and whether your departure can be structured or negotiated more favourably.
Review your service agreement and employment position – directorship and employment are separate. We can advise on notice, salary, bonuses, benefits, holiday, garden leave and whether resignation from one position affects the other.
Consider negotiating before you resign – resignation may reduce your negotiating leverage. We can help negotiate an agreed exit dealing with your directorship, employment, shares, payments and continuing obligations before you formally leave.
Check bonuses, dividends and other payments – the date you resign may affect bonuses, dividends, commission or other entitlements. We can identify what is due and whether timing your departure differently could materially affect the outcome.
Have you given or recived any loans? – check whether you owe money to the company or it owes money to you. We can advise on repayment, set-off and incorporating outstanding balances into an overall settlement.
Have you given any personal guarantees? – leaving the board does not automatically release guarantees given to banks, landlords, suppliers or other creditors. We can review the position and seek release, replacement or other protection as part of your departure.
Consider negotiating an indemnity or release – resignation does not necessarily protect you against claims arising from your time as a director. Where legally permissible, we can advise on negotiating appropriate indemnities, releases or other contractual protections from the company or other parties. There are statutory restrictions on the extent to which a company can exempt or indemnify a director against certain liabilities, so these provisions require careful drafting.
Review D&O insurance and run-off protection – claims may arise after you have left concerning decisions made while you were a director. We can help establish what protection exists, if any, and whether appropriate continuing or run-off cover should form part of the exit arrangements.
Check restrictive covenants – your service agreement or shareholders' agreement may restrict competition, solicitation of clients or employees and other activities after departure. We can advise on their scope and likely enforceability and possibility to renegotiate as part of exit negotiations, before you commit to your next role or business.
Consider confidentiality and intellectual property – establish what information, materials and intellectual property belong to the company and what obligations continue after departure. We can advise where ownership or permitted future use is unclear.
Assess potential director liabilities – resignation does not erase responsibility for earlier decisions or conduct. We can advise on potential exposure arising from previous transactions, dividends, conflicts, company finances or other board decisions.
Check the company's financial position – particular care is required where the company may be approaching insolvency. We can advise on the implications for directors, previous decisions and what should or should not be done before resignation.
Preserve appropriate records – where you are concerned about previous decisions or potential allegations, ensure matters are properly documented without improperly removing confidential company documents. We can advise on what can legitimately be retained and how your position should be recorded.
Consider any shareholder or board dispute before leaving – if relationships have broken down, resignation may affect your leverage or wider legal position. We can advise on issues such as exclusion from management, unfair prejudice, share valuation, breaches of agreement and potential claims before you decide whether to resign.
Agree how the departure will be documented – Board minutes, resignation documentation, Companies House filings and internal or external announcements should accurately reflect what has been agreed. We can ensure the different elements of your departure are documented consistently.
Why take legal advice before resigning?
The important question is not simply "How do I resign as a director?" It is "What will happen if I resign?"
A director who resigns first may subsequently discover that they have triggered a compulsory transfer of their shares, lost entitlement to a payment, weakened their position in a dispute, remained liable under personal guarantees or left themselves exposed to future claims.
Our lawyers can review the position before notice is given, including the articles, shareholders' agreement, service agreement and other relevant documents, and advise on the financial and legal consequences of leaving.
Where appropriate, we can then negotiate an overall exit covering shares and valuation, employment, payments, loans, personal guarantees, restrictive covenants, indemnities and releases, D&O protection and existing or potential claims.
The aim is not simply to process your resignation. It is to ensure you understand the consequences, protect your position before you lose negotiating leverage and achieve as clean an exit as reasonably possible.
Contact us for a confidential discussion about your situation.
