Discovering that a company director has breached their statutory and/or fiduciary duties owed to a company of which you are a member is naturally distressing.
Although you and other members may want to resolve matters, if the breach has resulted in a complete loss of trust and confidence, the best solution may be to remove the director as quickly as possible.
Before examining how this is done, below is a brief recap of the general directors’ duties under the Company Act 2006.
What are directors’ duties?
All company directors must comply with the directors’ duties set out in Chapter 2 of Part 10 of the Companies Act (CA) 2006. These are:
- To act within powers.
- To promote the success of the company.
- To exercise independent judgment.
- To exercise reasonable care, skill, and diligence.
- To avoid conflicts of interest.
- Not to accept benefits from third parties.
- To declare any interest in a proposed transaction or arrangement with the company.
Other directors’ duties may be included in the company’s Articles of Association (Articles), Shareholders’ Agreement, and Director’s Services Agreement.
Can a director be removed for breaching directors’ duties?
The first thing to remember when considering removing a director is that directors’ duties are owed to the company; therefore, it is the company that can enforce them, and its members (shareholders) cannot. Members can seek legal advice on bringing a derivative claim or a claim under section 994 of the Companies Act 2006 for unfair prejudice.
The methods for removing a director for breach of directors’ duties are as follows:
Articles of Association (Articles)
The first thing to check is the company’s Articles.
This is effectively your company’s rule book and sets out how the company should run. Articles will either be drafted so they are tailored to your specific organisation or ‘Model Articles’, which can be downloaded from the internet.
Article 18 of the Model Articles provides that a person will cease to be a director of a company if:
(a) that person ceases to be a director by virtue of any provision of the Companies Act 2006 or is prohibited from being a director by law;
(b) they are made bankrupt or similarly insolvent;
(c) a doctor states in writing that they are physically or mentally incapable of acting as a director and will be so for three months or more;
(d) they resign.
If your company has bespoke Articles, they may set out other reasons for a director’s removal, such as gross misconduct or breach of statutory duties.
It is also important to check if the company has a Shareholders’ Agreement and/or Director’s Services Agreement, as these may also provide reasons and methods for a director’s removal.
Ordinary resolution
Under section 168 of the Companies Act 2006, a director can be removed following a 51% majority vote in favour (ordinary resolution). To do this, the Board will need to send out a Special Notice of the proposed removal at a shareholders meeting. Special Notice requires that members must give notice of the meeting to the company at least 28 days before the meeting takes place.
The director is entitled to be told of the shareholders’ meeting and their proposed removal. They should be given the opportunity to make written representations to the company’s members in support of their position. They can also ask that these be read aloud in the meeting if it is not possible to circulate them beforehand. The director should also be permitted to speak at the meeting.
Removal by the Court
If shareholders make a successful application for unfair prejudice under section 994 of the Companies Act 2006, the Court has a wide range of remedies it can apply, including removing the director. However, the Courts have traditionally been reluctant to apply this remedy so it is important to talk to your Solicitor about other ways to remove the director or whether it is best to seek a declaration (see below).
Resignation
Provided the Articles, Shareholders’ Agreement, and Director’s Services Agreement do not say anything to the contrary, a Director can resign from their position at any time and are not required to give a notice period.
Removing a director in practice
In our experience, by the time a decision is made to remove a director, the relationship between them and the company’s members has completely broken down. If this is the case, rather than engage in back and forth accusations, members simply want to get the director out of the company so they can move forward. By seeking legal advice early on, removing a director can happen swiftly.
In the case of Abaidildinov v Amin [2020] EWHC 2192 (Ch), Eldwick Law Partner, Jenna Kruger, successfully advised the Claimants in applying to the Court for a declaration that the Defendant, who was a director of London Infrastructure and the holder of 42% of the company’s shares, ceased being a director of the company on 30 March 2020 following resolutions passed at the meeting of London Infrastructure Ltd’s board of directors on 3 March 2020, or alternatively on 30 March 2020.
Getting Legal Help
To find out more about how our Company Law Solicitors can help you with removing a director or any other company law matter, please call us on +44 (0) 203972 8469 or email us at mail@eldwicklaw.com.
Note: The points in this article reflect sanctions in place at the time of writing, 20 November 2024. This article does not constitute legal advice. For further information, please contact our London office.
Share this Post