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Introduction

This article briefly sets out the various circumstances in which a company may wish to terminate the appointment of a director, and the relevant procedural requirements.  A director’s appointment may be terminated:

  • By resignation.
  • Under the company’s articles.
  • By operation of law. 
  • By ordinary resolution under section 168 of the Companies Act 2006 (CA 2006).
  • Under contract, such as a provision in a service agreement requiring the director to resign.
  • By court order. 
  • By the death of the director.

We will provide a brief overview of all of these.

Resignation

A director may resign his or her office at any time by proper notice to the company and unless the articles provide otherwise, no period of notice is required. A resignation will be effective even where it is in breach of the director’s service agreement (although the director may then be liable to the company for damages).

Vacation of office under the Articles

Where the articles of a company provide that a director vacates office on the happening of some event or the doing of some act, the director automatically vacates his or her office on the happening of the event or on the act being done; no resolution is required and the board cannot waive the event or condone the act.

A board will have no power to remove a director from office unless such a power is set out in the company’s articles i.e. the office will be vacated on the termination of the director’s service agreement, or the office will be vacated if the director is convicted of certain offences.If a director loses their office under an article because they have a protected characteristic covered by the Equality Act 2010 (such as age or disability, including mental impairment), they might have a claim against the company under that Act thus it is important to draft and amend articles to make sure they are in compliance with this Act. 

Vacation of office by Law

The CA 2006 provides that a person may not be appointed as a director unless they are at least 16 years old when the appointment takes effect. There is no maximum age for directors prescribed by the CA2006.

A person is prohibited from acting as a director or directly or indirectly taking part in, or being concerned in the promotion, formation or management of, a company, except with the leave of the court, if the person is an undischarged bankrupt and subject to an order made under the Insolvency Act 1986.

Removal under Section 168 of the Companies Act

Under section 168 of the CA 2006, a company may by ordinary resolution at a meeting remove a director before the expiration of his or her period of office.

The right applies notwithstanding anything in any service agreement between the director and the company (although the director’s right to compensation or damages payable is expressly preserved).

There are detailed procedural requirements for the protection of the director including:

The resolution must be passed at a meeting: a written resolution will not suffice.

Special notice is required, i.e. the resolution will not be effective unless notice of the intention to move it has been given to the company at least 28 clear days before the meeting at which it is moved. Where this is impractical for the company, it must give notice by newspaper advert (or as otherwise permitted by articles) at least 14 clear days before the meeting.

If these procedures are not followed, the resolution is likely to be invalid.

Vacation of office under a Service Agreement

A director may continue to be an officer even after their employment has been terminated. Many service agreements therefore provide for the termination of the director’s appointment on the termination of employment, such as by requiring them to resign as a director.

 Vacation of office under a Court Order

In theory the court could order the removal of directors, via an application for unfair prejudice under the CA 2006 which gives the court wide discretion to make such order as it thinks fit to remedy any unfair prejudice that the petitioner is able to establish. Courts have, however, traditionally been reluctant to exercise their power in this way.

The information provided in this article is intended as a general guide only. It is not exhaustive or tailored to your individual circumstances.

 

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