How can a director be removed?

Specific provisions for how directors may be removed from office may be found in the Articles of Association. For example, these might provide that the removal requires approval by the shareholders, by the other directors or that one or more shareholders has the right to remove one or more specified directors. If the Articles of Association do include specific provisions for the removal of a director, it will usually be easier to comply with them rather than to use the Companies Act 2006 removal process described below.

What is special notice to remove a director?

The Companies Act 2006 contains a process for a director to be removed by ordinary resolution of shareholders, which must be passed at a shareholder meeting (and not by a written resolution). What is called special notice of a proposed resolution to remove a director must be given by the proposing shareholder(s) to the company. This removal process cannot be disapplied in the Articles of Association. On receipt of the special notice, the directors must call a meeting of shareholders for no earlier than 28 days following the date of receipt of the special notice. The director who is the subject of the resolution is entitled to make written representations concerning the potential removal, which the company must circulate to shareholders before the shareholder meeting. The special notice can also include a resolution to appoint a director in place of the director who is proposed to be removed. An ordinary resolution (simple majority) is required to remove a director under this special notice procedure.

What are weighted voting rights?

Where a shareholder who holds less than 50% of the voting rights wishes to protect against being removed as a director under this special notice procedure, it is possible to achieve this by including weighted voting rights in the Articles of Association. These weighted voting rights provide that, on a resolution to remove either that shareholder or that shareholder’s representative as a director, the shareholder may exercise multiple votes per share. The effect of this is that the resolution will not be capable of being passed, assuming the shareholder concerned votes against it. This protection is often included in the Articles of Association of joint venture companies, companies where there are a number of individual shareholders and in circumstances where an investor wishes to project its rights to appoint a director.

What about employment rights?

The removal of an individual as a director does not affect the individual director’s employment rights or status with the company (though the removal as a director may amount to grounds for an employment claim against the company, including for wrongful dismissal).

Does the removed director have a potential unfair prejudice claim?

If the removed director is a shareholder (or a representative of a shareholder), the shareholder may have grounds to bring a Court petition under the Companies Act 2006 against other shareholders who have caused the removal to take place on the basis that the affairs of the company are being conducted in an unfairly prejudicial manner. This is particularly the case if the company is found by the Court to be a quasi-partnership and the shareholder had a legitimate expectation to remain involved in the management of the company. If this is found to be the case, the likely remedy which may be awarded by the Court is that the petitioning shareholder’s shares should be bought by the other shareholders at their fair value.

Special notice to remove director template

Special notice to remove a director template under the Companies Act 2006, with alternative forms of notice for single or multiple shareholders and with an option to appoint a replacement director.

where one or more shareholders wish to remove a director
where the Articles of Association do not include a simpler removal process
as special notice pursuant to the Companies Act 2006 to remove a director

Key features

special notice required to remove a director from office
including an ordinary resolution to remove a director, for use by either a single shareholder or multiple shareholders
alternative forms covering:
- removal of director only
- removal of director and appointment of replacement director

What else do I need to know?

Under section 168 of the Companies Act 2006, shareholders can remove a director by passing an ordinary resolution at a general meeting. This decision cannot be made by written resolution. The shareholder proposing the removal must give formal notice to the company. The Articles of Association cannot override this statutory process or change the notice periods required for the process.

Once the company receives special notice, the board must call a shareholder meeting. This meeting must take place at least 28 days after the notice is received. The director facing removal has the right to submit written representations, which the company must circulate to shareholders before the meeting.

The special notice may also propose appointing a new director to replace the one being removed.

In some companies, weighted voting rights can protect shareholder-directors being removed from office by granting them extra votes on removal resolutions. This is common in joint ventures, multi-shareholder businesses, or investor agreements where director rights need protection.

Being removed as a director does not affect employment rights, but it may lead to legal claims, such as wrongful dismissal. If the removed director is also a shareholder, they may claim unfair prejudice under the Companies Act 2006 – particularly in quasi-partnerships, where they expected to be involved in management. If the claim succeeds, the court may order other shareholders to buy their shares at fair value.

Description

When do I use this document?

as an advance subscription agreement between the company and a single investor
where the conversion price will be calculated as a percentage discount to the issue price for shares in the qualified investment round
if agreed, where there is an agreed valuation cap on the company’s valuation

What are the key features?

advance subscription terms and payment
conversion on the occurrence of defined events, including a qualifying financing round, the sale of the company or on a longstop date
conversion price on a qualified financing round to be at an agreed percentage discount to the qualified financing round share price
if agreed, a cap on the valuation of the company for the purpose of calculating the conversion price
warranties regarding the investor’s compliance with Financial Services and Markets Act 2000 regime regarding financial promotions

What else do I need to know?

For detailed discussion regarding the purpose of advance subscription agreements and their benefits and disadvantages for investors and the company, click here.

Negotiating points

Prior to entering into this ASA, the parties will need to consider and agree:

discount rate: the discounted price per share (expressed as a percentage) at which the ASA investor will receive shares in the qualified financing round
valuation cap: if agreed, the cap on the valuation of the company for the purpose of calculating the price at which the advance subscription will convert into shares on a qualified investment round
default valuation: the default valuation of the company which will be used to calculate the conversion price of the advance subscription in circumstances where conversion occurs on the agreed longstop date or the company’s insolvency
longstop date: the longstop date on which (and in the absence of a prior qualifying financing round) the ASA will automatically convert into shares
qualified financing round: the minimum amount of funding which the company must raise before that funding round will count as the qualified financing round under the ASA which results in the conversion of the advance subscription into shares
subscription amount: the amount of the investor’s advance subscription

Explanatory Guides

As with all of our document templates, your purchase will include access to clear explanatory guidance on the document and its use.

£35.00 exc VAT

Updated by a lawyer on 28/08/2024

Updated By a lawyer on 11/15/2022

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Special notice to remove director template