Special notice: remove director

Special notice: remove director

Written special notice from one or more shareholders for a resolution to remove a director

Background

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 a 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.

About this special notice to remove a director

This notice comprises special notice from one or more shareholders to remove director, with alternative options for the appointment of a replacement director.

Document features

Features include:

• alternative forms of letter – notice from either single or multiple shareholders
• alternative forms of letter
  • removal of director only
  • remove director
  • removal of director and appointment of replacement director

Explanatory guidance: remove director

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