How To Remove A Director

Remove A Director Overview

Why Would You Remove A Director?

There might be a number of reasons shareholders want to remove a director:

• A failure to respond to shareholder communications and their wishes.
• A failure to be transparent with shareholders of the company.
• Concerns about the sale of assets for less than their value.
• Concerns that a director is not acting in the interests of the company and having interests in conflict with it.
• A director is unwilling to disclose information and documentation to the shareholders.

However, a director might have a good reason for having conducted himself or herself in a way that might be at odds with what a given shareholder wants.

The shareholders are collectively a class or body of the company and the duty of a director is to act in the interests of the shareholders as a whole by acting in the best interests of the company to endeavour to ensure its survival and future success.

How To Remove A Director By A Resolution Of The Board

A resolution of the Board of Directors can be passed to remove a director from office.

Removal of a director by the Board depends on what the company’s Articles of Association provide on the power of the Board and procedures to remove a director.

If there is no provision in the Articles then the usual route is to pass an ordinary shareholder resolution.

How To Remove A Director By A Shareholder Resolution

The Companies Act 2006 sets out the requirements for director removal to enable a shareholder resolution to be passed to remove a director under Section 168 of the Companies Act 2006.

For a Shareholder to remove a Director a Meeting of the company needs to be convened. If a Director does not act in accordance with the wishes of Shareholders then according to Section 303 of the Companies Act 2006, the Shareholders can requisition a Meeting to pass a resolution to remove a Director.

However, for a general meeting of the company to be convened, the shareholders seeking to remove the director must represent at least 5% of the company’s share capital with voting rights. A company that does not have share capital can still requisition such a meeting with 5% of the members with voting rights seeking the same.

The shareholders that seek for a meeting to be convened must state its purpose and provide a draft of the proposed resolution they are seeking to pass.

A director required to convene a meeting of the company under Section 303 must by Section 304 of the Companies Act 2006 within 21 days call the meeting and upon doing so it must be held within 28 days of the notice convening it.

Right Of Protest Of Director Being Removed

A director who is the subject of a meeting of the company’s shareholders on a resolution for removal has under Section 169 of the Companies Act 2006 the right to be heard at the meeting and protest.

If he or she makes written representations and if not sent with notice of the resolution to the shareholders, the director can require them to be read out at the meeting unless a court orders otherwise.

How To Apply To Court To Remove A Director

A director may be removed from office by an order of the court following an unfair prejudice petition under Section 994 of the Companies Act 2006. It is however a rare event.

A court application for a director’s removal requires a good reason. Removal of the director by court application is not intended to be a procedure capable of being done too readily and it is certainly exceptional.

However, as the case of Garofalo v Crisp & Ors [2024] EWHC 1737 (Ch) shows it is possible when the affairs of a company have been conducted in an unfair and prejudicial manner but it is an unusual way to remove a director because of the risk of injustice both ways. In this case it was done without notice to protect the company.

It is a high threshold to reach explained as follows:

(i) This was an exceptional order which was going to change the status quo of the person who was in day-to-day charge of the companies and was having an immediate impact on the relationship of the parties in the Relationship Agreement. I am fortified in this reasoning by the rarity of a case involving an interim order for the reorganisation of the boards of companies with a heavy starting point of not intruding in the management structure of a company.

(ii) The need for caution was particularly great given the fact that the unusual application was made originally on a without notice basis.

(iii) Whilst it may not have been in large part a mandatory order, it was analogous in that the order was one which “may well carry a greater risk of injustice if it turns out to have been wrongly made than an order which merely prohibits action”.

(iv) Just as Chadwick J in the case of Nottingham Building Society v Eurodynamics Systems plc had in mind the possibility that a high degree of assurance may not have to be proven in every case of an interim mandatory action, so in an appropriate case, a high degree of assurance might be required in a case of what as a matter of form is still an interim prohibitory order.

(v) The need to be guided more by the injustice ensuing from the “risk that the court may make the “wrong” decision” than by the form of the injunction is apparent from the Film Rover case. Whilst that might be directed more to the balance of convenience than the threshold for grant of an injunction, in a case as unusual and as invasive as the order in this case, a higher threshold might be required. It was a matter of form and not substance that this was in effect a mandatory injunction so transformative of the status quo.

(vi) There is also an analogy with the case of NWL Limited v Woods: whilst this was not the grant of substantially what was sought at trial by way of an interim order (in which case a standard higher than the American Cyanamid threshold was appropriate), it was an injunction that was taking Mr Crisp significantly further along the path to a buy-out than an injunction simply holding the ring to trial.