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Removal of directors from office (Resignation (A director may resign at…
Removal of directors from office
Both CA2006 and a company's articles provide mechanisms for the termination of the appointment of directors
The trigger may be dissatisfaction with the director's performance but equally it may simply be part of the company's process of management renewal, as with directors' retirement by rotation
The court may also force the termination of a director's appointment and a director may simply resign
A director may be removed from office in the following ways
Their resignation
Removal by the board of directors of a company
Removal by the shareholders of the company
Removal by the courts
Retirement by rotation
Resignation
A director may resign at any time by giving notice to the company and the constitutional documentation will usually cover the requirements and procedures which may be met to enable the resignation / retirement to be effective
While there is not usually a requirement for the director to give notice in the articles there may be a provision in the director's service contract or letter of appointment requiring the director to give a period of notice
If the director is removed from office as a director this will not usually affect the director's position (if they have one) as a member of the company. This is often a relevant consideration in private companies where often a director is often also a member. In most circumstances the only solution is for there to be negotiations for the purchase of the ex-directors shares
In some circumstances the removal of the director may be grounds for petition under which the court may order the remaining members (or indeed the company itself) to buy the ex-directors shares
Some company's constitution documentation contain a clause that a member who ceases to be a director is deemed to have given the company a transfer notice in respect of their shares so that the shares can, in effect, be compulsory acquired
It is usual practice that a director who wishes to retire sends a letter of resignation to either the company secretary or to the registered office of the company confirming their wishes to retire
The resignation may be effective from either the date of the letter of resignation, the date the letter was received by the company or after the board meeting of the directors has met to accept the resignation. This date would be ascertained and agreed upon by the board of directors of the company and the entry made in the director's register
Some of the reasons for disqualification could include
Not being fit and proper
A director may be disqualified for being a director if they are considered as not being fit and proper.
This usually happens after the local regulator has visited the licensed CSP and notice that policies and procedures are either not in place or are not being robustly enforced
Persistent default
A director may also be disqualified by the court if they have been persistently guilty of failure to filing, delivering or registering documents with the Register of Companies, because they would be seen as failing in their duties as a director of an official of the company
There is a presumption that a director is persistently in default if they have failed in these duties three times in the preceding five years
An un-discharged bankrupt
A director ceases to be a director if they become bankrupt
The director can only become a director again with the permission of the court, because they could be seen to be hiding behind the company's name
Fraudulent or wrongful trading
A director may also be disqualified as a director by the court where it appears during the winding up of a company that the director has been guilty of fraudulent or wrongful trading
Conviction of indictable offence
A director may also be disqualified by the court if they are convicted of an indictable offence in connection with the formation, management or liquidation of a company
Checklist - Resignation of a sole director
The company secretary will
On receipt of the letter of resignation from the sole director, arrange a GM
Send notice of the GM to all the members of the company that are listed on the members register
Arrange for the proposed new director to sign and return a letter of acceptance to act before the GM is held
Attend the GM to ensure that a quorum is present and oversee the voting in of the new director
Removal of a director by the board
Articles often provide that the office of a director is to be vacated if all other members of the board make a written request for the director's resignation, although the model articles (both private and public) make no such provision
Like all powers held by directors, exercise of this power is subject to the directors duties to act for proper purposes, in good faith to promote the success of the company and in a way that does not involve unacceptable conflicts of interest
Checklist - Removal of a director by the board
The secretary of the company should arrange for a board meeting to be held
The board should formally minute the vacation of office including the reason for the vacation. In offshore jurisdictions this is very often because a letter of resignation has been received from the director
The secretary should update the register of directors
The secretary should, if required by the jurisdiction, update the Registrar of Companies and/or resident agent
Third parties such as bankers of the company and any other relevant agents should be notified
If applicable, the company's stationary should be updated
Removal of a director by the shareholders of the company
Sections 168 - 169 of CA2006 provide wide powers for the removal of directors by ordinary resolution of the shareholders, before the expiration of the director's period of office. Special formalities (including special notice) must be observed and a director is guaranteed certain protections (such as the right to protest their removal)
Section 168(1):
A company may by ordinary resolution at a meeting remove a director before the expiration of their period of office, notwithstanding anything in any agreement between it and them
Section 168(2):
Special notice is required of a resolution to remove a director under this section or to appoint somebody instead of a director so removed at the meeting at which they are removed
Section 169(1):
On receipt of notice of an intended resolution to remove a director under S.168 the company must forthwith send a copy of the notice to the director concerned
Section 169(2):
The director (whether or not a member of the company is entitled to be heard on the resolution at the meeting
Removal of a director by the courts
A court may make a disqualification order prohibiting the person from acting as a director of a company or being involved in the management of any company for the period of the disqualification
Such orders are made under the Company Directors Disqualification Act 1986
Retirement by rotation
At each AGM of the company, all directors of FTSE 350 companies should be subject to annual election by shareholders
All other directors should be subject to election by shareholders at the first AGM after their appointment and tor election thereafter at intervals of no more than three years
Shareholders can remove a director from the board simply by failing to reelect them
Executive directors are exempt from this requirement
Bushell v Faith (1970)