Vacation of Office (Directors)
Resignation
A director can vacate office at any time by resigning and the company must accept his resignation
The general rule is that a director vacates office as soon as he notifies the company of his resignation
It is common for a period of notice to be specified in the directors service contract
Vacation in accordance with the articles
A company's articles may specify when a director is to vacate office
The model articles provide the a director will vacate office if
they cease to be a director by virtue of any provision of CA2006 or they are prohibited from being a director by law
A bankruptcy order is made against them
A registered medical practionier who is treating that person gives a written opinion to the company stating that the person has become physically or mentally incapable of acting as a director and may remain so for more than three months
Some article provision require retirement by rotation which occurs where a director is required to periodically vacate office and if they wish, seek reelection
Article 21 of the model articles for public companies provides
The directors must retire at the company's first AGM and may seek reelection
At every subsequent AGM, any directors appointed by the directors since the last AGM or any directors who were not appointed or reappointed at one of the preceding two AGMs, must retire from office and may offer themselves for reappointment by the members
Removal
Removal under CA2006
A company may by ordinary resolution at a meeting remove a director before the expiration of his period of office, notwithstanding anything in any agreement between him and it
The following rules must be complied with for the removal to be valid
The written resolution proceeder cannot be used
Special notice is required of a s.168 resolution, namely 28 days
A copy of the resolution must be sent to the directors whose removal is sought
The director whose removal is sought has the right to protest against his removal and may address the meeting and circulate written representations to the meeting
While s.168 allows a company to remove a director, it will not deprive the director that has been removed of any compensation payable as a result of the removal
The s.168 power to remove a director cannot be taken away from the members but it is possible to make a removal more difficult by inserting a weighted voting rights clause in the articles
Such as clause provides that in the event of a s.168 resolution, the voting power of specified persons will be increased
Removal under the articles
The model articles do not contain any other methods of removal but many companies insert a provision in the articles stating that a director will be required to vacate office if all the other directors so reqire
A consequence of removing a director via such an article provision is that it need not comply with the procedural rules found in s.168
Disqualification
The Company Directors Disqualification Act 1986 provides that a director can be disqualified on specified grounds
Where they are convicted of an indictable offence in connection with the promotion, formation, management, liquidation or striking off of a company or with the receivership of a company's property or with their being an administrative receiver of a company
Where it appears that they have been persistently in default in relation to provisions of the companies legislation requiring any return, account or other document to be filed with, delivered or sent or notice of any matter to be given to the Registrar of Companies
Where they have been found guilty of fraudulent trading
Where they have been convicted of a specified summary offence and they have during the five year period prior to the conviction, been convicted of similar offences at least 3 times
Where they have been convicted of certain indictable offences overseas that involve
The promotion, formation, management, liquidation or striking off of a company
The receivership of a company's property
A person being an administrative receiver of the company
Where they are or have been a director of a company which has at any time become insolvent and their conduct as a director of that company makes them unfit to be concerned in the management of a company
Where, in the opinion of the Secretary of State, it is expedient in the public interest that a person who is or who has been a director or shadow director should be disqualified
Where they have exercised the requisite influence over a person disqualified
Where they have breached competition law and their conduct makes them unfit to be concerned in the management of a company
Where they have been found liable for fraudulent trading or wrongful trading
Where a person is an undischarged bankrupt
Disqualification orders and undertakings
For a specified period, the disqualified person
Shall not be a director of a company, act as receiver of a company's property or in any way, whether directly or indirectly be cornered or take part in the promotion, formation or management of a company unless he has the leave of the court
Shall not act as an insolvency practionier
Disqualification order
An order of the court providing that a person is to be disqualified
It can take a considerable amount of time for the case to reach court and for the order to be issued
Disqualification Undertaking
The Secretary of State can accept from the director in question an undertaking that he will not, for a specified period, engage in the activities set out in ss. 1(1) and 1A(1)
Subject to two limitations
Can only be used in relation to the grounds of disqualification found is ss. 5A, 7,8,8ZC,8ZE or 9A and if the Secretary of State is of the opinion that the person has engaged in the disqualifying conduct found in those sections
The Secretary of State can only accept the undertaking if it appears than an undertaking is expedient in the public interest
Disqualification orders and undertakings have the same legal force and if either is breached, a criminal offence will be committed. If he was involved in the management of the company, he will become personally liable for the debts of that company
Personal liability can also be imposed on a person who is involved in the management of a company and acts upon instructions of a person who he knows is either
Subject to a disqualification order or undertaken
Is an undischarged bankrupt
A person subject to a disqualification order or undertaking may apply to the court for leave to act - to engage in any acts that are prohibited by the disqualification order or undertakenn
Compensation orders and undertakings
Disqualifying a person under CDDA1986 may precent that person from engaging in further wrongdoing but it does not aid those who have already suffered loss
CDDA1986 was amended in 2015 to allow for the courts to make compensation orders and for the Secretary of State to accept compensation undertakings
A compensation order or undertaking can only be made if 2 conditions are met
The person is subject to a disqualification order or undertaking
The conduct to which the order or undertaking relates has caused loss to one or more creditors of an insolvent company of which the person at any time has been a director
A compensation order or undertaking will require the disqualified person to pay a specified amount to
the Secretary of State for the benefit of the creditors or class of creditors
As a contribution to the assets of the company