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LPC Law Notes Business Law and Practice Notes

Removal Of A Director Notes

Updated Removal Of A Director Notes

Business Law and Practice Notes

Business Law and Practice

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Removal of a Director

Removal by the Shareholders

The shareholders can remove a director by passing a removal resolution under s.168(1). Shareholders must give special notice to the company at least 28 days before the vote (s.312(1) & s.360(1)) which must be sent to the director being removed (s.169(1)).

The directors are entitled to refuse to place the removal resolution on the agenda for the general meeting (Penley v Inland Waterways), if this occurs then the shareholders have the power to require the directors to call a general meeting under s.303(1). This must be done by shareholders owning at least 5% of the paid up voting share. The s.303 request will state the resolution proposed and the nature of the business.

The directors then have 21 days in which to call the meeting for a date not more than 28 days after calling the meeting (s.304(1)). If the directors continue to fail to do this then the shareholders have the power to call the meeting themselves (s.305).

At the general meeting the director being removed has a right make written representations (s.169(3)) and speak in their own defence at the general meeting (s.169(2)).

Settlement Agreements

Often settlement agreements will be agreed as part of removing the director. The agreement must comply with s.203 which requires the agreement to be in writing and specifically state what claim is being settled by the agreement. The agreement must also identify an independent advisor who has PII (Professional Indemnity Insurance).

An ordinary resolution will be required under s.211 for any ex gratia payments to the director. The first 30,000 of genuine compensation will be tax free.

Employer Aims

  • To limit the employees claims in the future;

  • To insert restrictive covenants (such as a non-compete) and confidentiality clauses into the agreement

  • Require the buy-back of shares as a precondition to the agreement

  • Organise a handover period

Employee Aims

  • Ensure they cans still claim for personal injury and future pension rights

  • Agree a reference and PR statement

  • Include the following in the settlement figure: notice, compensation, holiday and fringe benefits (e.g. company car, travel card etc.)

When drafting a settlement agreement the employee and employer will have different aims:

Procedure Plan

Procedure Plan for Removal of a Director
BOARD MEETING 1 GENERAL MEETING BOARD MEETING 2

Report on the s.303 removal resolution.

Call the general meeting (within the time periods in s.304(1)) and give notice in the usual way.

The director has a right to speak at the GM (s.169(2)).

Ordinary resolution to remove the director (s.168).

Ordinary resolution to approve any ex-gratia payments (s.211)

Report on GM

Board resolution to approve the settlement agreement and authorise a signatory (not the director being removed).

Post Meeting Matters:

  • Sign the settlement agreement

Claims by the Director

Shareholder Agreements

If the director is also a shareholder and a shareholders’ agreement is entered into which requires the shareholders to vote unanimously on the removal of a director then the shareholders will...

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