How to Legally Remove a Director in the UK

Removing a director

Removing a director from a company is a process that requires adherence to specific legal requirements under UK law. Companies must carefully follow the steps outlined in the Companies Act 2006 and consider their own governing documents to avoid disputes or claims. Let’s explore the process of legally removing a director while ensuring compliance with all necessary procedures.

Understanding the Legal Framework

The removal of directors in the UK is governed by the Companies Act 2006, which grants shareholders the authority to remove directors through an ordinary resolution. This resolution needs a simple majority vote at a general meeting, regardless of restrictions in the company’s Articles of Association. Reviewing these documents before proceeding is essential, as they may include additional provisions that could influence the process.

Steps to Remove a Director

Removing a director is not as simple as making a decision and acting on it. There are specific legal steps that must be followed to ensure compliance and fairness. Here is how the process works:

1. Establish Legal Grounds

It is crucial to have valid reasons for the director’s removal. Common grounds include:

  • Breach of fiduciary duties.
  • Poor performance or negligence.
  • Conflict of interest or misconduct.
  • Bankruptcy or disqualification from serving as a director.

2. Review Company Documents

Examine the company’s Articles of Association and any shareholders’ agreements. These documents may outline specific requirements for director removal, such as additional steps or restrictions.

3. Issue Special Notice

The process formally begins with a “Special Notice” under Section 312 of the Companies Act 2006. This notice must be given at least 28 days before the proposed meeting and include the resolution details. It should also notify shareholders of their voting rights.

4. Notify the Director

Once the Special Notice has been issued, the company must forward a copy to the director in question. This ensures the director is aware of the situation and can prepare a response.

5. Convene a General Meeting

A general meeting is necessary to vote on the resolution to remove the director. Shareholders must receive at least 14 days notice of the meeting and information about the proposed resolution.

  • Voting Process: Shareholders can vote by show of hands or via a poll, depending on the circumstances. If more than 50% vote in favour, the resolution is passed, and the director is removed.

6. Allow the Director’s Representation

The director being removed has the right to present their case during the general meeting. They may also provide written statements to shareholders for consideration. This ensures a fair process and allows the director to respond to the allegations.

7. Update Companies House

If the resolution passes, the company must file Form TM01 with Companies House within 14 days. This updates the company’s official records and informs the public of the change in directorship.

Considerations After Removal

Once a director has been removed, the company must address any remaining obligations and potential consequences. The impact of removal extends beyond the immediate decision, affecting company operations, governance, and legal responsibilities. Two key areas require attention: the director’s employment status and the risk of legal disputes.

Employment Rights

The company must follow proper employment law procedures if the removed director was also an employee. Dismissal from a directorship does not automatically terminate their employment contract. Separate legal processes may apply, particularly if the director has an executive role.

Failing to follow fair dismissal procedures could lead to claims of unfair dismissal or wrongful termination, which may result in compensation claims. Employers should ensure compliance with contractual notice periods and UK employment laws to minimise legal risks.

Potential Legal Claims

A director who is removed may challenge the decision if they believe it was unfair or breached legal agreements. Claims may arise under:

  • Section 994 of the Companies Act 2006– A director-shareholder may argue that their removal unfairly prejudices their rights within the company.
  • Breach of Contract– If removal contradicts terms agreed in a service agreement, the director could pursue legal action.
  • Defamation or Damage to Reputation– If the removal process is not handled professionally, reputational harm could lead to further disputes.

Avoiding Legal Complications

Removing a director involves careful planning and compliance with legal requirements. Companies should consider the following to avoid complications:

  • Seeking legal advice to address disputes or claims.
  • Ensuring all communications and meetings are documented.
  • Following the procedures outlined in the Companies Act 2006 and company documents.

Final Thoughts

Removing a director in the UK is a structured process that requires attention to both legal and procedural details. By adhering to the steps outlined in the Companies Act 2006 and respecting the company’s governing documents, businesses can handle the removal process effectively while minimising legal risks. Seeking professional advice is always recommended to ensure compliance and a smooth resolution.