Removing a director from office under the Companies Act

Always take legal advice immediately if it is proposed to remove a director.

It is usually better to persuade the director to resign, by agreeing terms, rather than using Companies Act procedures to remove him or her. Your solicitor will advise you on your negotiating position.

If negotiations fail, the holders of a majority of the voting rights in a company are always entitled to vote a director out of office at a shareholders' meeting, provided they follow the relevant Companies Act procedure. This is so irrespective of anything in the director's contract of employment, or the company's articles of association.

The procedure is complicated because:

• The director has the right to make representations to the shareholders, saying why he or she should not be removed, both before and at the shareholders' meeting. The director must be given time to prepare these representations, which means that there are special notice requirements before the meeting can be held.
• The board may refuse to convene a shareholders' meeting, if its business is to remove one of their number. The shareholders must decide whether they need to take the additional procedural steps that will enable them to convene a meeting themselves if the directors will not.

The procedure is complex, but critical - an error makes the removal unlawful. The director may also be entitled to compensation for unfair or wrongful dismissal. You will need advice on both aspects. This toolkit explains the procedure that your solicitor will need to advise you on and guide you through.

If the director is also a shareholder, check your articles for directors' 'enhanced voting rights'. These are special provisions that say a director's shares carry, say, ten votes per share (instead of the usual one vote per share), in certain circumstances, such as a resolution to sack them or to nullify their special voting rights.

If there is such an article, the director may, if they hold sufficient shares, protect themselves from removal by defeating the votes of the other shareholders.

If the director is also a shareholder, they may also have procedural rights, dependent on the percentage of shares held. See our 'Minority shareholders: What are their rights?' toolkit.