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.
• 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.

If the director is also a shareholder, see our 'Minority shareholders: What are their rights?' Fact File too.