Removing a company director under section 168 of the Companies Act 2006

Natalie Gibson, Solicitor

Removing a company director can be a sensitive and procedurally strict process. Section 168 of the Companies Act 2006 gives shareholders a statutory route to remove a director by ordinary resolution, but the correct notice, meeting and representation requirements must be followed carefully. This article explains the key steps, the rights of the director concerned and the practical issues companies and shareholders should consider before taking action.

A director’s appointment may come to an end in several ways, including:

1. Resignation by the director;
2. A prescribed mechanism pursuant to the articles of association of the company;
3. Termination in accordance with sections 168 and section 169 of the Companies Act 2006 (the Act);
4. Vacation of office by law;
5. Vacation of office under a service agreement;
6. Vacation of office under a court order;
7. Death of the director; or
8. A prescribed mechanism pursuant to a shareholders agreement.

This article focuses on the statutory right of a company to remove a director from office by ordinary resolution under section 168 of the Act. That right applies despite anything to the contrary in the director’s service contract.

The statutory procedure must be followed carefully. If it is not, the attempted removal may be void.

Statutory procedure

Firstly, a notice of intention to remove a director must be received by the directors of the company from members representing either:

• At least 5% of the paid-up capital of the company that carries voting rights; or, for companies without a share capital,
• Members who represent at least 5% of the total voting rights of all members that have the right to vote at general meetings.

The Company must provide a copy of the requisition received by the members to the director who is the subject of the resolution.

The directors should hold a board meeting to consider the requisition and resolve to call a general meeting. The general meeting should take place at least 28 clear days after notice has been given to the company by the members of the intention to remove the director. The members must be notified at least 14 clear days before the meeting.

Crucially, a resolution to remove a director must take place at a physical meeting.

Rights of the director (section 169 of the Act)

The procedural protections for the director facing removal include:

• The director (whether or not a member of the company) is entitled to make representations to the members of the company explaining why their appointment should not be terminated; and
• If the director submits written representations and requests circulation of these, the company is obliged to either:
  1. Circulate the director’s representations at the same time as notice of the meeting is sent to the members; or
  2. If written representations are received too late, read the representations out at the meeting of the members.

Additional considerations

Several important points should be noted in relation to the removal of a director:

• A removal of a director pursuant to the Act does not deprive the director of the right to claim compensation or damages; and
• The removal may infringe on other rights or entitlements held by the director, particularly where the director is also a shareholder. In such cases, separate legal considerations, such as unfair prejudice, may arise.

It should be noted, however, that if the removal of the director is justified on the grounds of serious misconduct, this cannot amount to unfair prejudice even if that conduct is merely being used as a pretext for the director’s removal.

This article is intended as a general overview only and should not be relied upon as legal advice on specific circumstances.

Given the strict statutory process and the potential employment, shareholder and unfair prejudice issues involved, legal advice should be taken before steps are taken to remove a director. Contact our corporate team on [email protected], or at 0161 832 3434.