Removal of Directors Under Section 146 of the Companies Act 2014

Regardless of any provisions on the removal of directors in a company’s constitution, a company may always remove a director from office using the procedure set out in section 146 of the Companies Act 2014 (the 2014 Act). This procedure must be strictly observed and is quite protracted as extended notice is required to be given of the extraordinary general meeting (EGM) at which the resolution is to be proposed.

This procedure does not apply to a director appointed for life under a company’s constitution. Although, it is worth noting that these appointments are rare.

Procedure

1. Unless the directors themselves propose the resolution, the member(s) must give extended notice of at least 28 days’ notice to the company that an ordinary resolution is to be proposed at an EGM to remove a director

2. On receipt of that notice, the company must send a copy to the relevant director immediately

3. A board meeting should be held to convene the EGM. 21 clear days’ notice of the EGM should be given to members. This 21 day notice period can be within the 28 day notice period referred to in point (i)

4. The relevant director may make written representations to the company and request that the representations be communicated to the members

5. The board may also make representation to the members on whether the board support or disagree with the proposed resolution

6. The relevant director is entitled to speak at the EGM

7. A vacancy created by the removal of a director can be filled at the EGM or , if the company's constitution allows, can be subsequently filled by the board of directors as a casual vacancy

8. If the ordinary resolution is passed at the EGM, a form B10 should be filed at the CRO and the statutory register written up and headed paper updated

It is important to note that section 147 of the 2014 Act provides that the removal of a director under section 146 is without prejudice to any rights or remedies available to the director in relation to his or her removal.

Removal of a director of a single member company

Section 196(2) of the 2014 Act expressly provides that a sole member may remove a director by written resolution and without holding an EGM. However, any removal of a director under that section is subject not only to section 147 of the 2014 Act, but also to “the requirements of procedural fairness”.

Removal of a director where the director is also an employee of the company

The requirement for procedural fairness will arise where, for example, a director has a contract of employment with the company. The right to remove a director is without prejudice to any rights that the director may have in contract or under statute as an employee.

Before commencing the removal process, the company should take legal and employment law advice as an employed director may have contractual or employment rights and could potentially have grounds for a claim against the company if the dismissal is deemed unfair.

If the director is also a shareholder then they may also have a remedy for oppression in the conduct of the company’s affairs under minority protection.

The company’s constitution

Section 147 of the 2014 Act also provides that section 146 does not derogate from any other power which may exist to remove a director, and which might be contained in a company’s constitution. This includes any right for, by way of example, the board to remove a director by writing. Companies with more than one shareholder should consider whether their constitutions should include additional, and more administratively efficient methods of removing directors.

Conclusion

Where conflict between a company and one of its directors arises, often the easiest way to manage the situation is to seek to have the director resign his position voluntarily, in return for a severance package if and where appropriate. Any severance package offered to a director may require shareholder approval under the 2014 Act.

A company’s constitution may make provision for the removal of a director. However, in the absence of any such provision and where an amicable resolution is not possible, a director may only be removed from office by the procedure set out under section 146 of the 2014 Act, or where the company has only one member under section 196(2).

For expert legal guidance on post incorporation obligations, please contact a member of our Corporate Governance & Compliance team.

The content of this article is provided for information purposes only and does not constitute legal or other advice.