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Removing Company Directors under the Companies Act 2006

Monday, 20 February 2012

It is common for a company director to have an executive service contract in place with the company. Such a contract will deal with the director's terms of service, including remuneration and benefits. The contract may also give the term of the director's appointment. However, a director may be removed from office before the end of his term of appointment by an ordinary resolution of the shareholders. The procedure is dealt with by sections 168 and 169 of the Companies Act 2006 and can be used notwithstanding any agreement made between that director and the company.

Section 168: Resolution to remove director

To implement the removal procedure in section 168, an ordinary resolution of the company's shareholders must be made and a properly convened meeting. Special notice of the resolution must be given, meaning that notice of the proposed resolution must be given at least 28 days before the meeting at which the resolution will be moved. If a director is to be replaced at the meeting then the appointment must also be contained in the resolution.
This removal procedure is not to be taken as depriving a director who is removed of compensation or damages payable in respect of the termination. So, it is critical to note here that even if a director is correctly removed in accordance with this section, it will not affect any financial compensation he might pursue. It is therefore critical for companies to take advice on their exposure to compensation claims before invoking the removal procedure.

Section 169: Director's right to protest against removal

Upon receipt of notice to remove a director under section 168, the company must send a copy of the notice to the director. The director is then entitled to be heard on the resolution at the meeting and may make written representations in advance which may be considered by shareholders. Shareholders may consider a director's written representations but no obligation exists beyond that; the shareholders can vote on the section 168 resolution without having regard to the representations.

We recommend that any company seeking to remove a director or any director facing removal seeks appropriate legal advice. Rollingsons has lawyers experienced in company law matters; if you need advice or would like more information please contact James Crighton via e-mail or by phone on 0207 611 4848.