The process to remove a director from a company may be considered when a director fails to act in the best interests of their company and/or fails to promote the success of the company for the benefit of the shareholders.
How can I remove a fellow Director?
The process to remove a fellow director is complex and sensitive, and there are various points which must be considered.
Which apply: Articles of Association or Table A Articles?
The starting point is always to consider whether the company has tailored Articles of Association. If the company does not, then it will likely have the standard statutory articles that existed when the company was incorporated, such as the Model Articles under the Companies Act 2006 (CA 2006), or one of the several Table A Articles as set out in the Companies Act 1985 (CA 1985).
Is there a Shareholder Agreement?
Companies should also consider whether a shareholder agreement exists, and if so, what if any things said regarding the removal of directors.
Often Directors are also employees and their employment contract may automatically terminate their directorship on their employment coming to an end.
What happens if the instruments are silent?
If neither the Articles of Association , Shareholder Agreement or Employment contract indicate what needs to be done to remove a director, the company must fall back on the procedure set out in s168 and s169 CA 2006.
S168 and s169 Companies Act 2006
S168 and s169 CA 2006 allow the shareholders of the company to remove a director by ordinary resolution. On the face of it, this sounds pretty straightforward, but procedural requirements must be adhered to strictly. Failure to do so may result in the resolution being ineffective.
A director facing removal must also be given the opportunity to address the shareholders and put across his position. Failure to acknowledge a director’s right to speak for himself could put into question the motives behind the removal of a director.
Further the wrongful removal of a director could open the floodgates to an array of claims by the director, including the potential threat of an unfair prejudice claim action being brought under s994 CA 2006. This was the case in Faulkner v Vollin Holdings Ltd  EWHC 787 (Ch), where the court held that the actions taken by majority shareholders to remove two individuals as directors breached the shareholders’ duty to promote the success of the company, having disregarded the minorities’ interest in maintaining the directors in post.
Directors with Employment and Shareholder Rights
The procedure to remove a director set out in s168 and s169 CA 2006 deals only with an individual’s directorship. If a director is also employed and/or is a shareholder of the company, certain rights will arise which may give a director the right to bring claims of wrongful dismissal, discrimination and unfair dismissal against a company.
Proceeding with removal of a director
It is essential to give early consideration to both the proposed method for the removal of a director and the potential consequences for doing so, to ensure it’s lawful and in order to minimise the risk of claims against a company and potentially reputational damage.