When directors disagree: What to do

In response to recent posts on AccountingWEB where company directors were in dispute, Jennifer Adams offers advice on the procedures and principles that apply in such situations.

In the Any Answers question Directors withholding statutory records, an accountant was caught in a situation where a clause in the shareholders’ agreement added to the company’s articles stated that board meetings were inquorate without the director who was refusing to give up its accounting records. (For details on the creation and use of such documents see Shareholders Agreements - Get the Details Right).

Removal of Directors

The original query made it clear that the other directors/shareholders wanted rid of the offending director. The removal of a director is usually achieved quite easily by ordinary resolution with special notice (CA 2006 s168): just a simple majority of shareholder votes is needed.

Here the Companies Act has made a useful procedural change in the allowing of written resolutions. CA 2006 s296(4) permits a written resolution to be passed “when the required majority of eligible members have signified their agreement to it”, so there is no need for a quorum at a general meeting.

Log in to AccountingWEB for the full article, which covers:

  • Bushell v Faith provisions
  • Other ways to get rid of a director
  • Removed directors’ recourse

Jennifer Adams FCIS TEP ATT is a freelance writer and author specialising in tax and company secretarial issues, and can be contacted at Abacus Business Solutions

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Comments

Removing a Director

grossalert | | Permalink

Jennifer's interesting article rightly references the case law and the various rights of action.  But for directors/shareholders to even talk about such rights, in an attempt to protect themselves, can quickly become a self-fulfilling prophecy and, before you know it, large amounts of personal monies are being drained away in litigation.......and usually the trading of the company and the confidence of staff begins to erode.

I suggest, as I am sure many do,  once you become aware of a rift, is to encourage the shareholders and director(s)  in question to try to access facilities to help them reach an agreed solution whether with or without resignation of the director(s) concerned.

I have advice on this area on my specialist site at www.BoardroomResolve.com and give a lot of advice to queries from the public on the subject on the Legal section of the  sister forum at UK Business Forum - btw  my comments are categorised into different  issues that arise between sheaeholders also at www.TheResolver.com .

 

 

removing directors with written resolutions??

tolland | | Permalink

In the paragraph "Removal of directors", I don't see how the change to CA 2006 s296(4) "made a useful procedural change in the allowing of written resolutions." is relevant to removing directors,as section 168 requires an ordinary resolution at a meeting, and a written resolution wouldn't be applicable...

http://www.legislation.gov.uk/ukpga/2006/46/section/168

 

 

Removing Director with written resolution

AFIP-UK | | Permalink

Am I correct in my understanding of s239 CA2006?

Where the members wish to pass a resolution to ratify conduct of a director that amounts to negligence, default, breach of duty or breach of trust, this must be done by means of a resolution in respect of which the votes of the director concerned (if she is a member of the company) must be disregarded.  By virtue of this provision, a single director, if also a member of the company, would not be able to vote on a motion to ratify his/her own breach, only other members would be allowed to vote.

Where the resolution is proposed as a written resolution, neither the director concerned nor any member connected with her (e.g. spouse and shareholder?) is an eligible member. 

Does this mean neither the director nor his/her spouse are permitted to vote on such a resolution, and therefore the majority shareholder(s) can vote to remove the offending director and immediately replace him/her with a director of their choosing?

I would very much appreciate your informed view of this.