AccountingWEB
Share this content

Resignation or removal of directors: Get the details right

26th Apr 2016
AccountingWEB
Share this content
istock_PeopleImages

Jennifer Adams looks at the procedure by which a director leaves a company – whether that director goes on his own accord for his own reasons, is asked to leave or is forced to leave through disqualification.

The vast majority of directors leave a company amicably through resignation rather than being forced to leave but they may have no choice is disqualified (for detail on disqualification of directors see the article Directors Disqualification: Get the details right.

Method of resignation

Whatever the reasons for leaving, there should be a set procedure in place to cover both the company and the relevant director. Ideally there will be a directors' service contract containing the necessary provisions, inter alia, any notice period, the agreement that the resigning director be required to sell any shares held on resignation and an obligation to resign as a director upon any termination of employment. If it is wished that the resigning director remains an employee after resignation, then that can also be included in the contract.

In small private limited companies invariably there will be no director's service contract and unless specific provisions can be found in the company's Articles requiring the director to give a period of notice, a director may resign at any time just by giving notice to the company. Ideally, the notice should be in writing, but this is not specifically required under the Companies Act 2006.

Whilst now relatively unusual, in some cases a company’s Articles can require the board to formally approve any director resignation but the usual procedure is for the leaving director just to give notice in writing and leave after a set notice period.

Model Articles Clause 18 states that "a person ceases to be a director as soon as…

(f) notification is received by the company from the director that the director is resigning from office, and such resignation has taken effect in accordance with its terms."

Forced removal

In many companies, the power to remove a director from office is granted to the board of directors or to a majority shareholder under the company’s Articles of Association. For these companies, removing a director is a relatively straightforward matter, usually requiring the serving of a written notice on the director in question.

If Table A of the Companies Act 1985 is used a director can be removed if he is absent without permission of the rest of the board for 6 months from board meetings held in that period and the directors so resolve.

Practicalities of removal by Ordinary resolution with Special Notice ('Statutory procedure')

The Model Articles are silent on the matter of director removal. Without express provision in either the service contract or Articles, it may take time to force a director out as the only way will be under s 168 CA 2006 – removal by ordinary resolution by shareholders - otherwise the company must to go to court to force the resignation.

The company's members can apply for a director to be removed under s 168 and s312 CA 2005. The following procedure is required:

  • The notice of intention is via a letter to the company proposing the resolution and stating that Special notice is being given.
  • The notice must be lodged at the company's Registered Office at least 28 clear days before either the next AGM or general meeting (s312 CA 2006). The reasons for the intention to remove and the directors' representations, if any, must be given to all shareholders entitled to attend the meeting.
  • The resolution is an ordinary resolution with Special Notice and as such requires a simple majority (50.01%) of those present at that meeting or by proxy.
  • The required notice period for the convening of a general meeting is 14 days.
  • At the meeting the director must be given opportunity to voice his representations before the vote is taken.

This method of removal does not necessarily prejudice any subsequent action for breach of contract and can be used to remove a director even if the company’s Articles contain a provision which excludes sections of the Companies Act from applying.

Bushell v Faith clause

Including this type of clause in the company's Articles enables protection for a director from being forcibly removed by the other shareholders. Such a clause confers enhanced voting rights on the director who is being removed (provided he/she is also a shareholder) by a factor large enough such that the other shareholders cannot achieve the requisite majority for the resolution to be passed. If such a clause is required then rather than include in the Articles, consideration should be given to having an appropriate shareholders' agreement of the clauses which supplement the company’s articles by dealing with aspects of the relationship between the parties that would otherwise not be covered.

Alternative to s 168 CA 2006

Rather than going down the time consuming s168 route and if enough shareholders' agree, then the Articles can be changed to accommodate a resignation procedure. Amendment of Articles of a private limited company can be undertaken by written special resolution requiring a 75% majority.  

What are the practicalities following a resignation?

Typical notice periods are of three months or more which should be enough time to find a replacement, if required. Any compensation for loss from office is covered under s215 to s212 CA 2006. In particular, s217 (1) states that:

"A company may not make a payment for loss of office to a director of the company unless the payment has been approved by a resolution of the members of the company". 

When a director leaves office there are a number of considerations for the company:

However the termination arises, it is the company's responsibility to notify Companies House of the termination. The company must send a copy of the agreed resolution and a completed form TM01 within 14 days of the director leaving.

  • Updating the company’s statutory registers – namely the Register of directors, the Register of directors’ residential addresses, the PSC Register and the Register of Transfers, if kept
  • Approve share transfers by resolution at a directors' meeting
  • Cancel any existing share certificates, and issue new share certificates for shares to the remaining shareholders who are taking up the shares otherwise the shares can be cancelled
  • Inform the company's bank and remove from bank and other mandates
  • Inform the directors’ and officers’ liability insurer
  • Inform employees, major customers and suppliers
  • Issue P45, if salaried
  • Remember to include details of the transfer in the next annual return filed with Companies House

If the person resigning is the sole individual director then a replacement is needed in line with s154 to s 156 Companies Act 2006 which requires a private limited company to have at least one director who is a "natural person". If no director the secretary of state may issue a direction for a director to be appointed but in practice Companies House will strike off the company after giving written warning so long as HMRC does not object.

Practical Point: When all directors resign

Although no board resolution is technically required upon a director resigning, it is good practice to record that the resignation has occurred at the next directors' board meeting.

Replies (11)

Please login or register to join the discussion.

avatar
By Andrew Bean
26th Jul 2017 20:29

A question: if an AGM or General meeting was called at which it was intended to remove a director, if that director simply chose not to turn up at the meeting, can that director still be removed?

Thanks (0)
Replying to Andrew Bean:
avatar
By D V Fields
29th Jul 2017 23:36

Andrew Bean wrote:

A question: if an AGM or General meeting was called at which it was intended to remove a director, if that director simply chose not to turn up at the meeting, can that director still be removed?


Refer to Part 10 (particularly s 168 & 169) of Companies Act 2006. Make sure proper notice is given. By all means consider any Shareholders'Agreements but remember they cannot override company law. Repeated failure to turn up to Directors' meetings is a breach of fiduciary duties. Simply apply the force of law. If in doubt refer to the Companies Act; when they argue, refer to the Companies Act; did I mention- refer to the Companies Act.
Thanks (1)
avatar
By peter conlin
08th Aug 2017 13:54

if members/ shareholders call for an e.g.m, in a private limited company club .
who decides the time and date of the meeting

Thanks (0)
Replying to peter conlin:
avatar
By D V Fields
08th Aug 2017 15:27

peter conlin wrote:

if members/ shareholders call for an e.g.m, in a private limited company club .
who decides the time and date of the meeting

The directors call the meeting; members can require the directors to call a meeting - the directors call the meeting. As mentioned above - refer to the Companies Act (Chapter 3) - it tells you all you need to know.

Thanks (0)
avatar
By Charlotte west
24th Oct 2017 15:54

Question: my ex husband I were equal shareholders in a limited company and both directors. Separation prompted me to leave the matrimonial home. Ex husband “resigned” me as a director through our Accountants without my knowledge or consent. Is this lawful in light of us being equal at all levels in the business? Please advise.. thanks

Thanks (0)
avatar
By dferrier
16th Dec 2017 19:48

Hi, I have been a sole director for 7 yrs for the same company name only due to the owner being struck off the register and to save the company and its employers I become director over night - I have had no financial input or output . It is a limited company held by shares his wife . He was not to have any financial connections with the practices whatsoever - I have opened up 6 practices over the past few years - He and his wife who are now separated are fighting for the practices , she being the share holder - I don't know who to trust -He has been very disloyal to me and have verbally abused me and used my good name over the years - I have sided with his wife - he has taken me off as director without my consent - he has appointed a young nurse as director who has only qualified this year - He has sent me a termination email and he has also sent me a lawyer letter - Dental surgery vs Ms Ferrier - I am so distraught about the whole situation - our defence lawyer for the practices says that he can't remove me without me signing- can he remove me without my signature - I know over the years he has signed my signature . I am assuming removal was done electronically but is there a procedure he is supposed to follow or require my consent or signature to terminate me?:| Any advice would be much appreciated. Thanks.

Thanks (0)
avatar
By danielmorelli
24th Oct 2018 19:29

One year ago my business partner decided to cash some funds from the bank and leave one of our companies without notice. We were both 50/50 shareholders and both directors. A year later and now closing the company, I noticed he removed himself as a director last year and never communicated about this. Can he do that? The company has many financial responsibilities and I am the sole director now... Please help!

Thanks (0)
avatar
By danielmorelli
24th Oct 2018 19:30

One year ago my business partner decided to cash some funds from the bank and leave one of our companies without notice. We were both 50/50 shareholders and both directors. A year later and now closing the company, I noticed he removed himself as a director last year and never communicated about this. Can he do that? The company has many financial responsibilities and I am the sole director now... Please help!

Thanks (0)
avatar
By mark Slater
08th Dec 2018 21:50

What if no notice of intention to the company was given proposing the resolution for Special notice.
Only to be removed as a Director whilst on holiday with no prior knowledge.
What would be my options?

Thanks (0)
AP
By Ama Polo
21st Jan 2019 16:09

Hi, a question: I'm a 50% shareholder of a limited company and a director. I have a dispute with the other 50% shareholder (non-director) on grounds of embezzlement of company assets. This shareholder has resigned as a director a year ago. Now the company has two directors who would like to remove this person.

I have not taken this person to the court yet, because we are in the process of negotiations to return the money and depart amicably - which is not going well.

Meanwhile, I would like to remove this person from the signatory mandate of the bank. I would not like to notify the bank about the dispute because then they will freeze the account until the resolution.

I would also like to remove him as a shareholder.

Please advise.

Thanks (0)
Replying to Ama Polo:
avatar
By D V Fields
21st Jan 2019 17:01

Ask it as a new question/thread - you are more likely to get a proper response.
Dave

Thanks (1)