Director Removal under the UK Companies Act 2006
Disclaimer: This Article is Not Legal Advice
This article aims to provide a basic understanding of Director Removal under the UK Companies Act 2006 by shareholders in cases where the director concerned is not inclined to resign, and there is no Director’s Service Agreement in place. However, please remember that this is not legal advice.
Every company’s situation might be different, so it is important to get personalised advice from a qualified legal expert for your particular circumstances. This article is for information only and should not replace professional legal advice.
Introduction:
Directors play a pivotal role in managing private companies, but there may be circumstances where shareholders consider it necessary to remove a director. This article outlines the legal framework provided by the Companies Act 2006 for removing a director, ensuring shareholders are informed about their rights and the procedures involved.
Removal by Ordinary Resolution:
Under the Companies Act 2006, shareholders have the authority to remove a director via an ordinary resolution during a general meeting. This process requires more than half of the votes cast by shareholders to be in favor of removal, emphasising the democratic approach in corporate governance.
The Requirement for a General Meeting:
The Act stipulates that the removal of a director cannot occur through a written resolution; it must be actioned at a general shareholders’ meeting. This requirement ensures that all discussions are held transparently and that every shareholder has the opportunity to participate in the decision-making process, and that the director concerned has an adequate opportunity to make representations and present their case.
Special Notice Requirement:
To initiate the removal of a director, shareholders must send a special notice to the company at least 28 days before the meeting. This notice period allows all parties involved, including the director in question, adequate time to prepare for the meeting and to present their case.
Shareholders' Right to Request a General Meeting:
Shareholders can request a general meeting to remove a director if they represent at least 5% of the paid-up voting capital of the company (excluding treasury shares). This right, specified in Section 303 2(Aa) of the Companies Act, underscores the power of even a minority of shareholders to initiate significant decisions like the removal of a director.
Section 304: Directors' Duty to Call Meetings Required by Members:
Directors are obligated to call a meeting within 21 days from when they are required to do so, and this meeting must be held no later than 28 days after the notice convening the meeting is issued. The notice must detail any resolutions that will be discussed, ensuring shareholders are well informed of the issues at hand.
Section 305: Power of Members to Call Meeting at Company’s Expense:
Should the directors fail to call the required meeting, the shareholders who requested the meeting, may convene the meeting themselves. Importantly, the company is required to reimburse these members for any reasonable expenses they incur due to the directors’ failure to act, ensuring that shareholders can exercise their rights without undue financial burden.
Conclusion:
The ability to remove a director is a powerful tool for shareholders but comes with a clear set of legal requirements to ensure fairness and transparency. Understanding these processes under the Companies Act 2006 is crucial for anyone involved in the governance of a private limited company.
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