How to Remove a Director From a Limited Company

Removing a director from a limited company is a significant step that needs to be handled correctly. Done improperly, it can expose the company and its shareholders to legal claims. Understanding the procedure and the risks in advance prevents costly mistakes.

The Statutory Power to Remove

Under section 168 of the Companies Act 2006, shareholders have the power to remove a director by ordinary resolution, that is, a majority vote of more than 50% of the voting shares. This power cannot be taken away by the articles of association or by a shareholders' agreement, though it can be made more difficult to exercise.

The Required Procedure

To exercise the section 168 power, you must give the director special notice of 28 days before the resolution is passed, either at a general meeting or by written resolution. The director has the right to receive a copy of the notice and to make written representations to shareholders before the vote. The director is also entitled to speak at the meeting if one is held.

After the resolution is passed, you must file a TM01 form at Companies House within 14 days.

What Are the Risks?

Removing a director does not automatically terminate any other contractual relationship they have with the company. If the director also has a service contract or employment contract, removal as a director may trigger a wrongful or unfair dismissal claim. Where the director is also a shareholder, there is potential for an unfair prejudice petition under section 994 of the Companies Act, particularly in smaller companies where directors have expectations of involvement based on a quasi-partnership relationship.

Can the Director Be Removed Without a Shareholders Meeting?

Yes, by written resolution, but the director retains the right to make representations to shareholders before the vote. This means you cannot remove a director simply by circulating a written resolution without allowing them the opportunity to respond. The representations must be circulated alongside the resolution.

What If the Director Refuses to Accept Removal?

Once a valid resolution has been passed and filed at Companies House, the director's status as a director is terminated regardless of whether they accept it. However, if they remain in the company's premises or continue to act as if they were a director, injunctive relief may be needed to enforce the removal.

Summary

Directors can be removed by ordinary resolution under section 168 of the Companies Act 2006. The director must be given 28 days special notice and the right to make representations. Removal does not terminate employment or service contracts. The risk of unfair prejudice claims is real in smaller companies where the director is also a shareholder.

If this is something you're considering and need some early legal advice contact the Barrister Connect team and we will get you a clear quote within 24 hours. Talk to us now.