In the dynamic world of corporate governance, it's not uncommon for companies to face the daunting task of removing a director from the board. Circumstances may vary but one thing that remains constant is the need to follow due process. For a UK public limited company, the legal procedures for the termination of an executive director can be intricate. This article is intended to provide a comprehensive guide on how to navigate this process, respecting both the company's Articles of Association and the law.
Before you venture into the process of removing a director, you should first understand the legal basis for this action. The UK Companies Act 2006, specifically sections 168 and 169, provides the law that governs director removal. It's critical that the involved parties uphold the company's articles, uphold shareholders' rights, and maintain corporate integrity throughout the process.
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Section 168 of the Companies Act 2006 states that shareholders can remove a director by passing an ordinary resolution at a meeting. Importantly, this applies even if the company’s articles provide otherwise. However, it's worth noting that the director targeted for removal must be given a fair chance to protest the removal.
Once the need to remove a director arises, the process begins by serving them a notice. According to UK corporate law, any shareholder can propose the resolution to remove a director. However, they must represent at least 5% of the company's voting rights, unless they hold at least £100 nominal value of the company’s issued share capital.
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The shareholders must provide 'special notice' of the resolution to remove the director, at least 28 days before the meeting at which the resolution will be considered. Upon receiving the notice, the company is then obligated to communicate this to the directors and all shareholders, usually within 14 days before the meeting.
The director facing removal should not be treated as an outcast. They have rights protected under the law, and the company should ensure it respects these rights. Upon receiving the notice of their proposed removal, the director has a right to be heard at the meeting where the resolution will be considered.
They have the right to make written representations and request their circulation to shareholders before the proposed meeting. If the company refuses or fails to circulate the representations, the director may require that they be read out at the annual general meeting. In addition, the director retains their right to vote at the board meeting where the resolution for their removal will be considered.
The company will then hold a general meeting to consider the resolution. During this meeting, the director facing removal can present their case, and shareholders have the opportunity to discuss the resolution before voting.
The resolution to remove a director is passed on an ordinary resolution, meaning that it requires a simple majority (above 50%) of votes cast by shareholders at the meeting. The director facing removal has the right to vote on the resolution at the meeting, whether or not they are a shareholder in the business.
After the removal of a director, the company may face some transitional challenges. It's important to manage these changes with utmost professionalism and respect for corporate governance principles.
The company should notify Companies House of the director’s removal within 14 days of the resolution being passed. This is done by filing a termination of a director appointment form (TM01). If the removed director was also the company secretary, the company should also file a termination of a secretary appointment form (TM02).
Lastly, the board should consider the impact of the director's removal on the company's management and operations. This may involve redistributing the removed director's duties among the remaining directors, or commencing the process to recruit a new director.
Navigating the removal of a director can be a complex and sensitive process. It's essential for companies to ensure they follow the correct legal procedure, maintain open and transparent communication, and uphold the highest levels of corporate governance throughout the process. By doing so, companies can manage this transition effectively, respecting the rights of all parties involved and minimising disruption to the business.
After the resolution to remove a director has passed, the company has a legal obligation to report this change to Companies House. According to the Companies Act 2006, the company must notify Companies House within 14 days of the director's removal. This is done by submitting a termination of a director appointment form (TM01).
If the director was also the company secretary, the company needs to submit an additional form, the termination of a secretary appointment form (TM02). These forms are straightforward to complete and can be submitted online. It is crucial to ensure that the company's records at Companies House are kept up-to-date, as failure to comply with this requirement can result in penalties for the company and the remaining directors.
Moreover, the company director who is removed should be made aware of their responsibilities under corporate law. For instance, they might need to relinquish any company property in their possession, such as laptops or mobile phones, and potentially handover any ongoing projects or responsibilities to remaining directors or appointed successors.
Removing a director can have significant implications for a company, not just in terms of its legal obligations, but also concerning its operations, corporate governance, and reputation. The board of directors must assess the impact of the director's removal and develop a strategy to effectively manage this transition.
This may involve redistributing the removed director's duties among the remaining directors or beginning the process to recruit a new director. The company might also need to revise its strategic plans, especially if the removed director had a significant role in their formulation or execution.
In conclusion, the process of legally managing the termination of an executive director in a UK public limited company involves several steps. While the Companies Act 2006 provides a clear framework for such an action, it remains a complex process that requires careful planning and execution.
Whether it's understanding the legal basis for director removal, serving the requisite notice, respecting the rights of the director facing removal, or navigating the meeting and voting process, each step should be carried out with utmost care and adherence to the law.
Finally, the post-removal phase, including notifying Companies House and managing organisational implications, is equally important. Upholding the principles of transparency, fairness and corporate governance can help ensure a smooth transition and minimise disruptions to the company's operations.