Removing a Director from office
When a strained relationship between shareholders and directors occurs, companies often resort to the inherent shareholder right to remove the Director through an ordinary resolution. Section 71(1) of The Companies Act states that a Director may be removed by the individuals entitled to voting rights for the election of the Director in question. Despite the somewhat straightforward process of removing a director from office, there are still hurdles to overcome to ensure the removal is considered legal.
What is the correct process?
Several procedural requirements should be observed for the removal of a director. First, signed demands for the removal of the Director must be delivered. Once served, the board will meet to authorise the convening of the shareholders’ meeting. During this, the affected Director must make an appearance and recuse themselves prior to the deliberation.
If the vote leads to a shareholders’ meeting, the Companies Act outlines that the Director must once again be given reasoning and fair notice to attend. Here, they are then allowed to contest the removal before a final vote is taken. This meeting provides a platform for a vote for or against the removal of the affected Director.
A shareholders’ meeting can also be approved by any individual specified in the company’s MOI (Memorandum of Incorporation) or rules. Additionally, it is essential to note that the statutorily required notice period in these instances is a minimum of 10 business days.
Reasons for removal
The Companies Act states that before the consideration of removal is taken, the Director should be given a fair opportunity to make representations. It is often argued that without reason for the proposed removal, the board would be unable to make an informed decision on the matter. While the technicalities of this law do not force the Director’s representation to shareholders, it is in the matter’s best interests to do so.
There are several pressure points to consider for successfully removing a director from office. Shareholders should always act in accordance with the law regulating this procedure to ensure that the removal is not in breach of the Companies Act. It is important to note that missteps in this regard can render a removal void.
The MMS Group provides professional company secretarial services to ensure up to date secretarial records are maintained in accordance with the Companies’ Act. Should you require these services following the decision to remove a director, feel free to reach out to our team.