#3182 - Appointment And Removal Of Directors

Company Law – Private Limited Companies

Appointment and Removal of directors

IN EXAM: remember to advise Director in BOTH his capacities as office holder and employee of the company

Appointment of director

Professional Conduct issue: Who is your client? The company or the individual director being appointed or removed?

First director (office holder)

S.9 – first director’s will be persons names as directors in the statement of proposed officers. On incorporation they will become directors automatically.
S.154 – private company must have at least ONE director
S.155 – ONE director must be a natural person
S.157 – director who is natural person must be at least 16 years of age.

Procedure of appointment:

Form NI01 – proposes office holders
Appointment of director occurs upon registration / incorporation of the company. [S.9]

Subsequent directors

(Office holders)

Model Article 17: Ordinary resolution by shareholders or a Board decision by directors.
Procedural requirements will be in the articles
Any person seeking appointment as a director must sign a form indicating their consent to act as a director.
NOTE: is there a ‘qualifying share’ in the Special Articles?

Executive directors

Director is a EMPLOYEE as well as a OFFICE HOLDER
Appointment is a contractual relationship
S.188 CA 2006 – Directors’ long term service contracts [2 years +]: requirements of ordinary resolution.

S.188(5) Memorandum setting out proposed contract needs to be available for 15 days prior to meeting (at registered office) and also needs to be presented at the meeting.

(NB. No short notice possible for general meeting)

Appointment under a Service agreement:

Employment agreement

Sets out duties, responsibilities of director

Terms of employment

Can include restrictive covenants

Private document

Why is it useful: under model articles – Directors cannot enforce their rights but shareholders can. [S.33] Service contract is enforceable under contract law.

Procedure to appoint an exec-director:

Board Meeting

1. Notice – Art 9 – reasonable notice

2. Quorum – 2

3. Is a declaration of interest necessary?

4. Note that shareholder approval is needed (set out what resolution/s is needed)

4. Memorandum to be available at registered office for at least 15 days prior to GM (S.188(5)

5. Resolve to call GM

General Meeting

1. Notice (S.307 = 14 clear days [clear days = S.360]! But note S.188(5) [service agreement has to be at office for 15 days before GM can be held] this time can be incorporated into the 14 clear days rule – so no short notice for this GM pursuant to S.307(4,5&5) is allowed)

2. Quorum [S.318(2)] = 2 members

Resolutions [Special = 75% of those present and voting] or Ordinary [depends on what articles say].

Special Resolution to amend articles;
Ordinary Resolution to permit service agreement over 2 years.
Resolution to approve salary

Board Meeting

1. Notice – Art. 9 [reasonable]

2. Quorum = 2

3. Note resolutions passed at GM

4. Appoint new director if not already appointed at the GM

5. Resolve to enter into service agreement and authorise signatory for company.

6. Can new director vote? Model Art. 14(1) says D must be excluded. But note exceptions in special articles?

7. note that records will have to be dealt with.

8 No need for new director to declare interest under S.177 because of exception in S.177(6)

Records

1. Send to Companies House:

Form AP01 within 14 days
Special resolutions within 15 days [S.29/30]

2. Internal records

Directors’ register
Minutes o Board meeting and GM meetings
Keep service agreement available for inspection [under S.288 CA]
Update appropriate registers of Directors (and members if director has also got a shareholding)

S.228: Contract must be available for inspection

S.229: Members have right to request a copy of contract

If no approval / procedure is carried out incorrectly = contract is void and company can terminate employment giving reasonable notice.

Removal of director

Remove Director as office holder [in his capacity as director]

WAYS TO REMOVE:

Model Article 18
1. D must leave automatically if Article.18 (a-e) apply
2. D resigns- Model article 18(f)
Check Articles of Association:

Retirement by rotation
Qualifying shares
Special method of removal?

Disqualification under ‘Company Directors Disqualification Act 1986 (i.e. where D is guilty of misconduct)
Using the power given by S.168 CA 2006:

By way of Shareholders ordinary resolution at a GM!

Notice requirements:

S.168(2) special notice is required to be GIVEN TO the company BY the proposing shareholders.
S.312: special notice is 28 days [clear days – S.360 – period of time is taken as excluding day of meeting and the day on which notice is given].
S.312(4)if special notice is given to the company and then the company call a GM in a shorter period of 28 days [e.g. 14 days] – the special notice is still deemed proper and the GM will be valid. [This provision only works if special notice was given to company before it called the GM].

S.189(1) Send copy of the notice to director

S.169(3) & (4): Director has right to be at meeting to defend himself [this is why resolution must be in the form of a GM and not a written res]

S.288: written resolution to remove a director under S.168 is not possible!

S.215 – 217: non-contractual compensation requires shareholder approval (i.e. any gratuitous payment by company to exiting director)

S.168 cannot be removed but it can be undermined:

Weighted voting rights – directors to carry extras voting rights. [Bushel v Faith]

If Directors fail to call GM at the request of a Shareholder:

Special notice [provided by Shareholder (SH)] itself does not trigger a GM.

S.303: If company fails to serve notice for a GM, members representing 5% of paid up capital of the company [i.e. VOTING shares] can require directors to call a GM.

S.304: Directors should call GM within 21 days of receipt of the request by member (and on a date no more than 28 days after the date of notice convening the meeting).

S.305: If Directors fail to call meeting under S.303/ S.304 = members who requested the GM (or any members representing more than 50% of shareholding) may themselves call a GM.

Consider Weighted voting rights!!!! [Bushell v Faith clause]

Director as an employee [Director in his capacity as employee]

Removal is a contractual relationship
Termination under service agreement DOES NOT terminate directorship, unless the agreement provides for this! [If contract does not provide this then company may need to use S.168 – so need Ordinary Resolution]

Consequence for company that terminates Director’s employment outside terms of service agreement:

Unfair dismissal: breach of statute; employee is dismissed for a justified reason but the procedure was wrong; or employee was dismissed for unfair reason.

Employee must be able to show:

Continuous employment for one year to bring a claim [unless dismissal was due to pregnancy or discrimination]
That he / she has been dismissed
Employee must be working on a regular basis inside the UK.

Automatically unfair	Automatically FAIR	Potentially unfair
Pregnancy Membership to a Trade Union Spent conviction Refusal to work Sundays	Dismissed for safeguarding national security Relating to safety in industrial disputes	Capability Conduct Redundancy

wrongful dismissal: common law breach; company has breached the employment contract.

Summary dismissal: no notice given to employee. Employee does something very bad. Employer can repudiate the contract.

Constructive dismissal: employee treated in such a way that he is forced to resign.

S.220: Contractual compensation for dismissed directors does NOT require shareholder approval

S.217 – payment for loss of office – requires ordinary resolution.

217(3) Memo setting out particulars of proposed payment (including the amount) at the Registered Office 15 days before GM and must be at GM(or send out with written resolution].

SUMMARY for removal of a director:

Procedure checklist for removal:

	Amicable split	Non-amicable split
Employment	Compromise agreement – to amend terms of contract so employee can leave...

#3182 - Appointment And Removal Of Directors - Business Law and Practice

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