#3365 - Removing A Director & Service Contracts Crib Sheet - Business Law and Practice

Removing a director

1. Is there a contractual method for terminating the directorship?

   1. APPLY TO FACTS

      1. 168(5) Members should check the director’s service contract to ascertain any compensation or damages which may be due under it for termination

2. 168(1) Members always have the right to remove a director

   1. Articles cannot contradict or remove this right

   2. 168(2) Members must give ‘special notice’ to the company if proposing to remove a director

      1. 312(1) Special Notice is a formal notice left at the company’s registered office setting out the request, at least 28 clear days before the general meeting

         1. 360 Clear days’ notice does not include the day of the notice, and the day of the meeting itself

      2. 288(2)(a) Written resolution is not permitted

   3. Board resolution to call GM on preferably 28 clear days’ notice

      1. 312(3) where it is not practicable to give special notice to members, the company can give at least 14 days’ clear notice before the GM by advertising in a newspaper with appropriate circulation or by any other manner allowed in the company’s articles

         1. Board resolution can agree to add the resolution to remove the director to an agenda of a GM already convened, but only if 14 clear days’ notice of this can be given

      2. 312(4) Where 14 days’ clear notice are given it will be construed as 28 days’ notice rule being complied with

   4. 169(1) Copy of the notice must be sent to the director concerned

      1. 169(2) Director concerned has the right to make oral representations at the general meeting

      2. 169(3) Director concerned has the right to make written representations & can request that they will be circulated to members with the notice of the general meeting

      3. 169(4) If written representations from the director are received after the notice of the GM have been sent out, they can be read out at the GM

3. Is the Board hostile?

   1. 303 shareholders can force the directors to hold a GM

      1. 303(2) Members who represent at least 5% of paid-up share capital with voting rights can request directors to call GM on special notice for the removal of a director by giving formal notice to the company

         1. 303(4) notice must be signed by the members

         2. 1147 notice posted or served electronically take 48 hours to be received

      2. 304(1)(a) Directors have 21 days to call GM after receipt of the notice

         1. 304(1)(b) GM should be held within 28 clear days of calling GM

      3. 305(1) Failure for directors to call meeting means shareholder can call GM themselves if they have at least more than 50% voting rights

         1. Members can reclaim expenses for calling the meeting

      4. 305(4) Members must give 14 clear days’ notice for the GM

      5. 305(3) Meeting must be held within 3 months after date on which directors were required to call GM

4. How to actually remove director?

   1. 168(1) ORDINARY RESOLUTION of shareholders

      1. 282(2) More than 50% of those who vote

   2. In order for the meeting to go ahead it must be quorate

      1. 318(2) there must be 2 qualifying persons present

   3. MA 42 vote will initially be passed on a show of hands

      1. 284(2) every shareholder has one vote

   4. Poll vote may be demanded by

      1. MA 44(2)(a) chairman

      2. MA 44(2)(b) directors

      3. MA 44(2)(c) two or more shareholders

      4. MA 44(2)(d) any person(s) representing not less than 10% total voting rights of shareholders

      5. 284(3)(a) poll vote each shareholder has one vote per share held

   5. Is there a Bushell v Faith clause?

      1. Weighted voting rights but only applies on a poll vote not on a show of hands

      2. May be able to remove clause by special resolution to alter company’s articles 21

         1. Check if director who is also a shareholder has weighted voting rights for this too?

      3. 22 Articles can only be entrenched if

         1. 22(2)(a) in the company’s articles on formation

         2. 22(2)(b) amendment agreed to by ALL members of the company

      4. Entrenched articles can only be altered by either

         1. 22(3)(a) agreement of ALL members of the company

         2. 22(3)(b) court order

      5. 23 Notice of entrenchment or its removal must be notified to the Registrar

         1. 24(2) & (3) If entrenchment amended then statement of compliance also sent to Registrar

5. Automatic Removal of a Director

   1. MA 18 director ceases to hold office if

      1. Bankrupt

      2. Mentally ill

      3. Doctor’s written opinion is given to company that director physically or mentally incapable of holding the office & may remain so for more than 3 months

   2. MA 21 PUBLIC COMPANIES retirement by rotation

      1. At first AGM of company all directors are required to retire from office, but will automatically be reappointed unless there is a resolution to the contrary passed by the shareholders

         1. At each subsequent AGM, a third of the total number of directors must retire and be subject to re-election

6. Administration

   1. 228(1) Keep a copy of service contract available for inspection

   2. 228(3) Copies of service contracts must be retained by the company for a least 1 year from the date of termination or expiry of contract & must be kept available for inspection in that time

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Service Contracts

1. 188(1) Directors’ service contracts longer than 2 years must be approved

   1. 188(2) By ORDINARY RESOLUTION of shareholders

      1. 188(3) Guaranteed term is the period during which the director’s employment

         1. Is to continue AND

         2. Cannot be terminated by the company on notice or can only be terminated in specific circumstances

         3. Or if to be terminated by notice, the period of notice required to be given

      2. 188(4) If more than 6 months before the end of guaranteed term of a director’s employment the company enters into a further service contract, the length of the two contracts will be deemed to be added together

   2. 188(6) Approval is not needed if the body corporate is not a UK registered company or if it is a wholly-owned subsidiary

2. Procedure

   1. 188(5) Memorandum setting out proposed contract must be made available to members not less than 15 days ending with the day of the meeting & at meeting itself or sent out with the proposed written resolution

      1. CANNOT CALL MEETING ON SHORT NOTICE

3. Consequences of non-compliance

   1. 189 guaranteed term if void and the contract is deemed to contain a term entitling the company to terminate it at any time by the giving of reasonable notice

      1. Reasonable notice is ultimately determinable by the courts

4. Administration

   1. 228(1) Keep a copy of service contract available for inspection

   2. 228(3) Copies of service contracts must be retained by the company for a least 1 year from the date of termination or expiry of contract & must be kept available for inspection in that time

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Payments for Loss of Office

1. 217(1) A Company cannot...