How to Terminate a Company Director in the UK: A Step-by-Step Guide
Removing a company director in the UK is a process that requires careful adherence to legal procedures and corporate governance rules. Whether the removal is due to misconduct, incapacity, or a strategic business decision, ensuring compliance with the Companies Act 2006 and the company's Articles of Association is crucial. This guide outlines the various methods and legal considerations involved in terminating a company director in the UK.
Reasons for Removing a Company Director
A director may be removed from office for several reasons, including:
- Breach of fiduciary duties
- Misconduct or negligence
- Disqualification by law
- Loss of confidence by shareholders or fellow directors
- Inability to perform their role due to illness or incapacity
- Resignation or retirement
Understanding the reason for removal helps determine the most appropriate course of action.
Methods for Removing a Director
1. Voluntary Resignation
A director may choose to resign voluntarily by giving notice as required in the company's Articles of Association. The resignation should be documented in writing and recorded in the company’s minutes. The company must inform Companies House by filing form TM01 within 14 days.
2. Removal by Shareholders (Under Section 168 of the Companies Act 2006)
If shareholders wish to remove a director against their will, they must follow the process outlined in Section 168 of the Companies Act 2006:
Step 1: Call a General Meeting
- A shareholder holding at least 5% of voting rights can request a general meeting by giving special notice (at least 28 days before the meeting).
- The company must then send notice of the meeting to all shareholders and the director in question.
Step 2: Director's Right to Be Heard
- The director has the right to make written representations and speak at the meeting before the vote takes place.
Step 3: Shareholder Vote
- A simple majority vote (over 50%) of shareholders present and voting at the meeting is required to pass the resolution.
Step 4: Notify Companies House
- If the resolution passes, the company must file form TM01 with Companies House within 14 days to update the director’s status.
3. Removal by Board of Directors (If Permitted by the Articles of Association)
Some companies’ Articles of Association provide the board of directors with the authority to remove a director. If this applies:
- The board must follow the procedure outlined in the Articles.
- A board resolution must be passed in accordance with company governance rules.
- Companies House must be notified using form TM01.
4. Disqualification by Law
A director may be automatically removed if they:
- Become bankrupt.
- Are convicted of a criminal offence.
- Are disqualified under the Company Directors Disqualification Act 1986.
- Are deemed unfit to run a company by regulatory bodies.
In such cases, Companies House must be informed immediately.
5. Removal Due to Breach of Service Agreement or Employment Contract
If the director is also an employee of the company, termination must comply with employment law:
- Dismissal should be based on valid grounds such as gross misconduct or poor performance.
- The company must follow a fair disciplinary process to avoid unfair dismissal claims.
- If the contract includes termination clauses, those must be followed to avoid breach of contract claims.
6. Settlement Agreements
In cases where disputes arise, a company may negotiate a settlement agreement with the director. This agreement typically includes:
- Terms for resignation.
- Financial compensation (if applicable).
- Confidentiality clauses to protect company interests.
Summary of Key Steps and Requirements
| Step | Details | Legal Basis |
|---|---|---|
| Check Articles and Agreements | Review for specific removal procedures. | Company’s articles of association, shareholder agreements. |
| Special Notice | Shareholder gives 28 clear days’ notice to company. | Section 312, Companies Act 2006. |
| Notify Director | Company sends copy of notice to director immediately. | Section 169(1), Companies Act 2006. |
| Director’s Representations | Director can make written representations; company must circulate or read at meeting. | Section 168(3)-(5), Companies Act 2006. |
| Hold General Meeting | Meeting where resolution is voted on; director can be heard. | Section 169(2), Companies Act 2006. |
| Vote on Resolution | Ordinary resolution (>50% votes in favor) passes to remove director. | Section 168(1), Companies Act 2006. |
| File TM01 Form | Notify Companies House using online service for quicker processing. | Terminate an appointment of a director (TM01). |
Key Considerations & Legal Compliance
- Check the Articles of Association – This document may outline specific procedures for director removal.
- Follow due process – Avoid wrongful termination claims by adhering to legal requirements.
- Maintain clear documentation – Keep records of all correspondence, resolutions, and meetings to protect against legal challenges.
- Seek legal advice – If there is a risk of dispute, consulting a solicitor is advisable to mitigate legal risks.
Conclusion
Removing a company director in the UK requires careful adherence to corporate law and governance procedures. Whether through voluntary resignation, shareholder resolution, or legal disqualification, ensuring the correct process is followed can prevent disputes and protect the company's interests. Always review the Articles of Association and seek professional advice where necessary to ensure compliance.
