For shareholders the process of removing an underperforming director can be a difficult process. If the director is also a major shareholder themselves the process will be much more difficult and personally challenging.
The good news is that in the UK the power for shareholders to remove a director is a fundamental right enshrined in the Companies Act 2006.
Try to compromise
Removing a director by force should always be a last resort because it can become time consuming and expensive. It may take weeks of negotiation and compromise to strike a deal but this will almost always be worthwhile if you can do this on your own. If you cannot it is sometimes possible, with the right approach, to place sufficient pressure on the director to resign. If these methods fail there may be situations where the only reasonable course is to remove the director by a shareholder vote.
Know the law
As with any major company decision information the right advice will be your best weapon and your best defence. You need to ensure you have sufficient shareholder support to remove a director that you believe is performing poorly. Section 168 of the Companies Act 2006 gives shareholders the right to remove a director by a resolution supported by more than 50% of the shareholders. This right is set out in law so it should not matter if you have signed a shareholders agreement or similar contract stating that directors cannot be removed.
Know your company
You must also check your company's articles of association and any shareholders’ agreements you may have signed. You will need to see if the director has any special rights that may cause problems.
Check also whether any alternative way to remove a director has been agreed by your company. Sometimes there are unexpected rights that might have been agreed or added to standard documents that were approved in the early days of a business.
Be prepared for a challenge
A lot will depend on the director's position within the company and you should make sure you know if they may have any employment contracts, share options or director's service contracts that might be relevant. If the director is a shareholder they are unlikely to leave without putting up a fight. It’s best that you are prepared for this so you know how the situation is likely to play out.
Removing a director by force is possible so long as you carefully follow the rules provided in the Companies Act.
Please contact us if you would like to know more about our services.