Hi there Bryan
First up, I’ll confess that I’m no Company Law expert, not yet, but my
head’s recently full of the stuff. I have however quoted the relevant
law wherever applicable. Remember as always that Google Answers is no
substitute for professional legal advice and responsibility is
disclaimed for what follows.
As I’ve mentioned, the main statutory method for a company to remove
one of its directors is as provided by section 303 of the Companies
Act 1985. Under this procedure the shareholders remove the director by
an Ordinary Resolution (i.e. with the agreement of more than 50% of
them). This must be done at an Extraordinary General Meeting of the
company, and the director to be removed must be given a chance to
circulate written representations amongst the shareholders regarding
his removal, as well as be given the chance to appear at the meeting
and state the reasons why he should not be removed (s.304). It seems
clear on the facts you have given that this procedure has not been
followed.
The question therefore is, does another director have the power to
remove another director? This depends on the company’s Articles of
Association, which are agreed by the shareholders upon its
incorporation, and are lodged with Companies House. They can vary from
company to company, but almost all companies use the default articles,
and most small companies will not even amend them at all. The default
articles are provided by government regulations, the Companies (Tables
A to F) Regulations 1985 (SI 1985/805). Table A contains the default
company articles.
Article 81 of Table A deals with this area, and provides the
circumstances under which a director is removed from office. These are
if he:
a) becomes bankrupt;
b) is or may be suffering from mental disorder and is admitted to
hospital under the Mental Health Act or a court order is made against
him on matters concerning mental disorder;
c) is absent from directors’ meetings (without the board’s permission)
for at least six months and the directors resolve that the office be
vacated.
Article 81 also enables a director to give written resignation.
Do remember that another article could have been inserted upon
incorporation, or subsequently by the shareholders, enabling a
majority of directors to remove one of their number. I think this is
unlikely, and is also unlikely to operate in the situation you
describe since there are only two directors anyway. There is also a
requirement (given by the case of Samuel Tak Lee v Chou Wen Hsien
[1984] 1 WLR 1202) that when exercising this power, directors have a
‘fiduciary duty’ to the company. This simply means that they could
only remove a director in the best interests of the company, and in
good faith. As I’ve said, I think it unlikely that this procedure was
used.
The other possibility of course, is that a director is disqualified by
a court, usually for gross breaches of the Companies Act.
Which leaves us with the most likely solution as to what happened.
Once any of the above procedures has been followed, Companies House
must be notified. This is done on Form 288(b). You can have a look at
this (click on Forms):
http://www.companieshouse.gov.uk
I’ve had a look at the form, and it simply needs to be signed by a
serving director. I would imagine, on the facts you give, that the
‘bad guy’ director noticed the form existed, and filled it in. He
probably thought that this would be enough to validly remove a
director.
Of course, all it means is that Companies House will have deregistered
the director named on the form, since they will assume a valid
procedure has been followed. Here it hasn’t, and the director who has
been removed could apply to the Registrar of Companies to be
reinstated, and/or could take legal action against the company or most
probably the other director personally.
Section 303 removal explicity preserves any remedies existing under
employment law, such as unfair dismissal, etc.
I will also mention, to follow up what we’ve already discussed, that
the shareholders who can pass resolutions or exercise the power of
shareholders are those listed on the company’s members’ register.
Also, section 324(2) of the Companies Act states:
“a director is under obligation to notify the company in writing of
the occurrence … of any event in consequence of whose occurrence he
becomes … interested in shares … of the company”
Read it. Especially good reading is s.324(7), which cheerfully informs
us that failure to make this disclosure is a criminal offence, leading
to a fine, or imprisonment, or both.
We’ve reached the current limits of my knowledge, and the question,
but if you would like me to do any further research on this area do
please ask. Clearly, there are a number of legal avenues open to this
shoddily treated director, and expert legal advice should be sought.
I hope this answer has been useful, and has met your needs. Thank you
for posing the question, since I’ve enjoyed answering it.
Yours,
Joe
Search strategy –
Personal knowledge
Business Law , S. Slorach & J. Ellis, Oxford University Press
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