How to Remove a Company Director: A UK Corporate Lawyer’s Complete Guide

Removing a company director is one of the most consequential decisions shareholders can make. Whether you are dealing with underperformance, a breakdown in trust, or a fundamental disagreement about the company’s direction, understanding the proper legal process is essential to protect both your company and yourself from costly disputes and potential shareholder disputes.

In this comprehensive guide, I explain the legal framework governing director removal under UK law, outline the critical steps you must follow, and reveal the common pitfalls that lead to expensive litigation. As corporate lawyers, we often see these situations escalate into complex legal disputes when proper procedures aren’t followed.

Chapter 1: Summary of How to Remove a Company Director

The Legal Basis for Director Removal

Under UK corporate law, shareholders hold significant power over the composition of the board. Section 168 of the Companies Act 2006 provides a statutory right for shareholders to remove any director by passing an ordinary resolution at a general meeting.

The key principle is straightforward: a company may, by ordinary resolution at a meeting, remove a director before the expiration of their period of office, notwithstanding anything in any agreement between it and them. This applies equally to executive directors and non-executive directors.

It should be noted that a director cannot be removed by written resolution. A written resolution is a decision of the shareholders that is not passed at a meeting, rather by correspondence. This usually entails circulating (sending for signature) the resolutions (decisions) by post, email and other means. Instead, to remove a director, a general meeting is required. This means the proper notice needs to be given, and that a quorum (ie enough people present for the meeting to be valid) is present. Quorum for limited companies is at least two shareholders, or one shareholder if the company only has one shareholder.

Can Shareholders Remove Directors?

Yes, shareholders can remove directors. Shareholders holding more than 50% of the voting rights can vote to remove a director from office.

However, the power to remove a director is not unlimited. Shareholders must follow the correct statutory procedure, and there may be contractual and employment law consequences that flow from the removal, potentially leading to an employment law claim.

Can Directors Be Removed Without Cause?

Yes, directors can be removed without cause under UK law. Section 168 of the Companies Act 2006 allows shareholders to remove a director for any reason, or indeed for no reason at all, provided the correct procedure is followed.

This is a crucial distinction from employment law, where dismissing an employee typically requires a fair reason. The statutory removal procedure is a matter of corporate governance, not employment law. However, if the director is also an employee, removing them from office may trigger separate employment law consequences, including potential claims for constructive dismissal.

Accordingly, removing a person who is both an employee and a director requires the company to follow two separate (but related) processes: namely one for the removal of a director (usually simpler), and one for the dismissal of an employee. In this blog I focus on the former.

What Is the Process to Forcibly Remove a Director from a Company?

The statutory process under Section 168 involves several steps:

1. The board of directors of the company must validly meet and decide to call a general meeting. Generally, the board meeting is valid if reasonable notice of the meeting was given to the directors, and if a quorum present at the board meeting.
2. The company (via its directors) must then give “special notice” to the shareholders of the general meeting of the shareholders, and notice must be given at least 28 clear days before the meeting. Clear days means that there is at least 28 days between the day the notice is deemed delivered, and the day that the general meeting is scheduled to be held.
3. The company must convene a general meeting to consider the resolution. Here, the director must be given the opportunity to make representations.
4. The resolution is passed by ordinary resolution (simple majority).
5. The company must file form TM01 with Companies House within 14 days.

The Four Main Methods of Director Removal

The Bushell v Faith Clause

Shareholders should be aware that a company’s articles may contain weighted voting provisions, commonly known as a “Bushell v Faith” clause (from the landmark case Bushell v Faith [1970] AC 1099). This type of provision gives a director-shareholder additional voting rights on any resolution to remove them from office.

For example, if a director holds 33% of shares, a Bushell v Faith clause might give them three votes per share on a resolution to remove them, effectively giving them a blocking majority. If you are a majority shareholder seeking to remove a director, checking for this provision is essential before commencing any removal process, especially in cases involving 50:50 shareholders.

Chapter 2: How to Avoid Being Sued When Removing a Company Director

Removing a director is a corporate act, but it can have far-reaching legal consequences. Many companies focus solely on the Companies Act procedure and fail to consider the contractual and employment dimensions. This oversight frequently leads to costly litigation and compensation claims.

Employment Law Considerations

The most significant risk arises when the director being removed is also an employee of the company. Executive directors typically have service contracts or employment agreements with the company. Removing them from office under Section 168 does not terminate their employment contract; it may, however, constitute a breach of that contract.

The ACAS Code of Practice on Disciplinary and Grievance Procedures sets out minimum standards for handling workplace discipline. Critically, the statutory procedure for removing a director does not comply with the ACAS Code. If a director’s removal also terminates their employment, the dismissal will almost certainly be procedurally unfair, potentially leading to an employment law claim.

Wrongful Dismissal Claims

If the director has a fixed-term service agreement or a contract requiring a notice period, removing them without providing the contractual notice (or payment in lieu) may constitute wrongful dismissal. This is a breach of contract claim and has no statutory cap; damages are based on the actual losses suffered.

Directors with lengthy notice periods or generous termination packages can bring substantial claims. I have seen cases where wrongful dismissal damages exceeded several years’ salary plus lost bonus entitlements and share schemes.

Unfair Prejudice Petitions

When the director being removed is also a shareholder, there is an additional risk: an unfair prejudice petition under Section 994 of the Companies Act 2006.

Minority shareholders can petition the court if the company’s affairs have been conducted in a manner unfairly prejudicial to their interests. Removing a director-shareholder from office, particularly in a quasi-partnership company where there was an expectation of continued involvement in management, may constitute unfair prejudice and lead to an unfair prejudice claim.

Courts have wide remedial powers under Section 996, including ordering the majority shareholders to purchase the petitioner’s shares at a fair value. In contentious cases, the legal costs alone can exceed the value of the company.

Protective Measures

To minimise legal risk when removing a director:

1. Review all contractual documentation Before initiating removal proceedings, thoroughly review the director’s service agreement, any shareholders agreement, and the company’s articles of association. Identify notice requirements, termination provisions, and any weighted voting rights.

2. Consider negotiated exit The safest approach is often a negotiated settlement. A severance package and settlement agreement can provide the company with certainty and the director with fair compensation. Settlement agreements must meet specific statutory requirements to be valid, including independent legal advice for the director.

3. Separate corporate and employment processes If you must proceed with formal removal, consider addressing the employment relationship separately. This might involve following a proper capability or disciplinary procedure before or alongside the corporate removal process. Be aware of potential grounds for constructive dismissal claims.

4. Document legitimate business reasons While Section 168 permits removal without cause, documenting the genuine business reasons for removal can help defend against subsequent claims. Evidence of underperformance, breach of duties, or strategic disagreements may be relevant. In cases of gross misconduct, ensure thorough documentation.

5. Seek specialist legal advice Given the complexity and financial stakes involved, obtaining advice from corporate lawyers at the outset is essential. The cost of professional advice is negligible compared to the potential cost of defended litigation.

Chapter 3: Step-by-Step Guide to Removing a Company Director

Step 1: Review Your Company’s Constitution

Before proceeding with statutory removal, examine whether your company’s bespoke articles or any shareholders agreement contain provisions for director removal.

Many companies have adopted articles that allow the board to remove a director by board resolution, or that specify grounds upon which a director automatically vacates office (such as bankruptcy, disqualification, or prolonged absence). If such provisions exist and apply to your situation, the process may be simpler than the statutory route.

The Model Articles for private companies (Schedule 1 to the Companies (Model Articles) Regulations 2008) provide that a person ceases to be a director if they:

• Become prohibited by law from being a director
• Become bankrupt or make an arrangement with creditors, including entering into a debt relief order
• Become incapable by reason of mental disorder
• Resign by notice to the company
• Are absent from board meetings for six months without board consent

Step 2: Hold a Board Meeting

If you are proceeding under Section 168, the first formal step is for the board of directors to validly meet and resolve to call a general meeting.

For the board meeting to be valid:

• Reasonable notice of the board meeting must be given to all directors
• A quorum must be present at the board meeting (typically two directors, unless the articles specify otherwise)
• The board must pass a resolution to convene a general meeting for the purpose of considering the removal of the director

The board should minute the decision to call the general meeting, including the proposed date, time, and location of the meeting, as well as the business to be considered.

Step 3: Give Special Notice to Shareholders

Once the board has resolved to call a general meeting, the company (via its directors) must give “special notice” to the shareholders. This notice must be given at least 28 clear days before the meeting at which the resolution will be proposed.

The notice must:

• Be in writing
• Identify the director to be removed
• State the intention to propose an ordinary resolution for their removal
• Specify the date, time, and location of the general meeting

“Clear days” means there must be at least 28 days between the day the notice is deemed delivered and the day the general meeting is scheduled to be held.

The notice must also be sent to the director facing removal, who has important statutory rights under Section 169 of the Companies Act 2006.

Step 4: Convene the General Meeting

The company must convene a general meeting to consider the resolution. At this meeting, the director facing removal must be given the opportunity to make representations.

The director’s statutory rights include:

Written representations: The director may make written representations to the company (not exceeding a reasonable length) and may require the company to circulate these to shareholders before the meeting. If the representations are received too late for circulation, or the company fails to circulate them, the director may require them to be read out at the meeting.

Right to attend and speak: The director is entitled to attend and speak at the meeting on the resolution for their removal, even if they are not a shareholder.

The company is only excused from circulating representations if, on application to the court, the court is satisfied that the rights are being abused to secure needless publicity for defamatory matter.

At the general meeting:

• The meeting must be properly constituted with a quorum present (typically two shareholders, or one shareholder if the company only have one member)
• The chairman presents the resolution to remove the director
• The director (or someone on their behalf) may make their representations
• The resolution is put to the vote

If the company’s articles contain a Bushell v Faith clause, this affects the vote calculation. The director-shareholder’s enhanced voting rights apply only to this resolution.

The resolution must be voted on at the meeting and cannot be passed as a written resolution (Section 288(2)(a) of the Companies Act 2006).

Step 5: Pass the Resolution by Ordinary Resolution

The resolution to remove the director is passed by ordinary resolution, meaning it requires a simple majority—more than 50% of votes cast—to pass.

Voting may be conducted by a show of hands or by poll, depending on the company’s articles. Some companies may allow for electronic participation in meetings, which should be specified in the articles.

Step 6: File Form TM01 with Companies House

If the resolution passes, the company must notify Companies House using form TM01 within 14 days of the resolution being passed. This can be filed online through the Companies House WebFiling service or submitted as a paper form.

Failure to notify Companies House within the 14-day period is a criminal offence, and the company and every officer in default may be liable to a fine. The company secretary, if appointed, is often responsible for ensuring timely filing.

Step 7: Update Company Records and Address Ancillary Matters

Following removal, the company must:

• Update the register of directors
• Update the register of directors’ residential addresses
• Amend any relevant people with significant control (PSC) register entries if applicable

If the former director remains a shareholder, their shareholding is unaffected by their removal from office. They retain all shareholder rights unless and until their shares are transferred or bought back.

Employment considerations: As discussed in Chapter 2, if the director is also an employee, their removal from office does not automatically terminate their employment. You may need to follow a separate dismissal process compliant with the ACAS Code, pay notice or payment in lieu of notice under their service contract, consider offering a settlement agreement, address any ongoing confidentiality obligations, and review any applicable clawback provisions.

Key Takeaways

Removing a company director is a significant step with potentially far-reaching consequences. While the statutory procedure under Section 168 of the Companies Act 2006 provides shareholders with an inalienable right to remove directors, exercising this right improperly can expose the company to substantial claims.

The issue is further complicated if the company happens to only have two directors and two shareholders, and the director in question is not attending board or general meetings. If so, and assuming the company doesn’t have bespoke articles of association to help with this issue, the company will be unable to make any decisions (known as deadlock). To learn about deadlock and how to deal with it, read this blog.