April 7th, 2014 / Insight posted in The Sunday Times Business Doctor

Inept director can be voted off board

AB writes: I am the secretary of a small private limited company set up to service our properties and ensure that all householders share equal responsibility for costs. One person from each household is a shareholder and director. One of the directors is now causing administrative problems to such an extent that the other directors wish to remove him. How can this be done? 

It is always better to resolve any differences amicably, particularly in a small company like yours where there is likely to be continuing contact between the directors and shareholders, writes Jon Dawson, partner at Kingston Smith LLP.

If you cannot reach agreement with the director and there are no clauses in your articles of association covering the removal of directors, the legislation in the Companies Act 2006 allows you to pass an ordinary resolution but it requires at least 28 days’ notice to be given to shareholders and the director in question. An ordinary resolution can be passed with a majority of votes from the shareholders

The director can protest against his removal, but the company will have a stronger case if the director has breached his duty of care and if the company has followed the correct procedures.

Once a director has been removed, you must notify Companies House on form TM01 within 14 days.

A problem may arise if the company’s articles require each household to have a director on the board. You will need to think carefully before going ahead with the removal as there may not be an alternative director. In this case, the company may consider amending its articles, but that would need to be passed by a special resolution, requir- ing 75% of votes from shareholders.