October 26th, 2012 / Insight posted in

Removing a director

JS writes: In Questions of Business of February 15 a company had two directors each holding 50% of the shares and one wishing to sell the assets and the other refusing. What would happen if they held only 45% of the shares with another owning 10% and there was a fourth director with no shares? Could three directors vote against one 45% director, dismiss him and proceed with their wishes?

A majority of the directors may vote to remove another director subject to any provision in the company´s articles of association and the fourth director´s service contract. The three would be acting in their capacity as directors; their individual voting rights as shareholders are not taken into account. However, as shareholders, they also have a statutory right to remove a director – by simple majority (i.e. more than 50%) irrespective of any provision in the articles or any agreement between that director and the company. But as the director is also a shareholder, there may be a clause in a shareholders´ agreement that affects the position. In the original letter one shareholder/director wanted to sell the assets and wind up the company. In your situation, the unwanted director could be removed and the company´s assets sold if it were in the best interests of the company and not to the detriment of minority shareholders. But they would not be able to wind up the company as this would require a special resolution approved by 75% of the shareholders.