What do the new model articles say about events which lead to loss of office by a director?
The new model articles (all of them) include the following:
'A person ceases to be a director as soon as -
that person ceases to be a director by virtue of any provision of the Companies Act 2006 or is prohibited from being a director by law;
a bankruptcy order is made against that person;
a composition is made with that person's creditors generally in satisfaction of that person's debts;
a registered medical practitioner who is treating that person gives a written opinion to the company stating that that person has become physically or mentally incapable of acting as a director and may remain so for more than three months;
by reason of that person's mental health, a court makes an order which wholly or partly prevents that person from personally exercising any powers or rights which that person would otherwise have;
notification is received by the company from the director that the director is resigning from office as director, and such resignation has taken effect in accordance with its terms.'
This differs in some respects from Table A.
May company articles make other provisions for the removal of directors?
Yes they may and a wide variety of provisions may be found, some of them rather curious. They stop people in breach of the requirements taking office or remove them from office if certain circumstances occur. There are far too many possibilities to mention but they include:
Share requirement. A director must hold or acquire a specified number of shares.
Nationality requirement. A director must be a British citizen or even a citizen of specified other countries.
Residence requirement. A director must reside in a specified area such as, for example, the counties of Norfolk, Suffolk, Cambridgeshire and Essex.
Some of the requirements may be very controversial, at least to people who do not agree with them. For example, articles could require directors to be teetotal.
Restrictions in the articles can only be changed by a 75 per cent majority so it does not follow that a simple majority of the members can override a requirement.
Can a director be removed from office by a vote of the directors?
This can only happen if it is permitted by the articles. It is not provided for by the Act, and it is not provided for by Table A or the new model articles. However, such provision is invariably made in the articles of listed companies and quite often made in the articles of other companies. In the absence of provision in the articles a director can only be removed by a vote of the members at an AGM or at a general meeting.
What are the powers of the courts to ban a person from being a director?
A disqualification order may ban a person from being a director, and from directly or indirectly being involved in the management of a company. A ban is at the discretion of the judge or magistrate and is in addition to the punishment. A ban may be imposed as a consequence of any of the following:
Conviction for an indictable offence. An order may be made against any person convicted of an indictable offence in connection with the promotion, formation, management or liquidation of a company, on its striking-off or on a receivership of its property. The maximum period of disqualification is five years in a magistrates' court and 15 years in any other court.
Persistent breaches of companies legislation. This relates to Companies Act requirements concerning company returns, accounts, notices or other documents required to be filed with the Registrar. The breaches must be persistent. The maximum period of disqualification is five years.
Fraud in winding up. The maximum period of disqualification is 15 years.
On summary conviction for a filing or notice default. The maximum period of disqualification is five years.
Unfit director of insolvent companies. The minimum period of disqualification is two years and the maximum is 15 years.
Disqualification after investigation. This may follow a BIS application after an investigation. The maximum period of disqualification is 15 years.
Disqualification for fraudulent or wrongful trading. The maximum period of disqualification is 15 years.
Does the answer to the last question mean that some people convicted of very serious crimes cannot be banned from being a director?
Yes it does mean that.
What is the procedure for the removal of a director by the members at a general meeting?
The steps are as follows:
Members holding at least 5 per cent of the paid up share capital having voting rights (or having 5 per cent of the voting rights if there is no share capital) may requisition a general meeting. They must specify the wording of resolutions to be considered at the meeting and these can include the removal of one or more directors.
The company must give a copy of the resolution to the director affected.
The directors must within 28 days of receipt of the requisition call a meeting giving at least 21 clear days notice. Table A provides that a meeting requisitioned by the members must be held within eight weeks of receipt of the requisition by the directors.
The director affected may write to the members stating his case. This must be circulated by the company at the company's expense.
The director affected may attend the meeting and speak on the resolution to remove him.
The matter is decided by a vote of the members on an ordinary resolution.
Is it always one share one vote on an ordinary resolution of the members to remove a director?
No this is not always the case, though it must be an ordinary resolution. It is one share one vote unless the articles stipulate otherwise. It is possible for articles to provide for some form of weighted voting, with some shares carrying more votes than others. An extreme example of this was upheld in Bushell v Faith 1970. In this case articles gave a director's shares extra votes on a resolution to remove him as a director. There is nothing in statute or common law to prescribe equality.
Can a director be removed by means of a written resolution of the members?
No he cannot. This would deprive him of his rights to make written representations to the members and to speak on the resolution at the meeting.
Can the members be prevented from removing a director?
No they cannot. The Act provides that a director may be removed by an ordinary resolution of the members. This takes precedence over anything to the contrary in the articles or an agreement with the director. Such an agreement may provide for compensation for loss of office.
I control 51 per cent of the votes at a general meeting of the company. I think that people who ride motorcycles should not be company directors and a director will not heed my request to stop riding motorcycles. Can I requisition an extraordinary meeting and vote him off the board?
Yes you can, though most people would think you unreasonable. It is just possible that the director concerned may have a remedy under section 994 of the Act which relates to unfair prejudice. This is only possible if he is a member of the company or a person to whom shares have been transferred or transmitted.