Removal of a director: what companies and shareholders need to know

The decision to remove a director is rarely taken lightly. Shareholders may feel confidence has been lost, performance is falling short, or relationships have broken down to the point where change is needed. Whatever the reason, removing a director is one of the most sensitive steps a company can take, and it must be handled with care.

In this article, Stewart Dickens, corporate and litigation solicitor, explains how a misstep can leave the business vulnerable to disputes, claims for damages, or reputational harm.

Our solicitors regularly advise both companies and directors on this process, ensuring the right legal steps are followed and risks are minimised.

Ways a director’s appointment can end

A director’s appointment may be terminated through a combination of mechanisms set out in the company’s constitutional documents and under statute. These include:

1. Grounds specified in the articles of association

The company’s articles of association often include provisions that cause a director to vacate office automatically in defined circumstances. Under the model articles, these include:

• Resignation - typically confirmed in writing.
• Automatic disqualification – for example, bankruptcy or certain criminal convictions.
• Illness or incapacity – where the director is medically certified as unable to perform their duties.

2. Grounds specified in a shareholder’s agreement

Where a director is also a shareholder, a shareholder’s agreement may impose contractual obligations on directors to resign in specific scenarios, including: 

• Breach of fiduciary duty or misconduct - where the director acts against the interests of the company or shareholders.
• Change of control – triggering resignation upon a sale or transfer of shares.
• Failure to attend board meetings – where the director fails to attend for a specified period (e.g. six months). 

3. Statutory Right to Remove a Director – Section 168 Companies Act 2006

Regardless of what is stated in the articles or shareholders’ agreement, shareholders retain a statutory right to remove a director under Section 168 of the Companies Act 2006. It is the only statutory route for shareholders to remove a director without their consent, and the prescribed process must be followed strictly. This includes:

• Ordinary resolution – passed by a simple majority of shareholders (over 50%).
• Special notice – at least 28 clear days’ notice must be given before the meeting.
• Director’s rights:
  • To make written representations to shareholders.
  • To attend and speak at the meeting where the resolution is considered.

Although Section 168 overrides any contrary provision in the company’s articles or the director’s service agreement, companies should still review their articles for procedural requirements that may affect the timing or conduct of the meeting, such as quorum or voting rights.

Directors’ rights and protections

Even if shareholders successfully pass a resolution, directors have important rights that companies must respect:

• Service contracts – many directors have contractual notice periods or agreed exit terms. Removing them without honouring these can lead to claims for damages.
   
• Employment rights – if the director is also an employee, they may be entitled to protection from unfair dismissal, redundancy pay, or discrimination claims. Not all directors are employees, however. Whether employment rights apply depends on the nature of the engagement, duties, and remuneration.
   
• Gross misconduct – in cases of serious wrongdoing, dismissal without notice may be justified, but the threshold is high and directors are usually held to stricter standards than ordinary employees.
   
• Constructive dismissal – if a director is forced out by the company’s conduct, they may resign and claim damages.

Special issues to consider

• Directors who are also shareholders – their voting rights may influence the outcome. In some cases, weighted voting rights (such as in Bushel v Faith) can prevent removal.
   
• Shareholder agreements – whilst these may limit contractual rights to remove a director, they cannot exclude or override the statutory right under Section 168. 
   
• Resignation vs removal – encouraging a negotiated exit is often quicker, less costly, and less damaging to the company’s reputation.

Risks for companies

Removing a director is rarely straightforward. The main risks include claims for breach of contract, employment-related disputes, and shareholder litigation. The process itself can also be disruptive, affecting staff morale and investor confidence if it is mishandled. Careful planning, clear communication, and professional advice are essential to reduce these risks and preserve stability.

FAQs on removing a director

Here are answers to some of the most common questions companies and directors ask us about removing a director.

1. Can a director be removed without their consent?

   Yes. Under Section 168 of the Companies Act 2006, shareholders can pass an ordinary resolution to remove a director, even if the director does not agree.

2. How much notice is needed to remove a director?

   Shareholders must give at least 28 clear days’ special notice before the resolution is voted on at a meeting.

3. What rights does a director have if removed?

   A director may have rights under their service contract or employment law. They can also make representations at the shareholder meeting and may claim damages if the process is mishandled.

4. Is it better for a director to resign instead of being removed?

   Often, yes. A negotiated resignation can reduce costs, avoid disputes, and protect the company’s reputation compared to a contested removal.

Expert insight from our solicitors

Stewart Dickens, a specialist corporate and litigation solicitor, says:

“It is not uncommon for companies to seek advice when relationships at board level begin to deteriorate. Disputes between directors can quickly lead to a breakdown in trust and confidence, prompting shareholders to consider removing a director. While decisive action may be necessary, it is essential that the legal process is followed correctly to avoid procedural missteps and exposure to claims.

“To mitigate risk, companies should ensure that their articles of association and shareholders’ agreement are clearly drafted and regularly reviewed. These documents should set out the grounds and procedures for terminating a director’s appointment, including any automatic vacating provisions or obligations to resign. Equally, directors’ service agreements must be carefully structured to address notice periods, termination rights, and employment law considerations. These are often the source of disputes and, if overlooked, can result in significant legal and financial consequences.”

How we can help

Our corporate and litigation teams work with both companies and directors to manage director terminations with clarity and precision. We guide clients through the requirements of the Companies Act 2006, review service agreements and shareholder arrangements, and advise on the best strategy to minimise risk. Where disputes arise, we are experienced in resolving them quickly and effectively, whether through negotiation or legal action.

If you are considering removing a director – or facing removal yourself – we can provide clear, expert advice to protect your position and secure the best outcome.