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Removal of a Director from the Board
The shareholders of a company can remove a director from the board at any time by passing an ordinary resolution. A director can therefore be removed from the board provided over 50% of the votes cast at the shareholders’ meeting are in favour of the ordinary resolution to remove the director concerned. That director is entitled to address the meeting with any submissions s/he may wish to make as to why s/he should not be removed from the board.
The ‘targeted’ director may vote against the ordinary resolution proposing his or her removal provided s/he is also a shareholder. In the course of such a vote the ‘targeted’ director may have enhanced voting rights (i. e. more than one vote for each share s/he possesses). This will depend on whether the articles of the company contain what is known as a ‘Bushell v Faith’ clause. In ‘Bushell v Faith’, Bushell and his two sisters each held 100 of the company’s 300 £ 1 shares. Such a clause will typically provide for instance that each share that director holds will carry three votes rather then one when voting takes place on the ordinary resolution seeking his or her removal. The existence of a Bushell v Faith clause in the articles can therefore make it very difficult to remove a director from the board.
Even if a director is removed, s/he may nevertheless have a cause of action against the company for breach of contract. The damages payable by the company in this connection will depend on the terms of any service agreement in existence between the director and the company.
Client’s instructions
John Richardson, Managing Director of Premium Tours (formerly Golden Tours) Limited has come back into your office. He explains that he and his fellow shareholders now regret having appointed David Kent as a director. Kent has rarely turned up for work or board meetings. Even when he does he is late.
There have been many arguments between Kent and the other directors. Last week Kent shouted at his fellow directors ‘Premium Tours’ travel guides are rubbish. It’s time there were better guides on the market! Richardson is particulary annoyed that Kent is making similar comments to customers and is worried that this is adversely affecting sales. One important customer has already reduced its monthly order. Richardson also suspects that Kent is secretly planning to set up his own company in competition with Premium Tours. He now wants your advice on whether Kent can be removed as a director and if so how.
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