Terminating a Director: Legal Process and Key Considerations

Terminating a director is a significant decision for any business. Whether due to performance issues, disputes, or strategic changes, companies must follow the correct legal process to remove a director in accordance with UK law.

The procedure is primarily governed by the Companies Act 2006, particularly section 168, and must be handled carefully to avoid legal disputes or claims such as unfair prejudice.

Can You Remove a Director?

Yes, a company can remove a director before the end of their term. The right to remove a director is set out in the Companies Act 2006 and allows shareholders to remove a director by ordinary resolution.

However, this statutory right cannot be overridden by the company’s articles or any private agreement, although these documents may influence the process and consequences.

The Legal Basis: Section 168

Under section 168 of the Companies Act 2006, shareholders can pass a resolution to remove a director at a general meeting.

This applies regardless of any provisions in the company’s articles or shareholder agreement, although those documents may provide additional protections or procedures.

The Removal Process Explained

1. Special Notice

The process begins with special notice. Shareholders intending to propose the removal must give at least 28 days’ notice to the company of the proposed resolution.

This ensures that the director in question is given a fair opportunity to respond.

2. Informing the Director

Once the company receives the special notice, it must inform the director concerned. The director has the right to:

• Make written representations
• Speak at the general meeting

This step is crucial to ensure fairness and transparency in the process.

3. General Meeting and Vote

The company must then call a general meeting where shareholders vote on the resolution to remove the director.

To pass, the resolution requires a simple majority (over 50%), meaning a director by ordinary resolution can be removed if enough shareholders agree.

4. Filing with Companies House

Once the director is removed, the company must notify Companies House by submitting the appropriate form (usually TM01).

This ensures the company’s records are updated and reflects the change on the public register.

The Role of Service Contracts and Agreements

Removing a director is not just a corporate process; it may also have contractual implications.

Service Contracts and Service Agreements

Many directors have service contracts or a service agreement governing their role, remuneration, and notice period. Even if a director is removed under section 168, the company may still:

• Owe notice pay
• Be liable for breach of contract
• Need to follow termination provisions in the agreement

The removal of a director from office does not automatically terminate their employment.

Shareholder Agreements

A shareholder agreement may also include provisions about director appointments and removal. While it cannot override the statutory right under section 168, it may:

• Require certain voting thresholds
• Provide exit provisions
• Set out consequences of removal

Failing to follow these terms can lead to disputes between shareholders.

Risks and Legal Challenges

Unfair Prejudice Claims

One of the biggest risks when terminating a director is a claim of unfair prejudice.

This may arise where a shareholder (who is also a director) believes they have been treated unfairly, particularly in smaller or family-run companies.

Claims of unfair prejudice can lead to court proceedings and potentially costly remedies, including:

• Share buyouts
• Compensation
• Court orders affecting company management

Breach of Contract

If the company fails to properly terminate a director’s service contracts, it may face claims for wrongful dismissal or breach of contract.

Disputes Over Company’s Articles

The company’s articles often set out internal procedures for appointing and removing directors. While they cannot prevent removal under section 168, failing to follow them can still create legal complications.

Importance of Legal Advice

Given the complexity and potential risks, obtaining legal advice before removing a director is strongly recommended.

Professional advice can help:

• Ensure compliance with the Companies Act 2006
• Avoid procedural errors
• Minimise the risk of disputes or claims
• Address contractual obligations under any director service arrangements

Early advice is particularly important where relationships have broken down or where the director is also a shareholder.

Practical Considerations

When planning to remove a director, companies should:

• Review the company’s articles and any shareholder agreement
• Check all service contracts or service agreement terms
• Follow the correct notice and voting procedures
• Document the process carefully
• Notify Companies House promptly

Handling the process correctly helps protect the business and ensures compliance with legal obligations.

How Can Expert Commercial Law Assist?

If you are considering terminating a director, it is essential to ensure the process is handled correctly to avoid disputes, financial risk, or claims such as unfair prejudice.

At Expert Commercial Law, we connect businesses, shareholders, and directors with experienced commercial solicitors who can guide you through every stage of removing a director in line with the Companies Act 2006.

Our network of solicitors can assist with:

Assessing Your Legal Position

Before taking action to remove a director, it is important to review the company’s articles, any shareholder agreement, and existing service contracts or service agreement terms. Our network of solicitors help you understand your rights and obligations, ensuring the correct procedure is followed.

Managing the Removal Process

Whether you are initiating a proposed resolution or preparing the required special notice, we can connect you with legal professionals who will:

• Ensure compliance with section 168 of the Companies Act 2006
• Advise on passing a director by ordinary resolution
• Support you through the general meeting and voting process

This helps reduce the risk of procedural errors that could invalidate the resolution to remove.

Handling Disputes and Risk

Director removals can often lead to disputes, particularly in owner-managed businesses. Our solicitor network can assist in addressing:

• Claims of unfair prejudice
• Shareholder disagreements
• Breach of service contracts or director service arrangements

Where possible, we prioritise resolving matters through negotiation or alternative dispute resolution to avoid costly litigation.

Post-Removal Compliance

Once a director has been removed, it is essential to update company records and notify Companies House. Our network of solicitors can ensure that all necessary filings are completed accurately and on time.

By working with Expert Commercial Law, you gain access to a trusted network of legal professionals who provide clear, practical advice tailored to your business. Whether you are planning to terminate a director or responding to a dispute, the right support can protect your company and minimise legal risk.