ACCA F4 - Corp and Business Law (ENG)

Part F Management, administration and regulation of companies  18: Company directors 275

4.1 Retirement and re-election of directors

The model articles for public companies provide the following rules for the retirement and re-election

of all directors ('rotation') at AGMs.

(a) At the first AGM of the company all directors shall retire.

(b) At every subsequent AGM any directors appointed by the other directors since the last AGM shall

retire.

(c) Directors who were not appointed or re-elected at one of the preceding two AGMs shall retire.

Directors who are retired by rotation are eligible to offer themselves for re-election. This mandatory

retirement of directors provides another control over their performance. Rather than having to go through

the process of seeking a resolution to remove a director, members have the opportunity every three years

to dispose of an underperforming director by simply not electing them.

4.2 Removal of directors

In addition to provisions in the articles for removal of directors, a director may be removed from office by

ordinary resolution at a meeting of which special notice to the company has been given by the person

proposing it.

On receipt of the special notice the company must send a copy to the director who may require that a

memorandum of reasonable length shall be issued to members. They also have the right to address the

meeting at which the resolution is considered.

The articles and the service contract of the director cannot override the statutory power. However, the

articles can permit dismissal without the statutory formalities being observed, for example dismissal by

a resolution of the board of directors.

The power to remove a director is limited in its effect in four ways.

Restrictions on power to remove directors

Shareholding

qualification to call a

meeting

In order to propose a resolution to remove a director, the shareholder(s) involved

must call a general meeting. To do this they must hold:

 Either, 10% of the paid up share capital

 Or, 10% of the voting rights where the company does not have shares

Shareholding to

request a resolution

Where a meeting is already convened, 100 members holding an average £100 of

share capital each may request a resolution to remove a director.

Weighted voting

rights

A director who is also a member may have weighted voting rights given to them

under the constitution for such an eventuality, so that they can automatically

defeat any motion to remove them as a director.

Class right

agreement

It is possible to draft a shareholder agreement stating that a member holding

each class of share must be present at a general meeting to constitute quorum. If

so, a member holding shares of a certain class could prevent a director being

removed by not attending the meeting.

The courts have stressed that the power of members to remove directors is an important right, but you

should remember the ways in which members' intentions might be frustrated.

The dismissal of a director may also entail payment of a substantial sum to settle their claim for breach of

contract if they have a service contract. Under the Act no resolution may deprive a removed director of any

compensation or damages related to their termination to which they are entitled to.

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