Shareholders may wish to remove a company director for a number of reasons. These may relate to poor performance leading to loss of confidence and/or hostility, or simply the need to cut costs when there are multiple directors. In smaller companies where interested parties are both directors and shareholders, directors are commonly removed because of disagreements between parties. In any case, the process for removing directors must adhere to strict rules. This article will outline these rules and key procedural differences for public and private companies.
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Removing a Company Director – Private Company
Private or proprietary companies are not open to public investment, and as such, are usually a lot smaller than public companies. Because of this, the process for removing a company director differs.
Shareholders can remove company directors in accordance with the company constitution. If the company does not have a constitution, the replaceable rules set out in the Corporations Act will automatically apply. These state that a proprietary company can;
- Remove a director from office by resolution (a vote carried by over half of the shareholders (50%).
- Appoint a new director to office by resolution.
Private company constitutions will usually include this rule. It is also possible for other directors to remove a fellow director if the company constitution allows it. Special considerations arise when that director is an executive director. This means they are also an employee of the company. Therefore, in these instances, it is important to be mindful of unfair dismissal and other employment law considerations.
Sole Directorship Considerations
ASIC‘s position is that companies with just one director are not required to follow replaceable rules or have a constitution when removing directors. However, once an additional director is appointed, the replaceable rules automatically begin to apply.
Removing a Company Director – Public Company
Like in a private company, shareholders in public companies can remove directors by resolution. However, as public companies are predominantly much larger than private companies, there are additional considerations.As a result, the process of removing a company director in a public company is somewhat different.
Directors cannot remove other directors
Firstly, it is not possible for other directors in a public company to remove a director, or require directors to leave their position. This is explicitly outlined in the Corporations Act, and rises above any provision in the company constitution. The purpose of this provision is to ensure shareholders are a part of the process.
The process – removal by resolution
Shareholders in a public company can remove directors by resolution. This resolution takes place at a general meeting. Shareholders are required to provide notice of removal 2-months prior to the general meeting where voting is to take place. If the company sees fit, they can call the meeting earlier than 2 months. The challenged director must be given the notice of removal as soon as it is possible.
The challenged director is able to present a case against their removal to shareholders. This occurs through;
- Circulating a written statement (or having this read out at the meeting).
- Speaking at the general meeting.
If the director’s case is insufficient to change the minds of shareholders, the director may be removed by resolution. The company then appoints a replacement, and finally, removal takes full effect once that replacement goes into office.
Requirements after Removing Directors
After removing a director, companies must notify the Australian Securities and Investments Commission (ASIC) within 28 days to avoid late fees.
Key Takeaways
- The process for removing directors differs between public and private companies.
- Company Constitutions regularly set out the director removal process
- For assistance regarding the removal of company directors, get in touch with a company lawyer.
