Background
Making the decision to remove company directors can be daunting. However, when a director is not reaching their set expectations, it might be wise to have them removed from the board. There are different rules to consider depending on your company and the rules which govern your particular company regarding removal.
For example, if your company has a Constitution, this will outline how a director can be removed and the method that must be followed. Meanwhile, if you do not have a Constitution, the Replaceable Rules from the Corporations Act 2001 (Cth), will come into play. Finally, if your company has a Shareholders Agreement, this could include obligations which were not placed in the Constitution. Read our article below explaining the technicalities and rules behind the removal of another company director.
Removal in a Public Company
In short, in a public company, if you are a company director, you cannot remove another director. This is to prevent the board of directors choosing to remove another director without approval or knowledge from the company’s shareholders. However, shareholders are able to remove a company director through the passing of a resolution (section 203D(1) Corporations Act). It is important to keep in mind that if a director is removed and they were a representative of a class of shareholders, their removal will not be finalised until a replacement representative is elected.
To successfully remove a director, a notice of intention to move the resolution must be provided to the company with a minimum of two months before the meeting (section 203D(2) Corporations Act). After placing the notice, director should receive it as soon as practicably possible. In the meeting, the chair will ask the director in question to justify their position as a board member. However, there have been cases where the a director has refused to leave. If this occurs, the decision is left to the shareholders and a general meeting must be held.
Removal in a Proprietary Company
Unlike a public company, if the Constitution permits, a director can be removed by a majority of directors. However, if you cannot find this in the Constitution, you should look to section 203C of the Corporations Act. This is one of the replaceable rules, as mentioned above. An important note to remember is that, if the director in question was an executive director, look into their terms of employment to ensure that natural justice and unfair dismissal laws are upheld.
The Next Steps
Once the company director has been removed, it is important to notify ASIC within 28 days. However, this is only possible if you are a Company Officeholder. This is the key platform to update company details, and you’ll need you ACN/ABN and your log in credentials.
Conclusion
As a company director, there are many options for the removal of another director. However, be mindful of the type of company you have and the rules that govern removal. It is also important to update ASIC of any changes to your company, so ensure you do this within the 28 day time period. If you need any further assistance or have any questions, speak to a company lawyer.
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