When a company appoints a Director, they expect a ton—it’s a huge responsibility, after all. But sometimes, directors don’t fulfil these responsibilities as expected, and however unfortunate it is, removing them from the company is the only way to ensure that the interests of the company and its shareholders are being protected.
The process is daunting, and there are a million questions—whether you can remove a director from your company, the steps to remove a director, and what you need to know.
The short answer is yes, you can remove a director from a company. However, there are different steps to follow depending on your company’s corporate governance, its rules regarding removing a director and whether your company is a public or proprietary company.
To make it easy, we have laid out all the steps to remove a director from your company and what you need to know.
Read along
When should you remove a Company Director?
The reasons you may consider removing a director from your company include the following:
- When they aren’t performing their duties adequately. This is crucial as company directors play a significant role in companies and have many responsibilities
- To reduce costs if your company has multiple directors
- Directors can be removed from smaller companies where there are disagreements between shareholders and directors
- Director disqualifications under the Corporations Act are performed by the Australian Securities and Investments Commission (ASIC) if they have breached their duties under Section 206F, particularly on multiple occasions
- Directors can also be disqualified if they’ve been convicted of a serious offence. These offences outlined in Section 206B of the Corporations Act can relate to bankruptcy, personal insolvency agreements and foreign court orders
Steps for the removal of a director from a Proprietary(Private) Company?
In private companies, directors can be removed according to the rules outlined in their company’s constitution or through an ordinary resolution.
If your company doesn’t have a constitution or if it’s insufficient, you can use the replaceable rules in section 203C of the Corporations Act to remove a director. Using the replaceable rules, company shareholders can remove and replace a director by resolution.
The ordinary resolution requires over half (50%) of the shareholders to vote in support of removing the director using their voting rights. If you remove an executive director using this method, you must consider their employment terms to avoid unfair dismissal.
For sole trader companies, ASIC states if your company only has one director, you’re not required to follow replaceable rules or have a constitution to remove a director. However, once an additional director is appointed, replaceable rules will automatically apply.
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Steps for the removal of a director from a Public Company?
The rules regarding removing directors from public companies are more complex than those of private companies.
In public companies, the replaceable rules of the Corporations Act apply even if you have a company constitution. Moreover, directors of public companies are only removed by passing a resolution according to section 203D(1) of the Corporations Act.
Resolutions take place at general meetings. You must follow the steps outlined below to remove a director successfully:
- A notice of intention to move the ordinary resolution must be provided to the company a minimum of two months before the meeting takes place under section 203D(2) of the Corporations Act. If the company sees fit, they can call the shareholder meeting earlier than two months
- A notice of the meeting must be given to the shareholders
- The director must then be provided with a copy of the special notice as soon as practicably possible
- You must then give the director the right to present a case to the shareholders. Directors can do this through:
- Providing the company with a written statement which they must circulate to the company members
- Speaking at the general meeting of the company
- If the director’s case fails to change the minds of shareholders, the director will be removed
- The company then appoints a replacement director
- The director officially retires and is removed once the new director goes into the office
The removal of a director who represents a class of shareholders won’t be finalised until a replacement representative is elected.
Can company directors remove other directors?
If you’re a company director in a proprietary limited company, you can remove another director by a majority vote of the board of directors if your company’s constitution permits.
If you’re a company director in a public company, you can’t remove another director pursuant to Section 201E of the Corporations Act. This section also prevents requiring a director to vacate their office. This provision ensures directors don’t remove a director without consulting the company’s shareholders and seeking their approval. It also ensures shareholder participation in the removal process.
What happens after you remove a director from your company?
Once the director of a company has been removed, it’s important to notify (ASIC) through their website within 28 days to avoid late fees. You can only inform ASIC if you’re a Company Officeholder. To notify ASIC, you’ll need your Australian Company Number(ACN), Australian Business Number(ABN) and login credentials.
Key Takeaways
- The process for removing directors differs between public and private companies
- Company constitutions typically set out the process you must follow to remove directors
- When removing a director, ensure everyone involved is notified, particularly the director being removed and ASIC
- When removing a director, you must consider the type of company you have and the rules governing the removal of directors
If you’re still unsure about how you can remove a director you can hire a business lawyer for legal advice.
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