Removal of a Company Director – Things to Consider

Removal of a Company Director – Things to Consider

Section 169 of the Companies Act of 2013 outlines all of the procedures for removing a director. Shareholders of a company can easily remove a director, especially those who are not allocated a director by the tribunal court under Section 242. The provisions of this subsection do not apply unless the company has exercised the option provided by Section 163 to assign not less than two-thirds of the total number of directors proportionally.

What Reasons Can Be Considered to Remove a Director?

A director can be fired or removed from his position in a company because of the following reasons:

•  A director can be removed or disqualified if he/she violates any provisions specified by the Companies Act.
• If a director is absent from board meetings for more than 12 months.
• If a director of a company indulges himself in any kind of arrangement or contract against Section 184 of the Companies Act provisions.
• If a director gets disqualified by an order of a tribunal or a court.
• If a director is convicted of any offense in court and sentenced to imprisonment for more than 6 months.
• If a director does not abide by the rules and regulations specified by the Companies Act of 2013.
•  If a director has resigned voluntarily from their position in the company.

What Things Need to Be Considered at the Time of the Removal of a Director?

The following are the things to consider while removal of a director from a company:

• When removing a director from the company, one must keep in mind to check the Company’s Articles of Association, including other essential documents like the Shareholders Agreement or Director’s Service Agreement. These documents often contain the right procedures for removing a director from a company, but if there is no set of procedures to be found for removing a director, one must follow the statutory method of removing a director, specified by the Companies Act of 2006.
• Next, a meeting needs to be held among the shareholders and a resolution in favor of eliminating the director position needs to be passed. If the right process of conducting the meeting is not followed among the shareholders, the resolution to terminate the director is likely to be invalid.
• Terminating a director has some consequences, even when the termination is done by following the Companies Act of 2006.

There are quite a few other considerations that need to be taken into account, based on the director, whether he is an employee or a shareholder.

• If the director is an employee of the company, then consideration also must be provided to the director, whether he has any kind of claims under employment law.
• It is always up to a director to resign his position in this office voluntarily. This may be possible if the company involves itself in negotiations to agree to the director’s resignation on terms. Once an agreement has been reached, both parties can sign a settlement agreement. This gives protection to both parties and helps them to reach an understanding.
• Handling the reputational impact of a director’s departure could be the main consideration. For this, both parties can agree on the wording of a press release related to the directors’ departure, to manage what kind of information would be released among the company’s staff or to the public.
• Once a director is removed from his position, the Companies House needs to be informed within fourteen days of the director’s termination.

What Is the Process to Remove a Director?

An organisation possesses the power to terminate a director from the organization by passing an Ordinary Resolution. The following is the process for terminating a director:

• A board meeting needs to be held within 7 days among all the directors in the company. A special notice needs to be sent to other directors about the termination of the director.
• On the board meeting day, a resolution in favor of the termination needs to be passed among the shareholders.
• A normal meeting would be conducted, and notice of this meeting needs to be circulated before 21 days. At the meeting, the shareholders would be asked to vote on the termination. If the majority turns out to be in favor of the decision, the resolution of removal will be passed.
•  An opportunity needs to be given to the director to make a statement on the matter before the resolution is passed.
• Once the resolution of removal is passed, the same process needs to be followed and the forms DIR 11 to 12 need to be filed, including the same attachments as the ordinary resolution and board resolution.
• After filing the forms, the director’s name would be erased from the Ministry of Corporate Affairs website.

What to Do if a Director Resigns Himself?

If the director submits his resignation to the board, follow these steps:

• The first step would be to conduct a board meeting, and the notice of the meeting needs to be circulated 21 days before the meeting.
• After this, the board would deliberate & determine whether to deny the director’s resignation or not.
• After the approval of the resignation, the board would pass a resolution associated with the approval of the director’s resignation from the company.
• The next step that the board and the outgoing director must take is to file a form DIR-11. A piece of evidence of the resignation letter delivered along with a xerox of the resignation letter provided by the director needs to be attached to the form.
• Thereafter, the company needs to file a DIR-12 form with the ROC ( Registrar of Companies) including the resignation letter and the board resolution.
• Once all the forms are filled out, the name of the director will be erased from the company’s master data on the website of the MCA.

Conclusion 

A company needs to abide by all the above-mentioned steps in order to avoid any kind of complication in the process. There should be valid reasons behind the company’s initiative to terminate a director’s position in the company. Before terminating the director, an opportunity must be given to the director to state his claims.If you require any legal assistance in the process for the removal of a director from your company, Vakilsearch can be your best bet to handle all documentation processes efficiently!