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Flashcards in Shareholders Deck (20):

Can you remove a director before his term expires?

yes shareholders can remove a director from office by ordinary resolution carried by a simple majority of votes s168(1)


What kind of notice is needed to remove a director before his term expires?

yes shareholders can remove a director from office by ordinary resolution carried by a simple majority of votes s168(1)

s168(2) - special notice to the shareholders that there is a a resolution to remove a director is required

under s168(1) -this must be given to the shareholders of the company

- s288(2)(a) CA 2006 a written resolution procedure can’t be used to remove a director before his expiration date -


When must the special notice for a resolution to remove a director be given?

s312(1) - this special notice must be given to the company at least 28 days before the GM at which the resolution is proposed and these must be clear days (s360)


Do directors need to place the resolution to remove a director on the agenda at the next GM upon receiving the special notice to remove a director from shareholders?

Does the board need to tell the shareholders about the resolution being proposed to the board?

Pedley v Inland Waterways Association - directors are not bound to do so.

Board doesn't need to tell shareholders unless they plan to put it into the resolution.


What happens if the directors decide to place the resolution on the agenda for the next GM? How should they call a GM?

The notice of the resolution and meeting to the members must be given at the same time and in the same manner s 312(2).


What is the required notice for the meeting that the board must give to the SH for a GM resolving to remove a director?

Required notice of a GM is at least 14 clear days (ss 307(1) and 360)


What if the notice of resolution for the removal of the director can't be given? (e.g. if the notice of the
meeting has already been sent out)?

notice may be given by advertisement in a newspaper/ other manner provided for in the articles at least 14 clear days before the meeting (ss 312(3) and 360)


If directors decide not to put a resolution through to remove a director at the next GM, what else can shareholders do?

Despite Pedley, s303 CA 2006 if the shareholders who want to remove the director, hold among them, at least 5% of the paid up share capital of the company, they can require that a general meeting be held by serving a request on the company.

These shareholder(s) must serve notice under s303 of the GM a special notice s312 of the resolution to remove a director to the company in the same manner and time.

Under s304 CA 2006, the directors must then call the meeting.


How does the director call a general meeting under s 304 CA 2006?

304(1)(a) - the board must then call a GM within 21 days from the date on which they became subject to the shareholders request to call the meeting; and then:

304(1)(b) the meeting must be convened not more than 28 days after the notice of the date to call the GM is issued

THEREFORE - if the board cooperates with the request under s303, it will be able to avoid holding the GM until 49 days from the date the s303 notice is received (i.e. 20 + 28 days)


What if directors are uncooperative and do not want to call a GM even if members request for one under section 304?

If directors fail to call a GM after 21 days then pursuant to s304 CA 2006, the members can then call a meeting themselves under s305 CA 2006 at the company’s expense:

In this case, the members will call a GM on day 22 (i.e. the day after day 21 which pursuant to s304(1)(a) the directors should have called it by)

The normal rule of 14 clear days will apply under s307(1) and s360(1) and (2) CA 2006 will apply - therefore the GM can be held on day 37 at the earliest, and at the latest on day 90, which is 3 months after the date on which the directors became subject to the requirement to call a meeting

The irony of all of this is that the directors are in fact better off being co-operative rather than uncooperative, as this means they can avoid holding the GM until day 49 rather than day 37


What happens when a company recieves notice that one or more member intends to propose a resolution under 168?

They must immediately send copy to the director concerned - s169(1)


Do directors need to include a special notice of a resolution to remove a director at a GM?

Only if they decide to put it on the agenda at the next GM 303(4)b (Pedley v Inland Waterways Association)


What are the steps involved if shareholders want to remove a director?

1. Shareholder's send special notice to the co. (which Must be sent 28 clear days before GM is to take place)

section 360 lists which notices and meetings

are subject to clear days section 312

2. Case of pedley v inland waterways association: the board can decide whether or not they want to put it on agenda the agenda of the next GM

3. If board decides not to put on agenda, the SH can requisition the directors to call a GM under section 303, notice must be sent out by directors within 21 days and the GM meeting needs to be held before 28 days.

Special notice and request for meeting must be sent on same day.

4.If board doesn't comply with 3, SH can call GM themselves s305 on the company's expense, which will be recovered. The meeting should be called within three months of the 21 days of the deadline for the board.

5. Once SH are notified of the special resolution, the director must receive a copy as well and has a right to be heard on the resolution and make a written representation s169 provided it is reasonable in length and the right is not being abused.


What happens at the GM when a resolution to remove a director is put to a vote?

Voting can be on a show of hands or demanded by poll.

If voting is on a show of hands: you need a only a simple majority for it to pass.

If voting is on a poll you need shareholders representing 75% of the vote for it to pass.

If the board represents 54% of the shares and they support the director who is resolved to be removed, he won't be removed

MA: who can request poll vote


What are the consequences of removing a director?

Depends on whether he is an employee of the company.

Need to ask for a copy of employment contract: if he is still an employee, he is still entitled to notice.

If he is an employee and they don't give him notice, he can claim for wrongful dismissal and breach of contract.

He can also file a claim for unfair dismissal: there has to be a fair reason and a fair procedure followed for the dismissal.

Need to ask the employer for a contract to see what claim he may have. Co and ex-director may enter into a settlement claim. This is known as payment for loss of office, which requires an ordinary resolution and sh approval.

220 says if you are only paying him what he is entitled to under his contract SH approval is not needed. If you make a gratuitous payment than SH approval will be required.

Tim could also apply for an injunction.


At the voting stage to remove a director how do you calculate whether a resolution to remove a director has been passed or not?

By a show of hands, you know you need simple majority:

You need to calculate who's in favor
You need to calculate who's against
You need to calculate who's abstaining

If someone is abstaining you need to subtract that person from the equation of the number of hand's needed to pass simple majority.

If the vote is done by a poll, you start with counting the number of shares each person has as a percentage.

If one person is abstaining, subtract their percentage from 100%.

Then you recalculate how many people have how much shares as a percentage and see if the people voting in favour have more than 51%.

The only time it is 75% is if it is a special resolution. This is not passing a special resolution, it is a special notice passing an ordinary resolution.


What are the Practical, legal and commercial considerations that may arise if director is also a shareholder:

This means that shareholders would be unable to pass an ordinary resolution to remove the director concerned

• NB - also check to see whether the articles contain any transfer provisions which govern the transfer of the outgoing director’s shareholding - there may be included a compulsory transfer provision of the director’s shares if he/she leaves the company - this will be easier for the company to move on if the director is a ‘bad leaver’. Some people in the company may want to buy back his shares.


What happens if a provision in the shareholder's agreement conflicts with the CA2006 ?

What happens if a provision in the AoA conflicts with the CA2006?

Russell case: a contract made by a company like AoA is unenforceable if it violates the CA2006, but a private agreement like SH agreement is between the shareholders so even if it conflicts with the CA 2006, the court may be able to uphold it.


What happens if the minority shareholders are outvoted at the GM to remove a director? ie. the bushell v faith clause is inserted in the memorandum of association?

Ie. meaning that shareholders would be unable to pass an ordinary resolution
to remove the director concerned. What options do they have?

1. a member of the company can bring an action against company s261 as a derivative action

Their cause of action would be a claim against the director for an action arising from an actual or proposed act or omission involving: negligence, default, breach of duty or breach of trust of a director

In order for SH to bring a claim, he will need permission from the court to continue
Need to rely on a prima facie case for breach of duty. Court will need to take into account 263

2. Other possible actions: unfair predjudice claim 994

The difference between unfair pr and derivative claim= latter is derivative on company's claim, and what is recovered is will go to company. Whereas unfair prejudice is in personal capacity of the shareholder.


What can a director do if a general meeting is called to remove him?

s169 A director has the right to make a written statement in response to the resolution, setting out his own position, provided it is reasonable in length and such right is not being abused.

• Key - always check AoA for Bushell v Faith clause first. This clause allows a director who is also a shareholder to have weighted voting rights when a s168 resolution is proposed.