Shareholders - Removal of Directors Flashcards
(20 cards)
What does special notice under CA require for the removal of directors?
Shareholders must give at least 28 days clear special notice to the company of their intention to propose a removal resolution
What is the purpose of special notice?
To ensure that all shareholders (not just the ones proposing removal) are made aware of the general meeting and the proposed resolution
What are the board’s options upon receiving special notice?
- Place the resolution on the general meeting agenda
- Decline to do so
What must the board do if it agrees to place the removal resolution on the agenda?
Provide 14 clear days’ notice of the general meeting and the resolution
How can a notice be given if it is too late to include in the main GM notice?
Via advertisement or another method permitted by the Articles, at least 14 days before the meeting
What can shareholders do if the board refuses to call a GM?
Shareholders holding 5% or more of the voting shares can serve a section 303 request requiring the board to call a general meeting
What must the s303 request include?
It must state the general nature of the business, and may include the text of the proposed resolution (such as the removal resolution)
What is the board’s obligation upon receiving a s303 request?
- Call a general meeting within 21 days
- the meeting must be held within 28 days of the notice convening it
What if the board fails to comply with the s303 request?
Shareholders representing more than half of the voting rights in the request can call the meeting themselves
What are the notice and timing requirements if shareholders call the GM themselves?
- At least 14 days clear notice
- GM must be held within 3 months of the s303 request
- Shareholders may recover expenses from the company
What rights does a director have if they are subject of a removal resolution?
- Must be sent a copy of the special notice
- May make written representations
- If not circulated, representations must be read at the meeting
- Has the right to speak at the GM in their defence
What is a Bushell v Faith clause?
A clause in the Articles giving a director/shareholder weighted voting rights in the event of a resolution to remove them
Can a Bushell v Faith clause override s168?
Not directly - it does not prevent use of s168, but it makes passing a resolution more difficult by altering voting power.
Why are Bushell v Faith clauses often used in small companies?
To protect founding directors or key shareholders from being easily removed by a majority vote
Can Shareholders’ Agreement override s168?
No - if shareholders pass a valid resolution under s168, the director is removed, but other shareholders may be liable for breach of contract
What remedy is available if a director is removed in a breach of shareholders agreement?
The director may sue for breach of contract or seek an injunction
Is shareholder approval required for compensation paid to a director on removal?
Yes - an ordinary resolution is required, unless the company is a wholly-owned subsidiary
Can compensation be paid to a 3rd party instead to avoid approval?
No, any payment to a connected person or 3rd party at the director’s discretion is treated as a payment to the director
What disclosure is required before approving compensation?
A memorandum detailing the payment must be made available 15 days before the GM and at the meeting itself.
When else is shareholder approval required for loss of office payments?
- Payment in connection with transfer of undertaking or property
- Payment in connection with takeover or share sale
