When Directors Fall Out

Being a director of a limited company is a responsible and challenging position, with onerous statutory obligations. Shareholders can be very demanding, particularly where they are family members and close friends. In smaller businesses where the directors are the also the shareholders, serious disagreements between them can mean the business is no longer viable.

It might be possible to resolve disagreements through votes at board level, or a resolution at a general meeting. But if the dispute is fundamental to the future of the company, then there may come a point where there is no alternative but to bring the business to an end and formally wind it up.

Dealing With A Rogue Director

Matters quickly become more serious if it is discovered that one or more of the directors is acting against the interests of the company or shareholders. This may or may not involve dishonesty. Examples include:

– The director no longer comes in to work, or has started working (even if part-time) for a different business.

– The director is setting up or dealing with a rival business.

– The director is suspected of making side-arrangements with customers or suppliers.

– The director excludes other directors from the decision-making process and/or makes important decisions that other directors have not agreed on.

What Steps Can Be Taken Against A Director?

If there is a Shareholders Agreement, it will often say how decisions must be made. For instance, it may say if they must be unanimous. (It is a good idea for a Shareholders Agreement to be set up in the early days of a business.) Otherwise the Articles of Association may specify this.

Where there is no formal agreement and the Articles are silent, a simple majority of shareholders can usually agree formally to remove a director from office. However, companies need to be careful that they do not then face a claim for unfair dismissal from the director.

It is important to take advice about a particular set of circumstances. Call us today to discuss your situation and how we can help.

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