ACCORDING to some pundits, the UK economy is on the road to recovery. Preparation for growth in a healthier economy is an opportunity for companies to review board level arrangements. It may well be that the board has remained unchanged while trading conditions were tough but that the necessary impetus for growth requires fresh thinking and new blood.
Shareholders have a statutory right to remove a director by ordinary resolution under sections 168 and 169 of the Companies Act 2006 but the procedure is not straightforward. Special notice is required and a meeting must be held. If a director is removed under section 168, he or she has the right to be heard at the meeting at which the removal is discussed and to make written representations.
A director might also be removed by other means, for example where a company's articles include an additional removal process. Such a process might be simpler than the statutory procedure and not require special notice.
However, it must always be borne in mind that the position of director is separate from the employment, contractual and other rights which the director may have. Those rights are likely to be affected on the director's removal and give rise to potentially unexpected claims as a result. Consideration must therefore be given to those rights and how they will be dealt with.
If a director is also an employee (or the wider definition of 'worker') and his or her employment comes to an end, a number of claims could arise, including claims for: unfair dismissal, whistleblowing, discrimination, breach of the working time regulations, and compensation for breaches of contractual terms.
The director might be prepared to enter into a 'settlement agreement' (formally known as a compromise agreement). A settlement agreement is a legally binding contract which can be used to terminate an employee's contract on agreed terms. In return for waiving rights the employee will normally receive a severance payment and/or a reference. The employee will need to obtain independent legal advice as to consequences of the agreement. A settlement agreement should prevent the director from later bringing employment-based claims in the courts or tribunals.
If the director is also a shareholder or holds share options then arrangements should also be agreed to deal with those matters.
Other issues which might be covered by a settlement agreement or other arrangements include handover procedures, the return and handling of confidential information, post-termination restrictions, company property (including cars), and sensitive passwords. A settlement agreement could also include post termination obligations such as an obligation to cooperate with the employer in compliance investigations or legal proceedings for example.
If, as a review of your business, you find that changes need to be made to your board, always seek legal advice before putting decisions into action. Failure to do so could leave you and your company exposed to time-consuming and potentially expensive and reputation-damaging claims.
This article does not contain legal advice and does not purport to be a complete statement of the law. Specific legal advice must be taken where applicable.
John Townsend is a Partner in the Corporate Team at Boyce Hatton Solicitors. He can be contacted on 01803 403403. More information is available by logging on at www.boycehatton.co.uk