It Depends – What Type of Company Is It?
The largest companies in Australia, including those listed on the Australian Stock Exchange (ASX) like the big banks, many mining companies and the companies behind Coles and Woolworths, are public companies. They are generally companies with a significant number of shareholders.
However, the vast majority of companies in Australia are proprietary limited companies. They are companies with less than 50 non-employee shareholders, so are the form of company adopted by most small and medium sized enterprises in Australia.
The rules that regulate how companies can remove a director are set out in the Corporations Act 2001 (Cth) and/or the constitution. There is a distinction between public companies and proprietary limited companies.
A public company may by resolution of the shareholders (i.e. a vote approved by more than 50% of the shareholders) remove a director from office: see section 203D(1) of the Corporations Act. It is important to note that the directors of a public company cannot remove another director, this right is limited to the company’s shareholders: section 203E of the Corporations Act.
In order to invoke this right a notice of intention to move a resolution to remove a director of a public company must be given to the company at least two months before the meeting is held: section 203D(2) of the Corporations Act. A company that receives such a notice may call a meeting so that the vote is taken within two months, but not less than 21 days, of receipt of the notice. As soon as practicable after receiving the notice the company must give the director a copy of the notice. The director is entitled to put their case to the shareholders by giving the company a written statement to be circulated to the shareholders and speaking at the meeting at which the vote to remove the director will be taken.
Proprietary Limited Companies
There is more flexibility in the Corporations Act as to how directors of proprietary limited companies may be removed. This is because there are no procedures or statutory restrictions on director removal in proprietary limited companies as the section of the Corporations Act that deals with removing directors of proprietary limited companies, section 203C, is a replaceable rule. A replaceable rule is a section of the Corporations Act that may be displaced by a company’s constitution.
If a company does not displace section 203C by its constitution then a director may be removed from office by resolution of the company. This is a similar process as for public companies (set out above).
However, if a company displaces section 203C by its constitution then a director may be removed from office by resolution of the company or by a majority of the board of directors, subject to the wording in the constitution.
Is there something you must do to remove a director?
Yes. ASIC Form 484 must be lodged with the Australian Securities and Investments Commission within 28 days of the director being removed. If you’re after legal advice on your current business structure or just after advice on the best way to deal with an unruly director, call LegalVision on 1300 544 755 and get a fixed-fee quote today.