Directors play a key role in managing a company. In this role, a director must follow the duties set out in the Corporations Act. On a daily basis, a company director will make decisions regarding business operations. There may be times where a company director fails to fulfil their duties. They may:

  • be in constant conflict with other directors;
  • act dishonestly; 
  • fail to act in good faith and in the best interest of the company; or
  • not manage the finances of the company.

In cases where a director’s actions become extreme, it may be time to consider removing the director from your company. This article will discuss how you can remove a director from your company and the legal obligations you must abide by when doing so.

What Type of Company Is It?

The largest companies in Australia, including those listed on the Australian Stock Exchange (ASX) are public companies. They are generally companies with a significant number of shareholders. These include companies such as: 

  • big banks;
  • mining companies; and 
  • the companies behind Coles and Woolworths. 

However, the vast majority of companies in Australia are proprietary limited companies. Proprietary limited companies cannot have more than 50 non-employee shareholders. Most small and medium-sized enterprises in Australia adopt the form of a proprie.

The rules that regulate how companies can remove a director are set out under Australian law or in the company’s constitution. The rules that will apply to you will depend on whether your company is a public company or a proprietary limited company.

Removal in Public Companies

A public company may remove a director from office by ordinary resolution of its shareholders. This is where shareholders will cast their vote to remove a director. If more than 50% of the shareholders who cast their vote at a shareholders meeting approve, the director will be removed.

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.

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. This must be given at least two months before the meeting takes place. 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 has a right to put their case setting out why they should not be removed to the shareholders. They can do this by giving the company a written statement, which will circulate to the shareholders. They can also speak at the meeting at which the vote to remove the director will take place.

The procedure above is set out by law. However, this is not the only way that public companies can remove directors. Shareholders in public companies can also remove directors by following any alternative procedure outlined in the company’s constitution

Removal in Proprietary Limited Companies

There is more flexibility in the process of removing a director of a proprietary limited company than a director of a public company. This is because there are no set procedures under the law to remove a director of a proprietary limited company. Instead, the company’s constitution will set out the method of removing a director. The company may not have a constitution or may have a constitution which states the default provisions of the relevant law. If this is the case, the Corporations Act, known as the replaceable rules, apply to the company. An ordinary resolution of the shareholders is the only way to remove a director from office. This is a similar process for public companies.

However, if a company’s constitution permits it, a director may be removed from office either by: 

  • an ordinary resolution of the shareholders of the company; or
  • a majority of the board of directors. This will be subject to the wording in the constitution.

The director you are seeking to remove may be an executive director and therefore is also an employee of the company. If this is the case, you need to ensure that you are complying with the terms of employment for that director. You also need to ensure you comply with general employment law requirements. 

What Should You Do After Removing a Director?

You must report all changes to company details to Australian Securities and Investments Commission (ASIC). This includes changes to officeholders. This must be completed within 28 days of removing the director. 

In the past, you would have needed to submit a paper form. However, ASIC has replaced the paper form with an online portal. You will need to register online before you can make any changes. There is no fee to change your company details online. 

Key Takeaways

As a general rule, if your company is a proprietary limited company, your company’s constitution will govern how to remove a director. Your company may not have a constitution or the constitution does not provide a guide on removing a director. Provided this, a company director can then only be removed by way of a shareholder resolution. If you have a public company, you must ensure you follow the strict procedure laid out in the Corporations Act. If you have any questions regarding the removal of a company director, contact LegalVision’s commercial and business lawyers on 1300 544 755 fill out the form on this page.

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