Process to remove a non shareholding director

[Dave Jeffries]

I have a small business that I started in 2016 with no employees. I am the sole shareholder. I have been assisted by a friend on a voluntry basis in operating the company. I made him a director in 2017 but did not give him any shares. We are now in dispute and he has locked the joint business account. I am continuing to run the company alone using a personal account. I would now like to remove him as a director and then get the company account unlocked. I understand that I must issue an ordinary resolution and give him the opportunity to attend a meeting with at least 28 days notice. The question is do I need to do this via a solicitor or can I just do it myself. It is very much a hobby business but of course I would like to make sure I'm doing things properly. The bank has said that once he is removed as a director they will then remove him as a signatory and unlock the account on my request. If I can do this myself, is there any templates that I should work to?

 

[eteb3]

When you say he's locked the a/c, do you mean exactly that, or that he's locked you out of it while he can carry on? If the latter, tell the bank that you're the other director and will hold them responsible for any misuse of funds that you can't stop while locked out.

Is he employed? You can remove him from office 'notwithstanding anything in any agreement' between him and the company. But if he's employed as well as holding the office of director, he may have a claim for wrongful dismissal.

Were there any other agreements? Anything like a shareholders' agreement that put a personal contract between you and him, rather than between your company and him? (I see he wasn't a shareholder, so not that exactly, but anything along those lines)

Purely on the removal from office, you follow the procedure in the Companies Act - it sounds like you may have read ss. 168-169. Remember that while the resolution need only be an ordinary resolution, special notice of the resolution is required. I'd be happy doing that myself without a solicitor, but ymmv. If there are other contracts involved I probably would instruct one.

 

[Dave Jeffries]

The account has got a "no operations" tag on it which means neither of us can use it.

He is not employed by the company (there are no employees) and I have written to him telling him that he is not permitted to take any part in company operations.

There are no personal or company agreements in place.

It sounds like I should be able to do this myself. Are there any templates that I should follow to make an ordinary resolution of this sort?

 

[eteb3]

Tolley's 2011 gives a precedent as follows:

I hereby give notice pursuant to ss 168 and 312 of the Companies Act 2006 of my intention to propose the following ordinary resolution at the next meeting of the members of the company:

'That X be and is hereby removed from his office as a director of the company with immediate effect.'

I don't know if there are modifications to procedure if this is a single-member company: my understanding is that under the common law, a person cannot meet with himself. So not sure what happens in this case.

Anyone else?

PS I'm not a lawyer, nor company sec, so please calibrate your response accordingly.

 

[OGgy21]

Even though he not be formally employed through a contract, be careful that he is not employed through custom and practice. I.e would he be able to assert there was an employment arrangement - was he paid the same each month, obligated to work, following instructions etc.

re eteb above, i do not believe there are any modifications. As a sole shareholder you obviously wouldn't formally convene a physical meeting with yourself. Of course the notice periods etc have to be adhered to

 

[Paul Norman]

I would have thought that locking the company bank account constitutes sufficient reason for immediate removal for gross misconduct, and for acting other than in the best interests of the business.

I would act now. As in immediately. And I would involve a decent lawyer - waiting 28 days could mean you have no company to rescue.

I am far from convinced that the bank should have allowed one person to do this, either. But not much you can do about that other than get them gone, and try to get it restored.

 

[The Byre]

I would have thought that locking the company bank account constitutes sufficient reason for immediate removal for gross misconduct, and for acting other than in the best interests of the business.

This! And the rest of Paul's post.

Call @The Resolver or contact a local lawyer with a healthy knowledge of company law. But a director is merely an employee. This man is (according to what you have told us) guilty of gross misconduct and therefore can be given the bum's-rush. Remove him from the role at Companies' House and notify him in writing today, after calling Graham (The Resolver) to guide you. https://www.ukbusinessforums.co.uk/members/the-resolver.6183/

 

[OGgy21]

employee and director are two distinct (but often conflated) roles. you would still need to follow proper procedure even if dismissing for gross misconduct and of course passing the correct resolutions

 

[Dave Jeffries]

Thank you all for the information. I will speak to @The Resolver for his advice. I opened another account and so the company is still running and in no danger of collapse so I don't feel any need to rush.

 

[The Resolver]

You have been given good advice here. You have PM;d me and we will speak in a day or two. Let me say for others watching, the problem will lie in the delay ie the fact that he is entitled to attend the meeting and to receive 28 days clear (ie excluding day of posting and of receipt) notice. Can he do anything adverse in the interim? Does he, for example, have any access to the web server/mail server/DNS accounts? Does he have access to online filing at Companies House? Does he have access to clients/customers/suppliers?

You should be checking all potentially damaging actions he may be able to take as director and blocking what you can by at least ,in the interim requiring dual authority for any action to be taken.

Strictly you should not file earlier, pre-meeting.notice at Companies House of his removal albeit, as it will then be displayed on the public file, (CH do not seek to verify what they are told) such will enable the Bank to remove him from the mandate. In reality, if he objects Companies House will not remove the removal notice without an order of court. It would be pointless for him to take such action knowing he will eventually be formally removed on the meeting date.

BTW in case anyone is wondering, whilst written resolutions of shareholders , without notice, are permissible,so an obvious step when there is only one, this does not apply to removal of a director. the reason is to not deny the director an opportunity to attend and seek to convince the shareholder(s) to not remove him. Maybe this is one tweak to make in the law where there is only one shareholder.

 

[Dave Jeffries]

Does he, for example, have any access to the web server/mail server/DNS accounts? Does he have access to online filing at Companies House? Does he have access to clients/customers/suppliers?

I have removed his access to company mail and web server. He doesn't have access to online filing. I have also informed my clients that he no longer has any interest in the company and informed him that he has no authority to use the company name. Since that last mail (2 weeks ago) I have heard no more from him. He does have a few hundred pounds worth of company equipment which I have asked him to return but he has not responded.

Thanks @The Resolver again for all your input. I look forward to speaking to you.