Sack a director

[boatbiz]

how do you sack a director who is performing poorly? If there are 3 directors with equal shareholding (33,33,33), can 2 directors simply sack the 3rd director? No shareholders agreement is in place.
Any info greatly appreciated.

 

[KateCB]

I believe that you would have to hold Special Board Meeting, and vote against the Director you feel is performing poorly; however, if there are directors, there MUST be a legal shareholder agreement, as companies house ask for this information annually and this show who holds what percentage of shares; the percentage and value of these shares is also shown in LTD company accounts each year.

You can offer to buy the other director out in return for his resignation (there is a form that Companies house issue or is available for download from Companieshouse.co.uk) which is simpler, as remember that as a Director, they are also an employee of the company and can bring an unfair dismissal claim if you try to 'sack' them; they could resign as an emplyoee, but rightfully retain their shares - this means that you would have to pay them dividends each year as technically their shares are part of the capital of the company.......

If you accountant is approachable, I would have a word there, after that, it would be best to seek professional advice if you think that there may be problems with this 'parting of the ways' such as a tribunal claim etc.

one last word - have an independent person to take minutes at the Special Board meeting, or record it so that you can prove, if necessary that the 2 directors acted in a legal and fair manner throughout the proceedings.

Good luck

Regards

Kate
www.martialdesign.co.uk

 

[boatbiz]

thanks kate,
it is a really difficult decision, we are in month 7 of year 3, and turned over in excess of £1m last year and nearly £900k so far this year, so i guess we should be getting some legal advice.
It's very difficult, as even though sometimes you know things are better for the business and have to be done, you do get close personally to people after working together nearly 3 years. Guess i need to toughen up :frown:

 

[Antonia @limeone.com]

You need some legal advice and also start charting the exact issues of the non performing director. As Kate says there is a shareholding but there is no legal need for a detailed separate shareholders agreement or service level agreement but these documents really help you deal with the task you now face. In many small businesses these items are just decided on shares held, agreement and articles of association. They are quite low cost documents, ours start from under £200 plus VAT for the 2 so it really is false economy to not use them for the structure needed to terminate a directorship.

You do not state how you are currently tackling this dilemma, have you spoken to the director involved about your concerns and if so has he or she any ideas on the subject? You might take a different view if they were facing personal illness or family problems for example and this was a short term issue.

 

[boatbiz]

You cant talk to him, the whole world is wrong and he is right. he has got current family issues due to sleeping with the receptionist after being told to leave her alone on several occassions. He has had family issues since the day the company started, all down to his own infidelity. we are meeting this week, but he doesnt realise it is a "we cant work with you anymore" meeting. Really at a loss about it all at the moment, it is ruining what should be an exciting time for a fast growing company, but it really is one thing after the other :frown:
We are losing customers over him at the moment, but it always their fault. I could go on for hours, but there is no point, it has to come to an end.

 

[Antonia @limeone.com]

In that case start charting all of the incidents including time scales, problems with clients and staff including written complaints. Get legal advice, happy to help if you need to talk it through. The way forward can be through a structured exit on terms and if it is affecting the business then the two performing directors jointly have the casting vote as they together are majority shareholders and can expel the third director. It can get unpleasant and it can also get very expensive so make sure you attempt serious structured negotiation as a first option. Doing it properly can defeat legal claims and tribunal applications.

 

[The Resolver]

You need to take positive action urgently. Bad relationships and loss of trust in a small company will eventually impact negatively on company performance. If it does not, you lose anyway since continuing good perfomance only increases the cost of buying him out (if that is the exit for him). So delay is costly either way.

The other big downside on these sort of disputes is the massive amount of management time of the other two directors that can be taken up if thsi dispute escalates tothe coutrs or the Employment Tribunal which can divert your time away from moving the company forward. It needs settling very quickly and at as little cost for all parties as possible.

Too late to worry about a shareholders agreements.This needs to be negotiated very quickly. There is no requirement in law to have one but they are advisable for just this sort of situation. However, the only time to agree on the terms of a SA is ,for obvious reasons when the parties are not in dispute.

You do not need a Special Resolution to dismiss him from the Board (such does not mean he loses his shares which is a different issue).A simple 2:1 majority in general meeting.

You have duties under the Employment Act 2002 (Dispute Resolution) Regulations 2004 to have a statutory grievance procedure in place. Do you? Ignore the rules and he can win a case at the Tribunal no matter how justifiable his dismissal from the Board. The regs require negotiation.

I can obtain a quote from you from one of the solicitors on our panel who will open a collaborative online file for you at www.TheSolicitorsRoom.com but I strongly recommend initially going along the mediation route. That is much quicker and involves an immediate neutralising of any bad atmosphere between everyone rather than the exacerbation that usually results from the first solicitors letter. Whats impotrant is speedy resolution of the current situation and an agreed future not paying lawyers to fight over the rights and wrongs of what people have said and done in the past.

Legal threats often also result in the person concerned,recognising that he has no future within the company ,beginning to work against the interests of the company in trying to build up his own future separate from the company (which is why 'garden leave',- which has to be implemented very carefully -and which removes the person from contact with customers and confidential data, is SO important) . Big immediate decision is whether you can remove laptop/PC and any access to confidential business data.

We can arrange for some speedy legal advice on a secure online file eg as to the garden leave/data access issues and also set up a mediation which,if you use our online platform at www.TheMediationRoom.com can commence immediately (literally on Monday) and begin to work to help you reach an agreed resolution whether or not a face to face mediation is required. If it fails(and over 80% succeed in business disputes) you can still then go along the legal action/legal dismissal route.

See note of the benefits of mediation in business

Mediation is quick and online mediation is very low cost .PM me if you want a quote.

 

[mark88080]

we are partners in a limited company with equal shares but the other director is consantly drunk at work he has had 5 warnings from myself now it has come to getting him out of the company can i sack him as a director for gross mis-conduct?

 

[angelsbubbles]

Hi There,

we are currently in a similar situation at my office...there are two directors (i'm emailing on behalf of my boss). The main director owns 60% of the company and he GAVE the other director the other 40% (for FREE, don't even ask why!) Now this woman is a liability....she sits on the phone all day, talks all day, basically does nothing to help the business what so ever...yet she still expects her full wages (shes on more than the other director who owns 60%) Now she has broke both her legs and is off for 8 weeks (probably her dream!) but still expects full pay...my boss said because of "dividens" in the company he still has to pay her full whack. The company is struggling because of this now and no one seems to really care. She knows the problems we are in yet still expects this money even though she can't do anything (she won't even drag herself in to make some calls from the office). She moans she isn't on enough (yet everyone else has to make do) and now its at the point where we all want her gone. I work as a graphic designer here and she hovers around so she doesn't have to do anything...basically she'll do anything BUT HER JOB! Comes in 45 mins late every morning (reckons she doesn't have to be in at 9 but the other director disagrees with this) and then stands there chatting for an hour. She'll then realise she's late for her appointments (shes also a sales rep here) so she'll cancel them all then just sit in the office bugging me with rubbish chat about her family! We've lost customers because of her ignorance and wondered if anyone can tell me if we have a right to get rid of her seeing as the shares were given to her she never bought in. We too are a limited company and in a similar situation but my other director doesn't seem to have the balls to do anything (she always goes on about she gets revenge on people who mess her around- bear in mind this silly woman is 50- so I think he's scared of her!) Please help as I am at my last wits end...its awful seeing a company in this state when i so desperately want to run my own one..is there no way I could buy her out? Not that i would want to as shes getting something for absolutely nothing then! But i can't think of any other choice that we have...please help we all want her gone!! Oh also only 4 of us work here...we are a tiny printing company!

 

[ald1]

The removal of Directors who are also shareholders throws up a number of both legal and commercial difficulties. I've been involved in many of these situations (fortunately as a legal advisor rather than a participant) and I find it is always helpful to separate out the main areas that need tackling. These are usually:

1. The Directors employment and the need to go through a proper disciplinary procedure;
2. Their removal from office and following the correct procedures;
3. Dealing with their shareholding; and
4. Safeguarding against a future minority shareholder's action.

Thses issues are too complex to deal with properly on a forum posting, but there are always common themes throughout these types of disputes. Each dispute requires a proper, well thought out approach and that is often the hardest part. When you are so closely involved in the arguments it is difficult to take a step back and work out how best to resolve matters, this is made far harder in very small companies.

To those involved in these situations, I do think it's essential to get some professional advice (even if it's just as a sounding board). I've seen far too many cases where if a better approach had been made at the start, a great deal of grief and money would have been saved.

On a positive note, whilst these types of disputes are awful to experience (they don't call it corporate divorce for nothing), they can be resolved.

 

[Tonyc]

Could someone advice me on this matter I am the 3rd director in a company and the two other directors are comiting fraud we are all share holders can I have them sacked and try and save the company before any more damage is done I believe it's my duty as a director to report the problem please could anyone help?

 

[The Resolver]

Dismisssal can be done at general meeting of the shareholdera once notice is given to the Board who must then issue a 28 day special notice to the 2 directors in question. If you do not hold 51% plus you will not be able to secure the resolution. However if this is criminal fraud then there are ways to persuade them to resign or a deal whereby they buy you out or vice versa. You must act fast as you have liabilityhere if you remain on the Board with knowledge of the fraud. On the other hand once you resign you lose negotiating opportunities and access to information.

As a shareholder you may have a right to sue them in the name of the company for breaches of their
statutory duties.

Call me to discuss. I can either negotiate for you to resolve or dadvise you on the negotiating strategy.

 

[dylanmarlais]

Unless there are provisions stating otherwise in the Articles or in a shareholders' agreement, a director can be sacked by ordinary resolution of the members (i.e. 50%+). But the director may be able to bring an employment claim against the company, assuming he is an employee - which may not be the case. And the director, if he is a minority shareholder, may be able to bring a number of claims against the company and even against the directors who sacked him. For example, in a small company he may claim that he had a legitimate expectation to be involved in management. Or he may claim that the company is being conducted in a way that is unfairly prejudicial to his interests as a member. If he is minded to do so, he can cause a lot of problems. So, you need to see a solicitor with some expertise in company law and employment law before you do anything.