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Directors are important figures in any company, with governance and responsibility for many of the high-level decisions that need to be made. However, they ultimately report to the company’s shareholders. Shareholders may have less control over the day-to-day running of a company, but they have the ability to remove a company director if enough shareholders agree. This article will set out this process of removing a director, and other key information you need to be aware of as a shareholder.

The Basic Process for Removing a Company Director

The process for removing a director in New Zealand is relatively simple, and set out clearly in the Companies Act 1993. The default process is to:

  1. call a shareholder meeting for the specific purpose of removing the director in question. There can be other purposes but they must appear in the notice of the meeting; 
  2. at the meeting, shareholders can remove the director through an ordinary resolution; and
  3. if a majority of shareholders votes in favour of the resolution, it passes and the director‘s removal from their office becomes effective. 

While this is the default process, if your company constitution sets out another process, you will need to follow that process instead.

Note that if your company has special voting rights attached to some shares, these will be taken into account in the vote for the resolution to remove a director. This holds true even if the special voting rights apply to shares held by the director in question.

Company Constitution Process for Removing a Company Director

The process set out in the company constitution takes precedence over the default process above.

For instance, there are examples of companies that give the majority shareholder the ability to remove a director unilaterally.

The courts in New Zealand have upheld these kinds of provisions, even when the director in question has not received any advance notice.

Are Public Companies Different?

Public companies in New Zealand do not have any special exceptions to the above processes for removing a director.

Previously, public companies did have a statutory right to remove a company director from office, regardless of their company constitution rules. However, they no longer have that right, so they can decide their own processes in the same way that private companies can.

What Else Do I Need to Know About Removing a Company Director?

It is often a contentious decision for shareholders to remove a director. Therefore, it is important to understand the different implications of the process and removal. 

It is important to bear in mind that directors will be able to sue if they believe the shareholders did not follow the correct process to remove them or did not execute it fairly. 

For instance, a director has successfully sued a former company for removing them without providing advance notice that the shareholder meeting would include a vote to remove them from office.

Further, if a director was appointed via a contract, removal from office by shareholders might represent a breach of the director’s contract. If that occurs, the director may have a right to compensation; and

Generally, the courts in New Zealand have no power to remove a company director from the business. That power belongs to the shareholders, who can do so if they follow the correct due process.

Key Takeaways

While a director controls and leads your company, they ultimately report to shareholders. Shareholders always have the ability to remove a director if enough shareholders agree. A company’s constitution may set out the process for this. If it does not, then the process is quite simple:

  1. call a shareholder meeting, with the meeting notice specifically noting the proposed removal of a director; and
  2. pass an ordinary resolution in the meeting to remove the director, with a majority of shareholders agreeing. The director is now removed.

Both private and public companies in New Zealand can create their own processes for removing a director if they so choose. You should be aware that removing a director can sometimes open a company up to legal risk. This is usually when the correct process is not followed for removing a director, or when the director was appointed by a contract and that contract is now breached.  If you want to know more about how to remove a director, contact LegalVision’s business lawyers on 0800 005 570 or complete the form on this page.

FAQs

How quickly can shareholders remove a director from office?

By following the correct procedures in the minimum time required: ie, calling a shareholder’s meeting with the minimum notice required, then passing an ordinary resolution at that meeting to remove a director.

How can directors protect themselves from removal?

Usually, shareholders will always have the ability to remove a company director from office. However, different company constitutions may make it harder or provide more requirements for this process to occur.

How are public companies different from private companies when removing directors?

There is no real difference in New Zealand. Both private and public companies can create their own processes through their constitutions.

When can directors sue companies for removing them from office?

Only when shareholders have not followed the appropriate process for removing the director in question. This often means they have not given the correct notice, for instance, resulting in a ‘surprise’ removal of a director from her office.

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