Board disputes happen. What can you do if there’s a disagreement between board members, and what’s the process to remove a director? The IoD’s Information and Advisory Service (IAS) offers advice
Disputes can arise in the boardroom for many reasons, whether it is due to a lack of performance on the behalf of a director or shareholder, a conflict of interest, or purely because of poor personal relationships. Whatever the issue, it is vital that if a conflict breaks out you are aware of the legal rights of all parties involved, as well as the options that are available, particularly if a director must be removed. Here’s advice on common dilemmas from the IoD’s Information and Advisory Service…
What can I do if there’s a dispute between directors?
The easiest way to resolve board disputes is to anticipate and provide for them in your articles of association or shareholders’ agreement. Outline in these documents that if a dispute occurs, mediation by a neutral party will be used to resolve it and, if that fails, set out a mechanism that allows the conflicting parties to part company. It is also useful to determine in advance how the company is to be run and what shareholders’ responsibilities will be in the future. In this way you can highlight, and perhaps prevent, potential problems at an early stage.
How can my company remove a director?
This is clearly a difficult situation, and the first thing to do is to check the company’s articles. These may make provisions for the removal procedure by the board if, for example, the director is in breach of contract or is made bankrupt. Alternatively, if those wishing to remove a director can persuade them to resign in return for a severance package, the conflict can sometimes be resolved promptly.
If there’s no provision in the articles and a severance package is declined, what then?
If this happens, it is only the shareholders who can remove a director, and the board must abide by the statutory procedure – a strict and cumbersome process. In short, statutory procedure requires that special written notice of a proposed resolution is provided to the company at least 28 days before the meeting, and the director concerned must be in receipt of this immediately, as must shareholders. The director concerned is entitled to circulate to the shareholders written representations to the company, and the meeting must be conducted formally. If these steps aren’t taken, the resolution may not be valid.
What else should I bear in mind?
The process of removing a director and resolving a conflict is often complex, time consuming and aggravating. As a result it is virtually impossible to condense every aspect of the process onto one page, but be sure to consider these salient points: the terms of a director’s service; is their employment ended by removal from office or do separate steps need to be taken to terminate it? Ensure you know your legal rights – have you acted properly as a director, and are you in control of shareholders’ meetings? Most importantly, act at once and always take advice early to save cost and time.
Board disputes and more
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Could the IAS help you?
• The IAS provides IoD members with free business intelligence and advice to help them run their companies more efficiently and successfully.
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