HOW TO REMOVE A DIRECTOR FROM A CORPORATE LEGAL ENTITY
Companies and allied matters Act in Section 244(1) (2) describes a Director as a person or persons suitably appointed by the company to Direct and supervise the business of the company whether in executive or non-executive capacity.
It is important to note that non-executive Directors can be told apart from the former based on the fact that they do not have contracts of employment with the shareholders (owners) of the company and do not have fixed salaries unlike their executive colleagues. They are paid based on an amount agreed by members of the company at the annual general meeting through a resolution. A company speaks and expresses its opinion through resolutions.
It is imperative to note that a put out Executive Director whose imminent removal is necessary for the growth of the business of the company (except if it can only be achieved at the cost of a pyrrhic victory), the shareholders must as a duty ensure that an offer for the post of a Non-executive Director Must be negotiated with him or her.
Based on the topic of discourse, an erring director can be shown the way out through the following procedure which must be strictly adhered to and failure might give rise to a cause of action in a court of competent jurisdiction.
Firstly, the Articles of the company which is the grand norm of the company must be consulted to ascertain whether it contains a specific procedure for removal of a director. Also, the director’s service contract must be examined as well so that parties will be bound within the terms of their contract.
Secondly, a special notice which has a lifespan of 28 days must be given to the company by the persons who must compose a quorum which must consist of at least two-third majority of the shareholders who want the director removed.
The next step will be to ensure that the secretary of the company who in most cases are lawyers, must acknowledge on the received copy of the notice so that it can be tendered as an exhibit in the event of litigation. The secretary based on this employment contract will be required to notify the director concerned. The secretary will then make heist to issue a notice of a meeting preferably in two daily newspapers covering a period of21 days prior to the meeting where members/shareholders will determine the fate of the Director.
The Director concerned after receiving notice of his removal must signify his intention to challenge his removal and his intentions must be backed with a letter to the secretary of the company. The secretary must then notify the members if it is the intent of the letter to defend the removal, and the notice will have to be prepared in such a form that exhibits an aspiration to defend.
It will be a fatal mistake if the members fail to ensure that all notices are served on the director. Moreso, it’ll be worse if notices were served and at the meeting, the Director is evidently restrained from entering his defense in whatsoever form even though his representations were not sent timeously to the Directors. He must be allowed to inform members that have formed a quorum for the meeting of his intention to challenge his removal.
After assuming the position of a judge and having heard the pleas of the Director, it’ll then be a mandate on the members to decide whether or not through a vote if the Director will retain his or her position and this will be based on the fact that 2/3 or ¾ majority of members votes in favour or against keeping hold of the Director. It is important to note that if the article of association adopts any other procedure for removal, then it becomes paramount to follow suit.
The company secretary who had convened the meeting must purchase a form CAC 7 (particulars of change in Directorship) from any office of the corporate Affairs commission(which is not advisable) or visit www.ibechidoassociates.com, download and print a coloured version of it, complete it and file within 14 days together with the following documents.
- A resolution stating the name of the company, RC No, and registered address on the commission’s record. The name of the Director so removed and a list of Directors after the change in Directorship. The resolution must be signed by two Directors with their regular signature on the commission’s record.
- And a means of identification, if the shareholders had already found a replacement for the removed Director.
The Register of Directors and Secretaries which is located at the registered office address/Headquarters of the Company must be updated to ensure a proper record is kept.
In conclusion, Directorship of a Company has an enormous responsibility attached to it which makes it a thriving Endeavour in Nigeria for the entrepreneurial mind which is driven by the enhanced business development that has greeted our economy.
On the other hand, if the removal of a Director is necessary for the growth of the Business of the Company, in that case, it becomes a duty and responsibility that must be accomplished by all Legal means.