Removing Company Directors (Pt. 2)

You can remove your business “partner” from a company; but it may not be easy and if you don’t do it properly and there is a real risk that you will end up in court.

Also, there are two aspects to consider.  First, your business “partner” might be a shareholder.  Secondly, they might also be a director.

So here are a couple of tips for a Pty Ltd company. Be careful, these are the general rules and may not apply to your situation.

Company Constitution

First, you will need to look at the company constitution. You will see that the director/s cannot simply remove the other directors and/or shareholders because they want to. To do either of these, the processes set out in the constitution must be followed.  If there is a shareholders agreement, that must also be looked at.

Make sure that when you do something, that what you do is not “oppressive conduct”.  Oppressive conduct is explained in section 232 of the Corporations Act 2001 and (in short) it occurs when the majority directors treats another shareholder unfairly. If that conduct is bad enough and it is called out as being “oppressive”, then the court may order a winding up of the company.  Alternatively, because the court has very wide powers it might order that one party buy out the shares of another.

If there is no constitution, then the processes to be followed are set out in the Corporations Act 2001.

What are the Usual steps for Director Removal?

The general rule is that directors can only be removed by the shareholders. Sometimes, only by the shareholders that they represent.

So, firstly you must work out who can remove the director and the process to call a shareholders meeting.  If the shareholders meeting can be called, the second step is to hold that meeting.  Because sometimes 28 days or more notice of a shareholder’s meeting is required, it may take more than a month for that meeting to be held.

When the time for the meeting comes, see if a quorum is present.  If it is not, the meeting cannot be held and it will either be abandoned or adjourned. The Constitution will tell you.

What are the usual steps for Shareholder Removal

Unless an offer to sell is made, you cannot remove a shareholder without their agreement. Any attempt to do so will be unsuccessful.

Making a shareholder a minority shareholder is also not a solution and might not be possible without their consent.  It certainly can’t be done without majority of directors agreeing.  In other words, it is not possible to change the shareholdings from 1:1 to 2:1 without breaching the constitution and/or engaging in oppressive conduct.

Can I DIY?

If you DIY, you probably won’t get it right and will risk higher than average legal bills.  So, before taking any steps to try and separate from your business partner, legal advice is a must.

Unfortunately, in most cases the process will take longer than expected.  But, nothing can be done about this especially if the other party refuses to sell their  shares.

Contact us if you need more information.

 

This article is not intended to be relied upon as a substitute for legal or other advice that may be relevant to the reader’s specific circumstances. If you have found this publication of interest and would like to know more or wish to obtain legal advice relevant to your circumstances please contact us.

No comments yet. You should be kind and add one!

Post a comment