A directorship may end through resignation, expiry of a term, disqualification or removal. More serious conduct may lead to delinquency or personal liability. These outcomes serve different purposes and require different procedures.
Removal by shareholders
Shareholders entitled to vote in the election of a director may remove that director by ordinary resolution at a shareholders’ meeting. The statutory power applies despite a contrary provision in the Memorandum of Incorporation or an agreement with the director.
The director must receive notice of the proposed resolution and a reasonable opportunity to address the meeting. The right to make representations does not create a veto, but it prevents removal from being treated as a predetermined administrative step.
Removal from the board does not automatically terminate an employment or consultancy relationship. The company should address the directorship and any contractual or labour consequences separately.
Removal by the board
A board with more than two directors may remove one of its members on the grounds in section 71. These include ineligibility or disqualification, incapacity with little prospect of recovery, and neglect or dereliction in the performance of the director’s functions.
The procedure is not a general vote of no confidence. The notice should identify the proposed resolution and provide sufficient reasons to allow the director to respond. The remaining directors must determine whether the statutory ground has been established.
A breakdown in relationships or disagreement over strategy will not automatically amount to neglect or dereliction. The company should identify the correct legal route before issuing a notice. A defective procedure can deepen the dispute and undermine an otherwise legitimate concern.
Delinquency and probation
A declaration of delinquency extends beyond removal from one board. It disqualifies the person from serving as a director for the period determined under section 162.
The Companies Second Amendment Act extended the period within which specified applicants may bring proceedings from 24 months to 60 months after the person ceased to be a director. A court may grant a further extension on good cause, including after the original period has expired.
The grounds address serious misuse of office. They include gross abuse of position, personal advantage taken from company information or opportunity, intentional or grossly negligent harm, wilful misconduct and breach of trust. The remedy protects companies and the public from conduct showing that the person should not continue to hold office.
Probation provides a less severe response. A court may impose conditions such as remedial education, supervision or restrictions on future service. It remains a formal consequence and should not be treated as a minor warning.
Personal liability
Section 77 addresses loss, damage or costs suffered by the company. Liability may arise from breach of fiduciary duty or the duty of care, skill and diligence. It may also arise from acting without authority, acquiescing in reckless trading, participating in fraud or supporting specified unlawful corporate actions.
Knowledge is interpreted broadly and may include circumstances that reasonably required investigation. Silence or abstention may not protect a director who knew that the proposed conduct was unlawful and failed to vote against it.
More than one person may be jointly and severally liable for the same loss. The company may recover from a liable person, leaving contribution between them to be resolved separately.
Proceedings under section 77 generally remain subject to a three-year period. The 2024 amendment allows a court to extend that period on good cause, whether or not the original period has already expired.
Relief, indemnification and insurance
A court may relieve a director from liability where the conduct did not involve wilful misconduct or a wilful breach of trust and the director acted honestly and reasonably. The discretion depends on the circumstances and does not convert good intention into a complete defence.
A company cannot release a director in advance from statutory duties or indemnify conduct such as wilful misconduct, wilful breach of trust, fraud or reckless trading. It may advance defence costs and provide indemnification within the limits of section 78.
An indemnity should not promise protection for every claim connected to office. It should define the permitted scope, address repayment where defence costs were advanced and remain consistent with the Memorandum of Incorporation.
Directors’ and officers’ insurance may respond to defence costs and covered liabilities. The board should review the insured persons, limits, exclusions, regulatory investigations, territorial reach and treatment of claims arising after a director has left office.
Insurance supports directors facing a legitimate claim. It cannot prevent removal, reverse a declaration of delinquency or remove the duties attached to office.
A proportionate response
The company should match the conduct to the remedy required. A shareholder may decide that a director should no longer serve without alleging gross misconduct. Serious abuse may justify delinquency, while financial loss may support a claim under section 77.
More than one route may apply, but each requires its own legal basis and procedure. Accountability is weakened where the desired outcome is pursued through a defective process or every disagreement is presented as delinquency.
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