Removal of Directors: Know Your Rights and the Legal Process

Director removal is one of the most acutely contested areas of corporate law. Whether you are seeking to remove a director who is damaging the company, or you are a director facing removal, the legal framework is strict and the consequences of getting it wrong are significant. This page explains the law, the proper process, and what to do if you are facing an unlawful removal.

Removal by Shareholders: Sections 203C and 203D

The Corporations Act 2001 (Cth) gives members of a company the power to remove a director by ordinary resolution, regardless of anything in the company’s constitution or any agreement between the company and the director.

Section 203D is the primary provision for public companies. It requires:

• A written notice of the intention to move a removal resolution, given to the company at least two months before the relevant meeting (unless the company agrees to a shorter period);
• The company must give a copy of the notice to the director;
• The director is entitled to make representations in writing that must be sent to members.

Section 203C applies to proprietary companies. The constitution may modify the removal process, but members retain the underlying right to remove directors. Check the constitution and any shareholders’ agreement carefully.

Removal by the Board

Whether the board can remove a fellow director depends entirely on the company’s constitution. Some constitutions grant the board power to remove a director in specified circumstances — such as absence from meetings, bankruptcy, or mental incapacity. Outside such specific grounds, the board cannot remove a director unilaterally; that power rests with the members. Purported board removal without constitutional authority is legally ineffective.

Grounds for Removal

There is no requirement for “cause” to remove a director under s 203D — an ordinary resolution is sufficient. However, grounds that commonly underlie removal include:

• Conflict of interest or self-dealing;
• Breach of director duties;
• Loss of confidence in leadership;
• Deadlock between co-directors;
• Conduct damaging to the company’s reputation;
• Failure to devote adequate time to the role.

Challenging an Unlawful Removal

A removal that does not comply with the Act or the company’s constitution is void and ineffective. Grounds for challenge include:

• Failure to give proper notice under s 203D;
• Meeting convened without proper notice to all members;
• Resolution passed without a quorum;
• Director’s right to make representations denied;
• Removal amounting to oppressive conduct under s 232;
• Breach of a shareholders’ agreement entitling the director to hold office.

Urgent applications for injunctions to restrain an unlawful removal can be brought in the Supreme Court. If you believe a removal is being engineered unlawfully, act quickly — once a new director is installed and transactions are entered, unwinding the damage becomes more difficult.

Restraining Orders

Where a director faces imminent unlawful removal, the court can grant an interlocutory injunction to restrain the holding of the meeting or the registration of the change. To obtain an injunction, the applicant must establish:

• A serious question to be tried;
• That the balance of convenience favours granting the injunction; and
• That damages would not be an adequate remedy.

Applications of this kind are urgent. Boss Lawyers can move quickly when circumstances demand.

Director Protections

Even where a director is validly removed, they may retain rights including:

• Contractual rights: If the director has a service agreement, removal may trigger redundancy entitlements, notice periods, or compensation clauses;
• Oppression remedy: If removal is oppressive in the context of a closely held company, s 232 may provide a remedy including a buyout of the director’s shares;
• Shareholder rights: A removed director who holds shares retains those rights independently of their directorship;
• D&O insurance: Review any directors and officers insurance policy — coverage may continue for claims arising from acts during the director’s tenure.

FAQ — Director Removal

Can a director be removed if they own shares in the company?

Yes. Directorship and shareholding are separate. Removing someone as a director does not affect their shares. However, if the removal is oppressive and the director holds shares in a quasi-partnership company, a court may order a buyout of those shares as part of an oppression remedy.

What if the company’s constitution says a director cannot be removed?

Under the Corporations Act, s 203D for public companies overrides any provision in the constitution that purports to make a director irremovable. For proprietary companies under s 203C, the constitution can modify the process but the underlying member power generally prevails. Advice on the specific constitutional provisions is essential.

I have been removed as a director — what should I do first?

Do not delay. Review the notice you were given, the meeting minutes, and the constitutional provisions. Check whether proper process was followed. Seek legal advice immediately — time-sensitive relief may be available, and delay can prejudice your position.

How Boss Lawyers Can Help

Boss Lawyers acts for both directors facing removal and those seeking to remove a director. We advise on the proper process, identify defects in purported removals, and when necessary move quickly in the Supreme Court to restrain unlawful action. We also advise on the contractual, oppression, and insolvency dimensions that frequently accompany director removal disputes.