A director who has lost the confidence of shareholders can quickly become a serious risk to a company. Deadlocked decisions, access to company accounts, damaged client relationships and allegations of misconduct can all follow. So, can directors be removed? Usually, yes – but the lawful route depends on the company type, its constitution and the rights attached to its shares.
Removing a director is not simply an internal business decision. Get the process wrong and the company may face a challenge to the resolution, a claim for loss, or a dispute that makes an already difficult situation worse. The strongest approach is firm, properly documented and grounded in the Corporations Act 2001 (Cth).
Can directors be removed by shareholders?
In many Australian companies, shareholders have the power to remove a director by passing a resolution. However, the rules differ sharply between proprietary companies and public companies.
A proprietary company is generally a private company, often used by family businesses, start-ups and closely held enterprises. Under section 203C of the Corporations Act, its shareholders may remove a director by resolution, subject to the company constitution. That qualification matters. A constitution may set out particular voting thresholds, meeting procedures, director appointment rights or protections for certain share classes.
For a public company, section 203D provides a more prescribed process. Members can remove a director by resolution at a general meeting, despite anything in the company constitution, shareholders’ agreement or an agreement between the company and the director. This is a powerful statutory right, but it must be exercised correctly.
The practical question is therefore not only whether removal is possible. It is who holds the votes, what the constitution says, and whether the required procedure can be proved if challenged.
The first documents to examine
Before calling a meeting or circulating a resolution, obtain and read the company records. Acting on assumptions is how avoidable disputes begin.
Start with the company constitution and any shareholders’ agreement. These documents may deal with director appointment and removal, voting rights, quorum requirements, notice periods, deadlock mechanisms and compulsory share transfers. They may also give a particular shareholder, investor or class of shareholder the right to appoint a director. Removing the individual from the board may be possible, but their appointing rights may mean they can appoint someone else immediately.
The company register is equally important. It confirms who the members are, how many shares they hold and the voting power attached to those shares. A person may be vocal in the business but lack the votes needed to effect change. Conversely, a minority shareholder may have contractual rights that cannot be ignored.
Also check whether the person is a director, an employee, a shareholder, or all three. Those are separate legal roles. Removing someone as a director does not automatically end their employment, cancel their shares or release them from a separate service agreement.
How removal usually works in a proprietary company
For a proprietary company, the constitution is central. If it does not impose a different valid procedure, shareholders can generally pass an ordinary resolution to remove a director. An ordinary resolution is usually passed by more than 50 per cent of votes cast by members entitled to vote.
The resolution may be passed at a properly convened general meeting. In some circumstances, proprietary company members may also pass a circulating resolution without holding a meeting, provided the statutory and constitutional requirements are met. That can be efficient where the voting position is clear and relations have not entirely broken down.
Yet efficiency should not be confused with carelessness. Notice must be given to those entitled to receive it, the proposed resolution must be accurately worded, and the meeting must meet quorum requirements. Minutes should record the motion, votes and result. If the company expects a dispute, retain the notice, proof of delivery, proxy forms and all signed resolutions.
Where the director is also a 50 per cent shareholder, removal can be much harder. Neither side may have enough votes to carry a resolution. This is a classic deadlock scenario. The answer may lie in a shareholders’ agreement, mediation, a negotiated buy-out or, in serious cases, court proceedings. There is no safe shortcut around a genuine voting impasse.
What if the board wants to remove one of its own?
A board may have power under the constitution to manage company affairs, but that does not necessarily mean directors can vote out a fellow director. The constitution and any appointment terms must be checked closely. In some companies, directors can remove a director appointed by the board; in others, only shareholders can do so.
A director should not be excluded from the process merely because the other directors consider removal justified. The power must exist, conflicts must be managed and the correct decision-making process must be followed. Where conduct may amount to a breach of duty, the board should also preserve evidence and obtain advice before making accusations or taking steps that could prejudice the company.
Public companies face additional statutory safeguards
The removal of a public company director is governed by a more formal process under section 203D. Members intending to move the resolution must give the company at least two months’ notice. The company then has duties concerning notice of the meeting and the director’s right to put their position before members.
The director is entitled to be heard at the meeting. They may also give the company a written statement, which must generally be circulated to members if received in time and if it is not defamatory. These rights exist for a reason. A removal vote may have substantial professional and financial consequences, and members should be able to hear both sides before deciding.
Public company disputes can be especially sensitive because reputational harm, market disclosure obligations and competing shareholder interests may be involved. A technically valid resolution does not remove the need for disciplined communication and sound governance.
Removal does not erase legal obligations
A former director may remain exposed to liability for conduct that occurred while they held office. Directors’ duties include acting with care and diligence, acting in good faith in the best interests of the company, avoiding improper use of position or information, and preventing insolvent trading where required.
Equally, a company cannot simply avoid debts, regulatory scrutiny or a potential claim by changing the names on the board. If concerns involve missing funds, unauthorised transactions, conflicts of interest or insolvency, removal may be only one part of the response. The company may need to secure records, protect bank access, notify insurers, investigate transactions and consider recovery action.
There is also a human dimension. A director who is removed may be entitled to payment under an employment contract, consultancy agreement or deed. Their access to company property, confidential information and digital systems should be dealt with lawfully and promptly. Heavy-handed action without a proper basis can create a new dispute just as the old one is being resolved.
ASIC notification and practical housekeeping
Once a director has validly ceased, the company must notify ASIC of the change within 28 days. The company should update its internal registers and carefully manage practical handover issues, including bank authorities, online access, passwords, keys, company seals, records and communications with staff and customers.
Do not lodge an ASIC notification in the hope that it will make an invalid removal effective. ASIC records are important, but they do not cure a failure to comply with the Corporations Act or the company constitution. The underlying decision must be legally sound first.
If the former director refuses to co-operate, blocks access to company property or continues to represent that they have authority, urgent legal action may be necessary. The appropriate remedy depends on the facts. It may involve correspondence requiring compliance, an injunction, orders about corporate records, or a broader shareholder oppression claim.
When the dispute needs decisive legal advice
Director removal becomes high stakes when the company is profitable, family relationships have broken down, there are allegations of wrongdoing, or the shareholding is evenly split. It is also risky where a director has given personal guarantees, holds crucial business information or claims the company has breached their contract.
At El Baba Lawyers, we approach corporate disputes with the same principle that guides difficult matters of every kind: protect the client’s position, confront the legal reality early and pursue a practical result with resolve. Sometimes that means preparing a watertight removal process. Sometimes it means stopping an unlawful attempt to remove a director. In either case, the documents, votes and evidence matter.
If your business is facing a boardroom breakdown, preserve the records before tempers escalate. A clear paper trail and early legal advice can give shareholders and directors the best chance of protecting the company they worked to build.
