Resignation of a director: what to do

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Directors and company secretaries will often change over the life of a company.  Changes will arise for a variety of reasons including:

  • resignation as a director upon retirement;
  • director death – see how to deal with the death of a company director;
  • director resignation due to serious ill health;
  • a director resigning to move to a new job;
  • director resignation following disagreement with the other directors or company shareholders – for example, where shareholders decline to re-elect a director or vote to remove a director from the board; and
  • disqualification as a director.

How do I resign as a director?

The first place to look for an answer is the director’s service contract, which may contain a provision concerning how to resign as a director of the company. There will often be both a notice period required and a particular procedure to be followed.

If the service agreement is silent, the company’s Articles of Association may instead contain provisions on director resignations. While now relatively unusual, in some cases a company’s Articles can require the board to approve any director resignation – which can create difficult scenarios in small companies, particularly where there is fundamental disagreement amongst board members.

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When there are no particular provisions, a director may resign at any time by notice to the company. Ideally, the notice of resignation should be in writing, although this is not specifically required by law.

 

It's the company's responsibility to tell Companies House

In some situations, the director might also consider sending the notice to the company’s registered office address by recorded delivery and retaining the proof of posting – this may be useful where disagreement exists or when the director has reason to doubt that the company will promptly update its records and inform Companies House of the resignation. It’s worth remembering that it’s the company’s responsibility, not that of the resigning director, to tell Companies House – if the director does try to send form TM01 to Companies House, they will most likely reject it.

When a director resigns they may have to consider other issues. While beyond the scope of this article, these include:

  • Is the director a shareholder? If so, is there a requirement under the company’s Articles of Association for their shares to be transferred? Even if the Articles do not require the transfer of a retiring director’s shares, doing so is often the most amicable solution for all parties when a director ceases active involvement in the company;
  • Has the director made loans to the company that remain outstanding?
  • Is the director owed any other amounts by the company?
  • In many cases, the director (as well as the company) may want to take legal advice on these issues.

What does a company need to do when a director leaves office?

Directors and company secretaries will often have notice periods of three months or more so there will usually be ample notice of the termination date and hence the company can take action in a timely fashion to find a replacement.  However in some instances, for example death, it will be sudden and unexpected.  Directors leaving can cause issues for a company and it is best if a company can plan it in an organised manner to keep any disruption to a minimum.

When a director leaves office there are a number of things a company should consider:

  • If a replacement is required or will the existing officers be able to adequately cover the work;
  • If a compromise or other leaving agreement is required;
  • If the director resigning should cease all company involvement immediately and/or go on gardening leave;
  • If the shareholders need to be informed immediately of the director’s resignation; Informing the bank and removing the director from bank and other mandates;
  • Informing the employees, major customers and suppliers;
  • Informing Companies House of the officer leaving office and updating the company’s statutory registers – see below;
  • Informing the directors’ and officers’ liability insurers;
  • If the person is the sole company secretary and one is required then a replacement will be needed;
  • If the person is the sole individual director then a replacement will be needed urgently in line with the requirements of the Companies Act 2006.

The company must notify Companies House within 14 days

However the termination arises the company is required to inform Companies House within 14 days of the date that they left office.  This is done by completing form TM01 for directors or TM02 for company secretaries.

If a replacement is being appointed then the appropriate officer appointment form will also need to be submitted to Companies House – our article on how to appoint company directors and secretaries covers the process and forms required in each case and you can file any of these forms for FREE using Inform Direct.

The company also needs to update its statutory registers to reflect the change. This will include updating:

  • The register of directors (when a director leaves office);
  • The register of directors’ residential addresses (also when a director leaves office);
  • The register of secretaries (when a company secretary leaves office).

Although no board resolution is technically required upon a director leaving office, it’s also good practice to record that the resignation occurred the next time the company holds a board meeting.

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