Director & Boardroom Disputes.

Yes — a director who has been removed may have claims against the company depending on the circumstances. While shareholders can remove a director by ordinary resolution under Section 168 of the Companies Act 2006, that statutory power does not extinguish the director's other rights. A removed director may have: a claim for breach of their service contract or employment contract, including a claim for notice or damages, if their employment is terminated in breach; a claim for unfair dismissal or wrongful dismissal, if they were also an employee with the relevant qualifying status; a shareholder remedy such as an unfair prejudice petition, if they are also a shareholder who has been unfairly excluded; and potentially other contractual claims. The interaction between removal as a director and these other rights is complex, and companies sometimes incur significant liability by removing a director without dealing properly with their employment and shareholder position. A removed director should take prompt advice on the full range of potential claims.

Director and boardroom disputes are resolved through a range of routes, and the right approach depends on the nature of the dispute and the relationships involved. Many are resolved by negotiation — often resulting in the agreed departure of a director on agreed terms, documented in a settlement agreement that deals with both their directorship and any employment. Mediation can be effective, particularly where the parties need to continue working together or where the dispute overlaps with a shareholder dispute. Where the dispute concerns a director's conduct, the company may pursue claims for breach of duty; where it concerns a director's removal or departure, employment and contractual claims may arise. In private companies, boardroom disputes frequently form part of a wider shareholder dispute and may be resolved through an unfair prejudice petition or a negotiated buy-out. Court proceedings are available where other routes fail but are costly and damaging. The priority is usually a commercial resolution that protects the client and limits harm to the company. Early, strategic legal advice is essential given the overlapping legal issues.

A director can be removed from the board in several ways, depending on the circumstances and the company's constitution. The principal route is under Section 168 of the Companies Act 2006, which allows the shareholders to remove a director by ordinary resolution (a simple majority) at a general meeting, regardless of anything in the director's service contract or the articles — though special notice is required and the director has the right to make representations. A director may also be removed under provisions in the company's articles of association, or may resign. Care is needed because removal as a director does not automatically terminate any separate employment or service contract, and removing a director may give rise to claims for breach of that contract or unfair dismissal. In some companies, weighted voting rights attached to a director's shares (following the case of Bushell v Faith) can make removal by ordinary resolution difficult. Removing a director should be handled carefully and with legal advice to avoid unintended claims.

Directors can take a number of steps to protect themselves from personal liability. These include: understanding and complying with their statutory duties under the Companies Act 2006; ensuring decisions are properly considered, minuted, and based on adequate information — good board records are an important protection; declaring and properly managing any conflicts of interest; taking professional advice on significant or risky decisions, and acting on it; being especially vigilant when the company is in financial difficulty, and taking insolvency advice early if solvency is in doubt; ensuring the company complies with its filing and statutory obligations; and arranging directors' and officers' (D&O) liability insurance, which can cover defence costs and certain liabilities. A company can also, within limits, indemnify directors against certain liabilities. Acting honestly, diligently, and on proper advice — and keeping good records of having done so — is the foundation of protecting a director from personal liability. Directors who are concerned about their exposure should take specialist advice.

Directors have a statutory duty under the Companies Act 2006 to avoid situations in which they have, or could have, a direct or indirect interest that conflicts, or possibly may conflict, with the interests of the company. They also have a duty to declare any interest in a proposed or existing transaction or arrangement with the company. Conflicts can arise in many ways — for example, where a director has an interest in a contract the company is entering, holds a position in a competing or related business, or has a personal interest in a decision before the board. The duty to avoid conflicts is strict: it does not require the company to suffer any actual loss, and it can be breached even where the director acted in good faith. However, a conflict can be authorised — by the board (if the constitution permits) or by the shareholders — provided the proper procedure is followed and the interest is declared. Directors should identify and declare conflicts promptly and ensure any authorisation is properly obtained and recorded. Failing to manage conflicts properly is a common source of disputes and potential personal liability.

Directors owe seven general duties to the company, codified in Sections 171 to 177 of the Companies Act 2006. These are: to act within their powers, in accordance with the company's constitution; to promote the success of the company for the benefit of its members as a whole, having regard to factors including the long term, employees, and the company's reputation; to exercise independent judgment; to exercise reasonable care, skill, and diligence; to avoid conflicts of interest between their personal interests and the company's; not to accept benefits from third parties given because of their position; and to declare any interest in a proposed transaction or arrangement with the company. These duties are owed to the company itself, not to individual shareholders. Breach of these duties can result in personal liability for the director, including an obligation to compensate the company or account for profits. Directors should understand their duties, as breaching them — even unintentionally — can have serious personal consequences.

When a company is in financial difficulty or facing insolvency, directors face heightened risks and their duties shift. Normally directors must promote the success of the company for the benefit of its shareholders, but when a company becomes insolvent or insolvency is likely, directors must have regard to the interests of the company's creditors — and this creditor interest can become paramount. Directors who continue trading and incur further debts when they knew, or ought to have concluded, that there was no reasonable prospect of avoiding insolvent liquidation can face personal liability for wrongful trading. Other risks include personal liability for fraudulent trading, misfeasance, and entering transactions at an undervalue or preferences that can be unwound. Directors of a struggling company should take specialist insolvency advice early — taking advice and acting properly is the best protection. Continuing to trade in the hope that things will improve, without proper advice, is one of the most dangerous things a director can do.

Where a director breaches their statutory or other duties, a range of consequences can follow. The company — or, in some circumstances, a shareholder bringing a derivative claim on the company's behalf — can pursue the director for the breach. Remedies include: an order to compensate the company for any loss caused; an account of profits, requiring the director to hand over any personal gain made from the breach; restoration of company property; rescission of a transaction entered into in breach of duty; and an injunction to prevent a threatened breach. In serious cases, breach of duty can also contribute to a director's disqualification. Some breaches may be ratified by the shareholders, and the court has power to relieve a director from liability where they acted honestly and reasonably. The consequences of breaching directors' duties can be significant and personal, so a director who is concerned that they may have breached a duty — or who is accused of doing so — should take advice promptly.

A director or boardroom dispute is a disagreement involving the directors of a company about how it is managed or about a director's conduct or position. They commonly arise from: disagreements about strategy or major decisions; conflicts between directors, or between directors and shareholders; concerns that a director is acting in breach of their duties or in their own interests; disputes about a director's removal or the terms of their departure; allegations of misconduct or mismanagement; deadlock at board level; and the pressures that arise when a company is in financial difficulty. Because directors are responsible for managing the company and owe it significant legal duties, boardroom disputes can have serious consequences for the company and for the directors personally. In private companies, directors are often also shareholders, so a boardroom dispute frequently overlaps with a shareholder dispute. Early legal advice helps directors understand their position, duties, and options.

A person can hold two distinct positions in a company: the office of director (an officeholder responsible for managing the company and owing directors' duties), and a separate role as an employee under a contract of employment or a service contract. These are legally distinct, and this distinction is frequently important in disputes. A person can be: a director only (for example, a non-executive director); an employee only; or both — an executive director who is also employed. Crucially, removal from the office of director under Section 168 of the Companies Act 2006 does not automatically end any separate employment — the individual may remain an employee, or may have claims for breach of their service contract or unfair dismissal if their employment is also terminated. Conversely, the end of employment does not automatically remove someone as a director. Untangling the two roles, and dealing with both correctly, is essential when a director leaves or is removed — handling one without the other can give rise to costly claims.

Director disqualification is a court order, or an undertaking, that prevents a person from acting as a director or being involved in the management of a company for a specified period — between 2 and 15 years. It is governed by the Company Directors Disqualification Act 1986. Disqualification can arise where a person's conduct as a director makes them unfit to be involved in company management — for example, following the insolvency of a company where the director's conduct fell below the required standard, or as a result of serious breaches of duty, fraud, or failure to comply with company law obligations. The Insolvency Service investigates the conduct of directors of failed companies and can bring disqualification proceedings. Breaching a disqualification order is a criminal offence and can result in personal liability for the company's debts. A director facing disqualification proceedings should take specialist legal advice immediately, as the consequences for their career and finances can be severe.

Wrongful trading and fraudulent trading are two ways in which directors can incur personal liability in connection with an insolvent company. Wrongful trading, under Section 214 of the Insolvency Act 1986, arises where, before the company went into insolvent liquidation or administration, a director knew or ought to have concluded that there was no reasonable prospect of the company avoiding insolvency, and failed to take every step they ought to have taken to minimise the potential loss to creditors. A director found liable for wrongful trading can be ordered to contribute personally to the company's assets. Fraudulent trading, under Section 213, is more serious and arises where the business has been carried on with intent to defraud creditors or for any fraudulent purpose — it requires actual dishonesty and can result in both personal liability and criminal sanctions. Both are significant risks for directors of failing companies. The key protection against wrongful trading is to take professional advice as soon as the company's solvency is in doubt and to act on it.