QLD How to Remove Company Directors from Their Position?

[Michael Spinake]

The other company director that runs a consulting business has transferred the contracts to another company. Over a period of a week, she contacted all the consultants and the clients and transferred them to the new company.

How can I remove her as one of the directors so I can start recovery proceedings? Additionally, because the director was also the director of the corporate trustee of the family trust that owned the operating company, how can she be removed as director of the trustee?

 

[Bob]

Section 203C of the Corporations Act is a replaceable rule - therefore if its not replaced by some other provision in your company constitution then it applies. It states that a director may be removed from office by resolution of the company. However, if a company displaces section 203C by its constitution then a director may be removed from office by resolution of the company or by a majority of the board of directors, subject to the wording in your company constitution.

If the director has breached her duties as director there may be other actions you can take as well. Directors owe a duty to exercise their powers in good faith and inthe best interests of the company and for proper purpose, and not to improperly use their position to gain an advantage for themselves or someone else or to cause detriment to the company. If a director has breached these duties they may have acted illegally or be in breach of civil or criminal provisions under the Corporations and may be liable to compensate the company for the loss.

 

[Rod]

You need to read your company constitution if you have one, or the Corporations Act 2001. Same goes for trustee company and trust. You may need to contact the lawyer who setup these companies/trust for advice.

 

[Michael Spinake]

Thanks for your reply Bob. The company is running under replaceable rules. The director is also director (along with myself) of the sole member (a corporate trustee - of a discretionary trust holding the shares in the subject company) - so facing a 'hung' situation. The breach of duties of director also expand to the role of director of the trustee company - as the beneficiaries of the trust have now lost property? The action is clearly illegal and I have the evidence to support that. I suppose my question is - how do I go about removing as director?

Section 203C of the Corporations Act is a replaceable rule - therefore if its not replaced by some other provision in your company constitution then it applies. It states that a director may be removed from office by resolution of the company. However, if a company displaces section 203C by its constitution then a director may be removed from office by resolution of the company or by a majority of the board of directors, subject to the wording in your company constitution.

If the director has breached her duties as director there may be other actions you can take as well. Directors owe a duty to exercise their powers in good faith and inthe best interests of the company and for proper purpose, and not to improperly use their position to gain an advantage for themselves or someone else or to cause detriment to the company. If a director has breached these duties they may have acted illegally or be in breach of civil or criminal provisions under the Corporations and may be liable to compensate the company for the loss.

 

[Michael Spinake]

You need to read your company constitution if you have one, or the Corporations Act 2001. Same goes for trustee company and trust. You may need to contact the lawyer who setup these companies/trust for advice.

Rod thanks for your reply. The constitution is based on replaceable rules - no modifications.

 

[Rod]

What are the % shareholdings? A special general meeting of members (shareholders) can change directors of companies. If that is not going to work because of %s then your only other option is court. Contract law will apply and if you do not have legal knowledge then you'll need a lawyer.

You should also be sending an email to the other director advising them of their breach and asking them to remedy the breach and/or pay damages or face legal action. Must also say that you 'continue to reserve all your rights'.

 

[Michael Spinake]

Hi Rod thanks for your further reply. There is only one shareholder (member) - and then equal shareholding (50/50) of the trustee company - so further "hung". I think you are right - it is court. I suppose this then runs into disqualification as a director - and thus removal. The "how" of this is what I was meaning in my question. Through ASIC, or through District etc....

 

[Rod]

The fact that you are asking this question seems to indicate it is time for legal advice.

ASIC can take action on your behalf, but good luck with that. The alternative is court, but I do not know yet which court is the starting point for these kinds of actions.

Strongly recommend you get legal advice as there is probably a number of different breaches that have occurred. If you are successful at court you may be able to recover some of your costs though it is unlikely you'll get all your money back.

Not sure of the money involved, but it will be time consuming and stressful going to court. Best option is to see if commonsense can prevail in the other director.