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What to Do if a Director Refuses to Resign? A Guide for Shareholders
Directors play a pivotal role in ensuring sound management and governance within a company. Nevertheless, disagreements between directors and shareholders can occur, leading to operational disruptions. Such disputes typically arise due to differences in strategic decisions, conflicts of interest, performance issues, or allegations of misconduct.
The company’s constitution, often referred to as the Articles of Association, is the foundational document consulted during director-shareholder disputes. This constitution clearly sets out directors’ duties, powers, and the detailed procedures for resolving conflicts, including director removal. Ensuring this document is thorough and precise from the outset can significantly help in effectively managing disputes.
Table Of Content
- What is a Director-Shareholder Dispute?
- Why Do Director-Shareholder Disputes Occur?
- When Can a Director Be Asked to Resign or Be Removed?
- Who Governs the Removal of Directors?
- How to Remove a Director in Singapore Companies?
- What Legal Options Are Available to Shareholders?
- Removing a Director if They Are Also an Employee
- Can a Director Be Disqualified?
- Can You Resign if You’re a Sole or Co-director of a Company?
- Notifying and Changing Directors’ Details at Companies House (ACRA)
- Conclusion
What is a Director-Shareholder Dispute?
A director-shareholder dispute arises when directors and shareholders have significant disagreements affecting the management or strategic direction of the company. Such conflicts can cause operational disruptions and potentially harm the company’s performance and reputation.
Why Do Director-Shareholder Disputes Occur?
Disputes typically emerge due to:
- Strategic Differences: Fundamental disagreements on the company’s strategic decisions.
- Conflicts of Interest: External interests of a director conflicting with their fiduciary duties.
- Performance Issues: Directors not fulfilling their responsibilities, resulting in inadequate performance or negligence.
- Misconduct: Directors engaging in fraudulent or dishonest activities or breaching statutory obligations.
When Can a Director Be Asked to Resign or Be Removed?
A director can be asked to resign or be removed when their actions compromise the company’s interests, fail to meet required standards of conduct, or lead to significant disputes impacting company operations. Specific conditions for removal or resignation of director are detailed in the company’s constitution or Articles of Association.
Who Governs the Removal of Directors?
The primary governance document for resolving disputes and managing director removals is the company’s constitution (Articles of Association). It explicitly sets out directors’ responsibilities, duties, and the process required for their removal.
How to Remove a Director in Singapore Companies?
Private Companies (Section 152(9), Companies Act)
- Ordinary Resolution: Shareholders may remove a director through an ordinary resolution passed by more than 50% of votes.
- Notice Requirements: At least 14 days’ notice is typically required; however, this period can be reduced if agreed by at least 95% of shareholders.
- Written Notice: Some constitutions permit appointing shareholders or parent companies to remove nominee directors via written notice.
Public Companies (Section 152(1), Companies Act)
- Special Notice: Requires a minimum of 28 days’ notice, which can be shortened to 14 days under special circumstances.
- Successor Appointment: Removal only becomes effective after a successor is appointed, especially if the director represented particular shareholder interests.
What Legal Options Are Available to Shareholders?
Shareholders have several legal avenues to resolve disputes:
- Statutory Derivative Action (Section 216, Companies Act): Enables shareholders to initiate legal proceedings when directors’ actions harm the company, and the company refuses to act.
- Court Relief: Shareholders facing oppressive or unfairly prejudicial conduct by directors can seek court remedies, potentially leading to mandated corporate governance changes.
- Negotiation and Mediation: Professional mediation can resolve disputes privately, effectively, and economically, reducing the need for litigation.
- Share Buyouts: Facilitates practical resolution and smooth transitions, ensuring the company’s continued operation.
Removing a Director if They Are Also an Employee
If a director also holds an employment contract, the removal process must consider employment law implications. Employment termination typically involves compliance with contractual notice periods and potential compensation for wrongful termination.
Can a Director Be Disqualified?
Directors can indeed be disqualified under the following conditions according to Singapore’s Companies Act:
Undischarged Bankruptcy (Section 148):
An undischarged bankrupt is prohibited from managing a company without explicit permission from the court or Official Assignee.
Misconduct in Insolvent Companies (Section 149):
Mismanagement or breach of fiduciary duties contributing to insolvency.
National Security Concerns (Section 149A):
Involvement in companies wound up due to threats against national security unless innocence and diligence are proven.
Can You Resign if You’re a Sole or Co-director of a Company?
A sole director or co-director may resign, but resignation of director is invalid if it leaves the company without at least one resident director in Singapore. Any attempted resignation under these conditions will be legally ineffective.
Notifying and Changing Directors’ Details at Companies House (ACRA)
All changes concerning directors’ details, resignations, or appointments must be formally notified to ACRA within 14 days through BizFile+, ensuring accurate public records.
Conclusion
Effectively managing director-shareholder disputes requires adherence to clearly defined governance structures, statutory compliance, and proactive legal strategies. Seeking timely expert legal advice is crucial to safeguard company interests and maintain robust corporate governance.
For personalised guidance and comprehensive support in resolving director-shareholder disputes, contact VIVOS today. We ensure your company’s governance remains secure and compliant.
Facing Challenges with Director Removal?
Ensure compliance and protect your company by consulting our corporate governance experts.
Most Popular
Frequently
Asked Questions
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What statutory and common law duties must company directors in Singapore follow?
Directors in Singapore must comply with statutory duties under the Companies Act, such as disclosing personal interests in company transactions (Section 156), acting honestly with reasonable diligence (Section 157), maintaining accurate accounting records (Section 199), presenting audited financial statements at Annual General Meetings (Section 201), and holding mandatory meetings like AGMs. They also have common law fiduciary duties, including acting in good faith for the company’s best interests, avoiding conflicts of interest, and exercising due skill, care, and diligence. Non-compliance can result in fines, imprisonment, or civil liabilities.
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What does Section 145 of the Singapore Companies Act state regarding company directors?
Section 145(1) of the Singapore Companies Act requires every company to have at least one director who is ordinarily resident in Singapore, ensuring proper local governance.
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What obligations do companies have under Section 197 of the Singapore Companies Act for filing Annual Returns (AR)?
Section 197(1)(b) mandates that companies lodge an Annual Return within 30 days following their Annual General Meeting (AGM). Companies with overseas branch registers must file the AR within 60 days post-AGM.
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