The appointment or removal of a company director will only be valid if certain steps are followed. Failure to follow these steps could result in fines and in the appointment or removal being invalid. A company is usually bound by requirements in the company constitution or shareholder agreement when it comes to this process. The replaceable rules in the Corporations Act 2001 (Cth) will apply if your company does not have these documents.
Who can appoint directors?
The replaceable rules let shareholders appoint a director by passing an ordinary resolution (50% majority vote) at a general meeting. Alternatively, the board of directors can appoint a director by the same 50% ordinary resolution. Additional provisions that vary or replace these procedures may be outlined in the company’s shareholder agreement or constitution.
Sometimes, a director may need to be appointed to fill a casual vacancy or to retain a quorum (the minimum level of interest or attendance required for a meeting or action to occur). This is allowed under the Corporations Act, but may be provided for in the Constitution, or by a combination of both.
Public companies must confirm a director appointment by a resolution of members at the next annual general meeting (AGM). Other company types have different requirements.
Is an individual required to give consent to act as a director?
A person must give written and signed consent to the organisation before the appointment. Failure to give ‘consent to act’ means the appointment is void.
There are restrictions on who can be appointed as a director, including that the individual is at least 18 years old. A person who has been disqualified from managing companies, or otherwise meets the disqualification criteria, can only be appointed as a director if the appointment is made with permission from ASIC or leave granted by a court.
Disclosure to ASIC
The company secretary needs to make sure ASIC is notified of an appointment within 28 days of the appointment being made. Any changes to the information given to ASIC must also be provided within 28 days. ASIC will need the director’s personal details, which include:
- Given and family names;
- Former given and family names;
- Data and place of birth; and
- Residential address.
Letter of Appointment
After a director has provided formal consent, the organisation will normally send them a letter of appointment signed by the chair. The letter should set out the responsibilities of the role and board expectations.
Removing a Company Director
Shareholders may seek to have a director removed by raising concerns about the director’s performance and asking them to resign. If the director refuses to resign, then the process is based on whether the company is private or public. The director or the company must inform ASIC within 28 days of the decision to remove a director. You can use the online ASIC form to do this.
- Private companies
If the replaceable rules apply, the company’s shareholders can remove a director by an ordinary resolution. An ordinary resolution will pass by a majority of votes from the shareholders. Also, the board of directors may remove a director by resolution. These processes are subject to the company’s constitution and shareholder agreement.
- Public companies
Shareholders in a public company must follow the process in s 203D of the Corporations Act to remove a director. Shareholders wanting to remove a director must first give notice to move a resolution for a director’s removal at least two months before the shareholders meeting. The director must receive notice as soon as practicable. The director can make a case to stay in office, either by written statement or speaking at the meeting. Shareholders then vote on the issue and, if a majority vote is reached, the director will be removed.
The processes for appointing and removing directors depends on whether the company is public or private. You need to be aware of the legal requirements so that the appropriate action is taken and the act is valid. If you require help with appointing or removing a director, contact OpenLegal on 1300 337 997 or fill out the form on this page.