The position of a company director is not necessarily permanent.
Under Nigerian company law, a director can be removed before the expiration of his or her tenure where the statutory requirements for removal are satisfied.
The Companies and Allied Matters Act 2020 (CAMA 2020) provides a specific procedure for removing a director from office. The procedure is important because a company cannot simply remove a director informally or disregard the director’s statutory right to respond to the proposed removal.
Section 288 of CAMA 2020 provides that a company may remove a director before the expiration of the director’s period of office by ordinary resolution, notwithstanding anything contained in the company’s articles or an agreement with the director. However, the Act requires special notice and gives the affected director an opportunity to be heard.
This article explains how a director can be removed from a Nigerian company, who can initiate the process, the procedure that must be followed and what happens after removal.
Can a Director Be Removed From a Nigerian Company?
Yes.
A company can remove a director before the expiration of the director’s tenure.
Section 288(1) of CAMA 2020 expressly provides that a company may, by ordinary resolution, remove a director before the expiration of the director’s period of office.
This power applies notwithstanding anything contained in the company’s articles or in an agreement between the company and the director.
The existence of an employment contract or other agreement with a director therefore does not, by itself, prevent the company from exercising the statutory power of removal.
However, removal from the office of director and termination of an employment relationship are separate legal questions. A director who is also an employee can have contractual rights that require separate consideration.
What Resolution Is Required to Remove a Director?
The removal of a director under section 288 requires an ordinary resolution.
An ordinary resolution is generally passed by a simple majority of members entitled to vote and voting at the meeting, subject to the applicable provisions of CAMA and the company’s constitution.
The important point is that the company does not require a special resolution merely to remove a director under section 288.
However, the company must comply with the separate requirement of special notice.
What Is Special Notice?
Special notice is a statutory notice required for specified corporate resolutions.
Section 288(2) expressly requires special notice of a resolution to remove a director, or to appoint another person in place of the director proposed to be removed.
The requirement protects directors from being removed without adequate procedural notice.
Who Gives the Special Notice?
The members proposing the removal must give the required notice to the company.
The company’s subsequent responsibility is to communicate the proposed resolution to the director concerned and the members in accordance with CAMA.
The procedure should therefore not be treated as an ordinary board decision.
A board of directors cannot simply pass a resolution declaring that another director has been removed where the statutory procedure under section 288 is applicable.
Does the Director Have to Be Told About the Proposed Removal?
Yes.
Once the company receives notice of the intended resolution to remove a director, the company must immediately send a copy of the notice to the director concerned.
This applies whether or not the director is also a member of the company.
The director is then entitled to be heard on the resolution at the meeting.
This is an important procedural safeguard.
Does a Director Have a Right to Defend Himself?
Yes.
The director proposed to be removed has a statutory right to make representations concerning the proposed removal.
The director is also entitled to be heard orally at the meeting where the resolution is considered.
The purpose is to ensure that members have an opportunity to consider the director’s response before voting on the proposed removal.
Can the Director Make Written Representations?
Yes.
Where the director makes written representations concerning the proposed removal and requests that they be communicated to the company’s members, the company is required to take the steps prescribed by section 288.
The representations must not exceed a reasonable length.
Subject to the statutory requirements concerning timing, the company must state in the notice of the resolution that representations have been made and send copies of the representations to members who are being sent notice of the meeting.
This prevents the company from presenting only one side of the dispute to shareholders.
What If the Company Fails to Circulate the Director’s Representations?
CAMA provides protection for the director where the representations are not circulated because they were received too late or because of the company’s default.
The director can require the representations to be read out at the meeting, without prejudice to the director’s right to be heard orally.
However, the court can intervene where it is satisfied that the statutory right concerning representations is being abused.
Does the Company Need a Court Order to Remove a Director?
No, not ordinarily.
Where section 288 applies, removal is effected through the company’s statutory corporate procedure.
The company does not ordinarily need to obtain a court order merely to exercise the power of removal.
The essential requirements are compliance with CAMA, including the special-notice requirement and the ordinary resolution.
However, a court can become involved where the validity of the removal is challenged or where another legal dispute arises concerning the process.
Can the Board of Directors Remove Another Director?
This requires an important distinction.
The statutory power under section 288 is a power of the company exercised through an ordinary resolution, rather than simply a power of the board to remove one of its members.
Therefore, where the objective is to remove a director from the office of director under section 288, the statutory procedure involving the members’ resolution must be followed.
The board should not substitute an internal board decision for the statutory removal procedure.
Can Shareholders Remove a Director?
Yes.
Shareholders can exercise the company’s power to remove a director through an ordinary resolution, provided the requirements of section 288 are satisfied.
This is one of the important protections available to shareholders where they have lost confidence in a director or where the director’s continued membership of the board is no longer acceptable to the company’s members.
However, the removal must still comply with the statutory procedure.
Can a Majority Shareholder Remove a Director?
A shareholder with sufficient voting power can influence the outcome of a resolution to remove a director.
However, the shareholder does not personally “remove” the director.
The removal is an act of the company effected through the required corporate resolution.
The special-notice and procedural requirements remain applicable.
Can a Minority Shareholder Remove a Director?
A minority shareholder who does not possess sufficient voting power to pass an ordinary resolution cannot ordinarily remove a director acting alone.
However, a minority shareholder can participate in the meeting and vote according to the rights attached to the shareholder’s shares.
A minority shareholder can also challenge unlawful corporate conduct and invoke other statutory remedies where the circumstances justify doing so.
This is particularly relevant where the proposed removal is connected with a wider shareholder dispute.
Can a Director Be Removed Without Giving a Reason?
Section 288 does not make proof of misconduct a prerequisite to the exercise of the statutory removal power.
Accordingly, removal under section 288 is not necessarily dependent on establishing that the director committed fraud, negligence, misconduct or another wrong.
However, the company must comply with the statutory procedure.
Where the removal is connected with oppressive conduct, breach of a shareholder agreement, discrimination or another unlawful purpose, separate legal issues can arise.
Can a Director Be Removed for Misconduct?
Yes.
Misconduct can be the reason members decide that a director should no longer remain in office.
Examples can include:
- fraud;
- misuse of company funds;
- serious breach of fiduciary duty;
- conflict of interest;
- unauthorised transactions;
- persistent failure to perform responsibilities; or
- conduct detrimental to the company.
However, section 288 does not require the company to establish misconduct before a director can be removed.
Where misconduct is alleged, the company should nevertheless ensure that its corporate records accurately reflect the basis and circumstances of the decision.
Can a Director Be Removed for Losing the Confidence of Shareholders?
Yes.
A director’s continued tenure depends upon the statutory and corporate arrangements governing the office.
Where shareholders have legitimately lost confidence in a director, they can exercise the statutory removal procedure.
The company does not have to wait until the director commits a criminal offence or causes financial loss before considering removal.
Can a Director Appointed for Life Be Removed?
Yes.
CAMA specifically provides that a person can be appointed a director for life, but that person remains removable under section 288.
Therefore, describing a director as a “life director” does not place the director beyond the statutory removal mechanism.
Can a Director’s Contract Prevent Removal?
Not necessarily.
Section 288(1) provides that a company can remove a director by ordinary resolution notwithstanding anything in the company’s articles or in an agreement between the company and the director.
This means that a contractual provision cannot simply eliminate the company’s statutory power to remove a director.
However, this does not necessarily mean that every contractual claim disappears upon removal.
For example, if the director also has a separate employment or service agreement, the consequences of terminating that contractual relationship must be considered independently.
What Happens to the Director’s Contract After Removal?
Removal from the office of director does not automatically answer every question concerning a director’s contractual rights.
If the director is also employed by the company, the company must consider whether the employment relationship has also been validly terminated.
A company can therefore remove someone as a director while a separate contractual dispute remains concerning employment, remuneration, notice or other contractual rights.
The two issues should not be conflated.
Can a Director Be Removed and Another Person Appointed at the Same Meeting?
Yes.
CAMA expressly contemplates a resolution to appoint another person in place of the director being removed and requires special notice in relation to such a resolution.
This allows the company to deal with the resulting board vacancy as part of the same corporate process, subject to compliance with the applicable requirements for the appointment.
What Happens After a Director Is Removed?
Once the director has been validly removed, the company should update its corporate records and make the required post-incorporation filings with the Corporate Affairs Commission.
The CAC currently provides a specific service for “Edit Director” and maintains company information concerning registered directors.
The company should therefore ensure that its records accurately reflect the current composition of the board.
Can a Removed Director Still Act as a Director?
Once the director has been validly removed, the person no longer holds the office of director.
The company should also take practical steps to ensure that the former director no longer represents himself or herself as authorised to act for the company.
This can include updating:
- bank mandates;
- company signatory arrangements;
- corporate records;
- regulatory records;
- access to company systems;
- powers of attorney; and
- other authorisations.
This is particularly important where the former director previously had authority to operate company bank accounts.
What Happens to a Removed Director’s Authority Over the Company’s Bank Account?
The company should promptly notify its bank of the director’s removal and provide the appropriate corporate resolution and documentation.
This is not merely an administrative formality.
In Zenith Bank v. Daily Times of Nigeria Plc & Anor (2022) LPELR-58415(CA), the Court of Appeal considered circumstances involving withdrawals and changes to bank signatories by persons who had ceased to be directors. The case underscores the importance of communicating a director’s removal and changes to the company’s mandate to the bank.
A company should therefore not assume that removing a director internally automatically updates every third party’s records.
Can a Removed Director Challenge the Removal?
Yes.
A director who believes that the statutory procedure was not followed can challenge the validity of the removal.
Potential issues can include:
- failure to give the required special notice;
- failure to notify the director;
- denial of the statutory right to be heard;
- irregularity in the meeting;
- improper voting;
- failure to comply with the company’s constitution;
- fraud or bad faith; or
- other defects affecting the validity of the corporate resolution.
The specific remedy depends on the facts and the nature of the defect.
Can a Removed Director Sue the Company?
Potentially, yes.
Removal does not prevent a director from pursuing a legally recognised claim.
For example, a director can challenge an invalid removal or pursue a separate contractual claim where the facts establish one.
However, the mere fact that a director disagrees with the shareholders’ decision does not automatically make the removal unlawful.
The central question is whether the statutory and contractual requirements applicable to the particular dispute were satisfied.
Can a Director Be Removed Because of a Shareholder Dispute?
Yes, the shareholders can exercise the statutory removal procedure where the requirements are satisfied.
However, where the removal is part of a wider dispute involving minority shareholders, oppression or unfair prejudice, the circumstances should be examined carefully.
A majority should not assume that every use of voting power is immune from judicial scrutiny.
CAMA provides remedies for oppressive, unfairly prejudicial or discriminatory conduct against members in appropriate circumstances.
Can Removing a Director Amount to Oppression of a Minority Shareholder?
Potentially.
Removal itself is not automatically oppressive.
However, if the removal forms part of a broader scheme designed to unfairly prejudice a minority shareholder or disregard legally protected membership interests, the shareholder can consider the remedies available under CAMA.
The court will examine the substance and circumstances of the conduct rather than merely the label attached to the corporate action.
Can a Director Be Removed During a Pending Court Case?
The existence of pending litigation does not, by itself, prevent a company from exercising its statutory corporate powers.
However, the circumstances of the litigation matter.
If the pending proceedings concern the director’s position, the company’s control, shareholder rights or the validity of corporate decisions, any proposed removal should be carefully reviewed to avoid creating further legal complications.
The company must still comply with the applicable law and any existing court order.
Is the Removal of a Director the Same as Disqualifying a Director?
No.
Removal is a corporate act through which a company ends a person’s tenure as a director.
Disqualification is a separate legal concept arising under the circumstances specified by CAMA and other applicable law.
A person can therefore cease to be a director without necessarily being permanently disqualified from serving as a director of another company.
The legal consequences of disqualification are more extensive and should not be confused with ordinary removal from office.
Practical Example
Suppose ABC Limited has five directors.
Three shareholders controlling 70% of the voting rights decide that one director should no longer remain on the board.
The shareholders cannot simply announce that the director has been removed.
The statutory procedure must be followed.
The proposed resolution requires special notice. The company must communicate the notice to the affected director, who has a right to be heard and can make written representations in accordance with section 288.
The members then consider the resolution at the relevant meeting.
If the ordinary resolution is validly passed and the statutory requirements have been satisfied, the director’s tenure comes to an end.
The company should then update its corporate records and make the necessary filing with the Corporate Affairs Commission.
If the former director was a bank signatory, the company should also promptly notify the bank and update the mandate.
A Simple Step-by-Step Procedure for Removing a Director
The process can be summarised as follows:
Step 1: Decide to Propose the Removal
The members wishing to remove the director should determine that a resolution for removal should be proposed.
Step 2: Give Special Notice
The required special notice of the intended resolution should be given to the company.
Step 3: Notify the Director
The company must immediately send a copy of the notice to the director concerned.
Step 4: Allow the Director to Respond
The director is entitled to be heard at the meeting and can make written representations subject to the requirements of CAMA.
Step 5: Give Members the Required Information
Where the director makes representations in accordance with the Act, the company must comply with the statutory requirements concerning circulation or reading of those representations.
Step 6: Hold the General Meeting
The members consider the proposed resolution at the meeting.
Step 7: Vote on the Ordinary Resolution
The company votes on the resolution to remove the director.
Step 8: Record the Resolution
The company should properly document the proceedings and resolution.
Step 9: Update Corporate Records
The company’s records should be updated to reflect the director’s removal.
Step 10: Make the Required CAC Filing
The company should make the appropriate post-incorporation filing to update the particulars of its directors with the Corporate Affairs Commission.
Step 11: Update Third-Party Mandates
Where necessary, the company should notify its banks, regulators, contractual counterparties and other relevant institutions of the change.
Common Mistakes When Removing a Director
Companies should avoid the following mistakes:
1. Treating Removal as a Board Decision
The statutory removal mechanism is based on an ordinary resolution of the company.
2. Failing to Give Special Notice
Failure to comply with the special-notice requirement can expose the process to challenge.
3. Denying the Director an Opportunity to Be Heard
The director has a statutory right to be heard on the proposed resolution.
4. Ignoring Written Representations
Where the director makes representations in accordance with CAMA, the company must comply with the statutory requirements governing those representations.
5. Assuming Removal Ends Every Contractual Relationship
A director may also have separate contractual rights.
6. Failing to Update the Bank
A removed director who remains on the company’s bank mandate can create serious practical and financial risks.
7. Failing to Update CAC Records
The company’s official corporate records should accurately reflect its current directors.
Conclusion
A director can be removed from a Nigerian company before the expiration of the director’s tenure.
However, the company must follow the procedure prescribed by section 288 of CAMA 2020.
The process requires special notice, notification of the affected director and an opportunity for the director to make representations and be heard before the members consider the proposed ordinary resolution.
The removal of a director should therefore not be treated as a simple internal board decision.
Companies should also remember that removal from office is separate from any contractual relationship the director may have with the company, while the company’s banks, the CAC and other relevant third parties should be promptly notified after a valid removal.
For shareholders, particularly minority shareholders, the circumstances surrounding a proposed removal can also be significant where the removal forms part of a wider dispute involving oppression or unfair prejudice.
If you are a shareholder, director or company involved in a dispute concerning the removal of a director, Lexforte Attorneys can review the circumstances, advise on the proper procedure and assist with the necessary corporate or court proceedings. Contact Lexforte Attorneys for professional assistance with company law and corporate disputes in Nigeria.