Directors are part of a company board, and are entitled to notice of any meetings, papers and participation concerning the management of the company. If a director is excluded without reasonable explanation, there are risks of invalidating board decisions made during the meeting, breaches of directors’ duties by those conducting the exclusion, and legal grounds for the excluded director to bring an unfair prejudice claim under S.994 of the Companies Act 2006.
Legitimate reasons for exclusion
When disputes involve a director, a dedicated conflicts committee, free from the director’s influence, may be established to control the flow of privileged information and advice. However, careful steps must be taken to structure, document and minute the meetings to avoid any grounds for an unfair prejudice claim.
Scenarios may arise where a director has, in their personal capacity, interest in proposed agreements or deals the company is considering taking on. In the event of a conflict, a director must declare the interest as soon as possible, and usually they will be barred from voting and will not count toward quorum (the minimum number of members needed for a meeting to be valid). Authorisation of resolutions in the event of a director’s conflict of interest will only be valid if they do not participate in the substantive decision-making process. However, there are circumstances where they may still be allowed to attend for discussion.
Attendance can sometimes also be restricted for confidentiality. However, sometimes the directors still need certain pieces of information from the meetings to execute their duties. In these scenarios, short summaries leaving out confidential information should be provided for the director’s reference with recorded reasons, and limiting the agenda of the meeting to the specific item that cannot be disclosed. This gives the director access to as much information as possible outside of the meeting.
Risk reduction in excluding a director from a meeting
The first step before making any decisions should always be to check the company’s articles of association or shareholders agreement for any provisions on participation rights. Any procedures made in relation to a meeting excluding a director should be done clearly and unequivocally, with legitimate reasons given for the exclusion (e.g., conflict management, protecting privilege). However, to avoid potential shareholder disputes under s.994 of the Act, directors should typically not be excluded from meetings.
To contact Nath Solicitors, please call us on 0203 983 8278 or email us at enquiries@nathsolicitors.co.uk.