CIC Association

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I have received 4 complaints from members about a volunteer co-director, I have had a meeting about this and she denies allegations against her, and is now making the working relationship very difficult.  As the Owner and Executive Director I am trying to establish my rights over her, can I ask her to leave? If she won't leave what are my options, do I dissolve the organisation? if so can I restart on my own?  Hoping someone can advise, thanks

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Hi Jo,

Interesting question; director’s conflict is one of the main reasons CIC's fail and with a little forethought at the outset could easily be avoided.

Removing a director

Removing a director from their employment and office can be a complicated process with many legal issues to consider. Certainly for larger companies this may involve breach of contract, employment rights, compensation packages etc.

It appears that your co-director is acting in a voluntary capacity which may make the process less complicated. It also appears from a separate posting that you have asked her to resign and she has refused.

Most founding directors are concerned about losing control and opt for a single co-director rather than a larger board of say three directors or more. This can however bring its own set of problems should the relationship break down. Your constitution confirms that a quorum is two and most decisions require a majority vote.

Clause 23 of your articles of association outlines a number of ways in which a director’s appointment may be terminated, none of which apply to your circumstances.

As the Owner, Executive Director and the person with significant control you should have the power to appoint or remove the majority of directors and you may wish to clarify this with Companies House and, if so, exercise this by terminating your co-directors appointment by filing a TM01 with Companies House. This approach may however be open to challenge at a later date, so you may wish to get independent legal advice on this.

Another option to consider is to appoint a third director:

  • Clause 22.2 Methods of appointing directors - states that a person may be appointed to be a director by a decision of the directors,
  • Clause 12 Directors to take decisions collectively - states that any decision taken by directors must be a majority decision at a meeting or a decision taken in accordance with Article 18,
  • Clause 17 Decision making at meetings - Clause 17.3 states that in the case of equality of votes, the Chair shall have a second or casting vote

*You may or may not hold the formal title of chair but I would assume that as the Owner, Executive Director and person with significant control (out of two directors) that you are the de facto chair.

Once you have the third person appointed you can remove the director from office by an ordinary resolution provided that the strict procedure under s168 and s169 of the Companies Act is followed.

https://www.legislation.gov.uk/ukpga/2006/46/section/168

https://www.legislation.gov.uk/ukpga/2006/46/section/169

Special notice must be given to the director concerned and the other director at least 28 days before the general meeting at which they will vote on the ordinary resolution. The director will be entitled to be heard at the general meeting where the resolution to remove her is proposed.  The director is also entitled to make representations to the board: 

  • the notice of intention is via a letter to the company proposing the resolution and stating that Special Notice is given;
  • the Special Notice must be lodged at the registered office at least 28 days before the general meeting
  • the reason for the intention to remove and the director’s representation, if any, must be given to all the directors entitled to attend the meeting;
  • the resolution is an ordinary resolution with Special Notice and as such requires a simple majority (50.01%) of those present at the meeting or by proxy;
  • the required notice for the convening of a general meeting is 14 days;
  • at the meeting the director must be given the opportunity to voice her representations before the vote is given.

Closing down the CIC

You mention the possibility of closing down the CIC, you can do but this again requires a majority decision of the directors. The attached link refers:

https://www.gov.uk/topic/company-registration-filing/closing-company

Ways to avoid this in future

  • Rather than going down the time consuming s168 route the articles can be changed to accommodate an additional resignation/termination procedure. Amendment of articles can be undertaken by a written resolution requiring a 75% majority.
  • Give consideration to appointing non-executive directors who offer an independent perspective and strategic overview but are not involved in the executive decision-making or have the power to appoint or remove directors; this rests with you. They are appointed in the same was as ordinary directors but you make clear in their letter of appointment their term of office and sphere of influence i.e. what they can and cannot do. If you opt to go down this route you may want to convert the third director to a non-executive director once the current impasse is resolved.

There are of course other options open to you but this is my personal perspective. Hope this helps and good luck.

Phil

PH Consultancy

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