In the corporate system of Cyprus, one of the most important roles is that of the director of a company. This is evident in the Companies Law Cap. 113 (the "Law"). If someone looks at the Law, they will understand that a Company's management and control lays with its directors who are burdened with responsibilities, obligations, and rights, which we could argue that even the owner of the company does not possess.
However, what happens when a director is no longer suitable and/or otherwise cannot fulfil their position and must be removed? Is it an easy procedure or, due to the rights and powers that the Law provides to the director, is it time-consuming and burdensome? The Law gives us the answer for the process of a director's removal from their office. Article 178 of the Law sets out in detail the relevant procedure. This article also outlines the rights of the director in case the proper procedure for his removal is not followed in accordance with the Law.
The shareholders ("Members") of a company, may proceed with an ordinary resolution – as opposed to a special one – to remove a director from their office. It is worth mentioning that the Members can proceed with the stated removal regardless of any provision in the Articles of Association of the company or any agreement between the director and the company. This contrasts to the numerous rights and powers that a director holds since the procedure to remove them does not seek their permission.
It is worth mentioning that the aforementioned procedure does not apply in cases of a private company when a director holds a life position at the time the Law comes into force, regardless of whether they are obliged to resign due to an age restriction in accordance with the Articles of Association or otherwise.
Even though an ordinary resolution is needed for the removal of a director, a special notice (the 'Notice') is required for the calling of the relevant meeting of the Members during which the matter is to be presented. Once the Notice is sent to the Members, the company must send a copy of the Notice to the director that is to be removed. During the members' extraordinary general meeting, the director being removed has the right to be heard during that meeting.
As soon as the director receives the Notice, the director may submit written representations within a reasonable timeframe to the company and requests that these are shared with the Members. At this point, the company's responsibility is to send a copy of the written representations to each of the Company's Members.
If the director fails to submit his written representations within a reasonable timeframe, they do not lose their right to be heard. On the contrary, and without prejudice to their right to present their case orally, the director retains the right to request that the representations be read aloud during the meeting.
Another notable aspect of Article 178 of the Law is its introduction of provisions to avoid unnecessary publicity in defamation cases. Specifically, it states that there is no need to send copies of the representations to the members before the meeting or have them read aloud during the meeting if, upon application by the company or another party, the Court is satisfied that there has been an abuse of the rights granted under Article 178 to secure unnecessary publicity in a defamatory matter. In this attempt to prevent the misuse of defamatory material, the legislator also provides that the costs of the company's application will be borne by the concerned director.
A question that arises is about the vacancy. Once the resolution for the removal of the director is passed, a vacancy will most likely arise unless the position is filled during the meeting of the members. If not, then the position will be considered as a vacancy caused by an extraordinary event. The effective date of appointment for the person who will be appointed as described above is the day on which the person being replaced was last appointed as a director.
Article 178 of the Law does not restrict or cancel in any way the right of the director who is removed from his position to receive compensation or damages in respect of the termination of his appointment as a director or of any other appointment that terminates at the same time as his appointment as a director nor does it limit the power to remove a director.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
