A common occurrence relating to private limited liability companies in Cyprus and indeed throughout the world, is a disagreement arising between the shareholder(s) of the company and the directors, typically relating to day-to-day management issues in which the Directors normally hold power over.
Such disputes can be solved through the provisions of the Cyprus Companies Law, Cap.113, ("the Law") and especially section 178 of the Law as amended.
Specifically, Section 178(1) of the Law states:
"A company may by ordinary resolution remove a director before the expiration of his period of office, notwithstanding anything in its articles or in the agreement between it and him:
Provided that this subsection shall not, in case of a private company, authorize, the removal of director holding office for life at the commencement of this Law, whether or not subject to retirement under an age limit by virtue of the articles or otherwise".
In order to be able to proceed as above, with respect to Cyprus companies, the Law, through section 178(2), requires a special notice to be given for any resolution to remove a director or to appoint anyone else instead of a director removed at the meeting during which he is removed. This special notice provides a 28 days timeframe (instead of the usual 21 days timeframe). On receipt of a proposed resolution to remove a director, the Cyprus company should immediately send a copy thereof to the concerned director and, whether he is or not a member of the Cyprus company, he is entitled to be heard on the resolution at the meeting.
In cases where such a notice is given for an intended resolution to remove a director, and the director concerned, as allowed, makes written representations to the Cyprus company (such representation must not exceed a "reasonable" length), and requested his notifications to the members of the Cyprus company, the company should (unless those representations are received by it too late for it to act so):
- In any notice of the resolution given to the members of the company state the fact of the representations having been made; and
- Send a copy of the representations to every member of the company to whom notice of the meeting is sent (whether before or after receipt of the representations by the company), and if a copy of the representations is not sent as aforesaid because received too late or due to the company's default, the director may, without prejudice to his right to be heard orally, require that the representations shall be read out at the meeting.
Moreover, as per the provision of section 178(4) of the Law, a vacancy created by the removal of a director, if not filled at the meeting at which he is removed, may be filled as a casual vacancy.
It should be noted that, as per section 178(5) of the Law, a person appointed as director in the position of a removed director will be treated, for the purpose of determining the time at which he or any other director is to retire, as if he had become a director on the day on which the person in whose place he is appointed was last appointed as director.
Importantly, nothing in section 178 of the Companies Law can be taken as depriving a person removed thereunder of compensation or damages payable to him as regards termination of his appointment.
Key Points to the Procedure for Removal
- Any shareholder or shareholders, holding alone or jointly, 10% or more of the company's shareholding shall send a notice to the company ("the Notice") to call an Extraordinary General Meeting ("EGM") in order to move a resolution to remove a particular director ("the Director");
- The notice sent to the company must be at least 28 days prior to the date on which the EGM is proposed to be held;
- The directors of the company are then required to, within 21 days of the date of the Notice, to call the EGM as set out below, and if they do not, the shareholder(s) who requisitioned the EGM may call it themselves, again on 28 days' notice;
- Assuming the directors convene the EGM in accordance with the Notice, the company must send to the Director, and to each shareholder of the company a notice calling the EGM and informing them of the resolution which is intended to be moved at such EGM, not less than 28 days prior to the date of the EGM;
- The Director, once he has received the notice, may make representations in writing to the company, not exceeding a reasonable length, and may request that such
representations be notified to the shareholder(s) of the company and, if so, the company must notify the shareholder(s) accordingly;
- At such meeting, the shareholder(s) will vote on the removal of the Director. Before voting, the Director will be entitled to be heard on the resolution. The Director will be removed if those present at the EGM decide by majority vote (50% + 1) to remove him;
- Such removal of the Director will not affect any compensation or damages which he may be entitled to under any agreement he may have made with the company.
Originally published 29 June, 2020
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.