Basic Procedure of Appointment and Removal of a Director
In Bangladesh, as in many jurisdictions, the role of a director within a company is pivotal. Directors wield significant authority in the administration and management of a company, ultimately shaping its day-to-day operations for the benefit of shareholders. Consequently, the process of appointing and, when necessary, removing directors becomes a critical aspect of company law. The Companies Act of 1994 delineates the fundamental procedures for both appointing and removing directors in Bangladesh.
The appointment and removal of directors are primarily governed by sections 90-115 of the Companies Act of 1994. Understanding these procedures is essential for maintaining the integrity and functionality of a company’s leadership.
Appointment of Director
Directors are typically appointed by the shareholders of a company, as outlined in Section 91 of the Companies Act. Initially, subscribers to the memorandum of association are deemed directors until the formal appointment of the first directors. Subsequent appointments are made by members in general meetings or by the board to fill casual vacancies.
When appointing directors, it’s imperative to adhere to certain criteria specified in the Companies Act. Directors must consent in writing to their appointment, be natural persons, and not be minors or disqualified from holding such a position.
Removal of Director
The Companies Act provides mechanisms for the removal of directors. Section 106 empowers companies to remove directors either by passing a resolution or by court order. Special notice must be given to all directors, including the one proposed for removal. The most common methods of removal include voluntary resignation or rotation.
An extraordinary resolution, requiring a vote of at least three-fourths (75%) of eligible members, is necessary for the removal of a director. Additionally, specific disqualifications outlined in Section 94, such as unsoundness of mind or insolvency, may lead to automatic removal.
The occurrence of a directorial vacancy is contingent upon the stipulations delineated in section 108 of the Companies Act, complemented by Regulation 78 of Schedule I. Premature termination of a director’s tenure finds legitimacy in section 106 of the Act, necessitating the enactment of an extraordinary resolution. Such removal procedures are intricately entwined with legal complexities, fostering uncertainties within a company’s operational framework.
Conventionally, it is construed that section 106(1) exclusively pertains to elected directors and their dismissal, distinct from contractual appointees. Harmonized with section 91(2), shareholders of a public company wield authority to oust up to one-third of the total directorial cohort. The Articles of Association (AoA) of a company may delineate grounds for such dismissals, with the possibility of introducing new criteria.
In the case of Syed Ameenul Huq and Ors v. M. H. Arif and Ors (1988), the High Court Division of the Supreme Court of Bangladesh underscored that the directorial position is contractual rather than statutory, thus subject to the terms of the contract. Consequently, removal through AoA modification emerges as a plausible recourse within companies.
Grounds for Disqualification and Vacation of Directorship
Beyond removal, section 108 in tandem with regulation 78 of the Companies Act 1994 enumerates several grounds warranting directorial office vacation, inherently dictated by legal mechanisms. These include being unsound of mind, adjudged insolvent, failing to pay calls on shares, or absences from board meetings without leave.
However, the absence of a judicial litmus test concerning “damage to the company/institution and/or its stakeholders” muddles the distinction between actions advancing company interests and those contravening them. This ambiguity creates fertile ground for the misuse of directorial removal powers, underscoring the pivotal role directors play in a company’s managerial landscape. Disqualification and vacation of directorship are explicitly addressed in Sections 94 and 108 of the Companies Act.
Register Book of Directors
Furthermore, under the Companies Act of 1994, companies are mandated to maintain a register containing particulars of contracts or arrangements entered into by directors. This register must be open for inspection by any member of the company during business hours at the registered office.