The dismissal of a statutory director is a complex process involving aspects of both employment law and company law. At Guldemond Advocaten, we understand that such situations not only present legal challenges, but can also have a major impact on the individuals involved and the organization as a whole. Our expertise allows us to carefully guide you through this process, keeping in mind both the legal nuances and the strategic implications.
Unique position of the statutory director
A statutory director occupies a special position within the company. He or she is responsible for managing the company and thus bears ultimate responsibility for its policy and day-to-day affairs. At the same time, the statutory director often has an employment contract with the organisation. This dual role means that both company law and employment law may apply in the case of dismissal. This requires an integrated approach to ensure that the dismissal is legally valid and effective.
Company law aspects
A statutory director can be suspended or dismissed at any time by the body that was authorised to appoint him, which in practice is usually the General Meeting of Shareholders (AGM).
The dismissal decision must meet specific legal and statutory requirements to be legally valid:
- Procedural requirements: timely notice of the AGM, proper resignation agenda and provision of relevant information to shareholders.
- Decision-making: the resignation decision should be properly made and recorded, including proper minutes of the meeting.
Labour law aspects
Although the corporate dismissal decision basically results in the termination of the employment relationship, there are important employment law consequences to consider:
- Transition compensation and fair compensation: the statutory director may be entitled to a transition compensation in connection with the termination of the employment contract. If there is serious culpability on the part of the employer (e.g., dismissal on unreasonable grounds), equitable compensation may also be claimed.
- Notice period: despite the immediate effect of corporate dismissal, there may be a notice period under the employment contract or the law that must be observed.
- Hearsay: due diligence is required. The director must be given the opportunity to give his or her side of the story, contributing to a fair and transparent process.
Procedural due diligence and risk management
It is essential to take care when dismissing a statutory director:
- Filing: carefully document the reasons for dismissal. A well-constructed file is important if the director challenges the dismissal.
- Communication: have open and respectful conversations with the director and ensure clear communication towards all parties involved, including employees and stakeholders.
- Contractual agreements: analyze the employment contract and any additional agreements, such as non-compete and non-disclosure clauses, and consider the implications.
Non-competition and confidentiality
When a statutory director leaves, protecting corporate interests is crucial:
- Noncompete clause: check whether a legally valid non-compete clause applies and whether it is enforceable after dismissal.
- Confidentiality: affirm the continuing obligation to keep confidential information and trade secrets confidential.
- Relationship clause: protect your relationships by checking whether there is a relationship clause in place that prohibits the director from contacting clients or partners after leaving.
Tax and financial consequences
The dismissal may have various tax and financial implications:
- Tax implications: consider the tax treatment of any severance payments or severance arrangements, both for the director and the company.
- Stock and options: assess the impact on stock options, profit-sharing plans or other forms of participation that the director has.
Strategic and reputational considerations
The dismissal of a statutory director can have significant consequences for your company’s strategy and reputation:
- Continuity of leadership: provide a succession plan to ensure continuity of governance.
- Reputatiemanagement: beheer de externe communicatie zorgvuldig om reputatieschade te voorkomen en het vertrouwen van klanten, medewerkers en investeerders te behouden.
- Corporate governance: evaluate and, where necessary, strengthen your governance structures and internal controls to prevent the recurrence of undesirable situations.
Conclusion
Dismissing a statutory director is a complex process that requires careful planning and execution. By paying attention to both corporate and employment law aspects, risks can be minimised and the process can run smoothly.
Get in touch
Are you considering the dismissal of a statutory director or need expert advice on proper procedures and strategies? If so, please
contact Guldemond Advocaten.
