Rotation of Directors
Written by 29th September 2014on
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Currently the Articles of Association (Articles) of companies provide for some or all of the directors to retire automatically by rotation at the company's Annual General Meeting (AGM). In addition the Articles may require, any director who has been appointed by the board to fill a casual vacancy during any given year to retire at the next AGM and stand for re-election.
The intention of these provisions, which in the case of a private limited company are adopted through Table A of the Companies Act 1963, is generally to promote good corporate governance. They also are intended to ensure that the directors continue to be answerable to the shareholders of the company as its owners and avoid the board becoming self-perpetuating.
While rotation of directors is commonly adopted by public limited companies it is less common in private limited companies and is commonly disapplied. However, it can happen that the Table A provisions for rotation of directors have not been disapplied and a company fails to re-appoint directors on or before the date by which they are due to retire. Failure to deal with this issue properly can create doubts as to whether such directors are entitled to hold office thus calling into question the effectiveness of decisions made by the board of directors of a company which includes such a director. An English Court* found that where a director should have retired by rotation at an AGM of the company but failed to do so that director was deemed to have vacated his office automatically at the end of the last day on which the AGM should have been lawfully held. While a similar case has not arisen as yet in Ireland, Irish courts may follow this decision.
The Companies Act 2014 (the Act) does not include similar provisions to Table A of the Companies Act 1963 for private limited companies requiring directors to retire by rotation at the AGM. This is in recognition of the general position that they are often not practical and they do not serve the purposes for which they were initially intended. Also it avoids the problems that can arise where compliance with these provisions is simply overlooked.
However, the Act continues to include provisions requiring that those appointed by the board of directors during the year offer themselves for re-election. This ensures that all directors will have been elected or will be subject to election to the board by the company's members at some stage.
In practice, the rotation provision can be inconvenient and often does not fulfil its original intention. One of the overarching intentions of the Act is to make it easier and cheaper to operate a company in Ireland. Practical changes such as this are an example of that aim being put into practice and generally are to be welcomed. The Companies Act 2014 is expected to come into force on 1 June 2015.
* Re Zinnotty Properties Limited  3 All ER 754
For further infomation, you can contact Alan at firstname.lastname@example.org.