Mental Health Legislation brings need for greater care when removing Directors

The Mental Health (Discrimination) Act 2013 came into force on 28 April 2013 bringing about important changes of which company directors should be aware.

The Act amends the model articles set out in Schedules 1 to 3 of the Companies (Model Articles) Regulations 2008 (SI 2008/3229) by removing provisions in those articles which require the automatic termination of a director’s appointment if that director’s rights or powers are restricted by a court order on mental health grounds.

Many newly incorporated limited companies (both those limited by shares and guarantee) take up the current model articles prescribed by the legislation and so may find it more difficult to terminate a director’s appointment on mental health grounds, without repercussion (such as a claim under the Mental Health (Discrimination) Act 2013 for discrimination). Equally, companies who have adopted bespoke articles of association in the past, often including provisions purporting to terminate the appointment of directors on mental health grounds, may find that such provisions are considered to be discriminatory.

Jeremy Parkin, Partner in the Corporate Department comments: “The role of company director can undoubtedly be a demanding and stressful one and mental health issues are unfortunately not uncommonly encountered in this context. The changes to the model articles bought about by this piece of legislation add a further layer of complexity to the operation of articles of association and shareholders agreements in terms of what should be considered by company directors”.

Termination of a director’s appointment on mental health grounds are common provisions in many articles of association and are often a requirement of Venture Capitalist investors. Directors should be aware that such provisions may no longer be enforceable and are encouraged to review their articles of association to check that they do not fall foul of the Mental Health (Discrimination) Act 2013. Amendments should be made to the articles where necessary. It is still possible to remove directors where there is objective justification for so doing.

The Wilkes Partnership’s Corporate team have particular expertise in assisting companies with the drafting of articles of association and shareholders agreements in order to regulate both the day to day activities of companies and the personal relationships between directors and shareholder investors.

If you would like advice or assistance in connection with your company please do not hesitate to contact us.