What happens when a director loses mental capacity?

In the event that a director loses mental capacity, the company is likely to seek to remove the director and replace them by reference to the appropriate version of their company’s Articles of Association.

Most older companies, incorporated under the Companies Act 1985 or earlier legislation, use the standard Table A Articles. For these companies, the procedure is governed by regulation 81. Modern companies, incorporated under the Companies Act 2006, normally use the Model Articles. The procedure there is governed by Article 18 of the Model Articles of Association.

Table A companies – prescribed by the Companies Act 1985

Regulation 81 prescribes the circumstances in which the office of the director shall be vacated. This removal is automatic if he is suffering from a mental disorder that curtails his capacity to act. However, to qualify under that provision either:

1. He is admitted to hospital in pursuance of an application for admission for treatment under the Mental Health Act 1983 (MHA 1983) or, in Scotland, an application for admission under the Mental Health (Scotland) Act 1960, or
2. An order is made by a court having jurisdiction (whether in the United Kingdom or elsewhere) in matters concerning mental disorder for his detention or for the appointment of a receiver, curator bonis, or another person to exercise powers with respect to his property or affairs.

The second clause will include the appointment of a deputy. If the Companies Tables A to F Regulations has been excluded, then neither of the above is applicable. Instead, the shareholders may exercise their powers to remove the director by passing an ordinary resolution.

Post 2013 – Model Articles governed by the Companies Act 2006

On 28 April 2013, The Mental Health (Discrimination) Act 2013 came into force and amended the Model Articles of Association, as set out in schedules 1 to 3 of the Companies (Model Articles) Regulations 2008. The Act removed certain provisions regarding the termination of a director’s appointment due to mental health issues and in particular paragraphs 18(e) of Schedule 1, 18(e) of Schedule 2 and 22(e) of Schedule 3 were removed (see our blog on the Mental Health (Discrimination) Act 2013).

Of course, there continues to be a need for companies to be protected in cases where a director loses capacity. For companies who have been incorporated using the Model Articles post April 2013 are now governed by Article 18 (d) which states that a person ceases to be a director as soon as—

“a registered medical practitioner who is treating that person gives a written opinion to the company stating that that person has become physically or mentally incapable of acting as a director and may remain so for more than three months”.

The directorship will therefore automatically terminate in cases where there is a written opinion by a treating doctor that the director is physically or mentally incapable to continue in the role for more than three months. No agreement of the other directors (as to the termination or as to whether the person in question in fact lacks mental capacity) is needed.

David Wedgwood will discuss incapacitated directors at the STEP conference on 9^th December 2022. To sign up to the event, please click here.