The Mental Health (Discrimination) Act 2013 and its effects on the termination of a company Director

The Mental Health (Discrimination) Act 2013 came into force on 28 April 2013 and brought about changes to help protect individuals against discrimination on the grounds of mental health and to destigmatise mental illness.

The Act amended the model articles of association, as set out in schedules 1 to 3 of the Companies (Model Articles) Regulations 2008, to remove certain provisions regarding the termination of a director’s appointment due to mental health issues. The paragraphs removed were 18(e) of Schedule 1, 18(e) of Schedule 2 and 22(e) of Schedule 3. This applies to private companies limited by shares, private companies limited by guarantee and companies limited by shares.

Prior to the act coming into force, the model articles included a provision which stated that a person ceases to be a director as soon as ‘ by reason of that person’s mental health, a court makes an order which wholly or partly prevents that person from personally exercising any powers or rights which that person would otherwise have’.

It is important to note that this wording continued to form part of the articles of any company that adopted the model articles prior to the act coming into force. Although there is no requirement to do so, if these companies wish to remove this clause, its shareholders will be required to pass a special resolution to amend the articles in the usual way. These companies should however be mindful that such articles purporting to terminate the appointment of directors on mental health grounds may be deemed discriminatory.

For companies incorporated using the model articles after the above changes came into effect, it means that in practice companies will need to rely on article 18(d), which provides that ‘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’. In those companies with pre 2013 Articles, the board of directors might wish to amend the company articles to introduce a bespoke article allowing removal of a director by the board. Employment contracts might also need to be amended so as to require medical reports in the appropriate cases.

Alternatively, the shareholders may take steps to remove a director by passing an ordinary resolution through the procedure set out in section 168 of the Companies Act 2006. However, in undertaking that process they would need to take advice so as to ensure that they are not exposed to a discrimination claim. The Mental Capacity Act 2005 and Disability Discrimination Acts suggests that persons should be supported and reasonable adaptations made so as to facilitate their full participation. Only if it is clear that they are not capable of undertaking the role could they be removed, without exposure to a claim.

The loss of a director’s capacity may have far-reaching consequences for companies and it is therefore important to have a robust contingency plan in place. Lasting Powers of Attorney (LPAs) may provide protection in some circumstances, but not all. For example, if you are a sole trader, it is possible for an attorney to take control and continue business. If you are a partner in a partnership, the position will be dictated by the partnership agreement. If you are a director of a limited company, a LPA will not suffice as a director’s duties are personal, meaning they cannot be vested in an attorney.

If you require advice on similar issues, please feel free to give us a call on 0207 940 4000.