Retirement of Directors by Rotation: Section 152

Retirement of directors by rotation is the mechanism that puts a slice of a public company's board in front of shareholders every year. Section 152(6) of the Companies Act, 2013 fixes how much of the board is subject to it, section 152(6)(c) fixes how many actually retire at each annual general meeting, and section 152(7) decides what happens when the resulting vacancy is not filled. It is why the same board resolution appears in almost every AGM notice.

What proportion of the board is rotational?

Section 152(6)(a) sets the structural rule: unless the articles provide for the retirement of all directors at every annual general meeting, not less than two thirds of the total number of directors of a public company shall be persons whose period of office is liable to determination by retirement of directors by rotation, and shall, save as otherwise expressly provided in the Act, be appointed by the company in general meeting. Section 152(6)(b) says the remaining directors are also to be appointed by the company in general meeting, in default of and subject to any regulations in the articles.

The Explanation to section 152(6) is what makes the arithmetic work in practice: for the purposes of that sub-section, total number of directors shall not include independent directors, whether appointed under the Companies Act or any other law in force. So a listed company's independent directors sit outside both the two thirds and the one third.

How many retire, and which ones?

Section 152(6)(c) applies at the first annual general meeting held after the meeting at which the first directors were appointed under clauses (a) and (b), and at every subsequent annual general meeting. At each of those, one third of such of the directors for the time being as are liable to retire by rotation must retire, or, if their number is neither three nor a multiple of three, then the number nearest to one third.

Worked through with concrete numbers: where nine directors are liable to retire by rotation, three retire, because nine is a multiple of three. Where eight are liable, one third is 2.67, and the number nearest to it is three. Where seven are liable, one third is 2.33, and the number nearest is two.

Clause (d) then names the individuals. The directors to retire at every annual general meeting are those who have been longest in office since their last appointment. The phrase "since their last appointment" matters, because a reappointed director's clock restarts. As between persons who became directors on the same day, those who are to retire are determined by lot, in default of and subject to any agreement among themselves.

Clause (e) confirms that at the meeting at which a director so retires, the company may fill the vacancy by appointing the retiring director or some other person. Retirement by rotation is therefore not a term limit: the same person can be, and usually is, put back.

What happens if the vacancy is not filled?

Section 152(7) sets out a two-stage fallback.

Stage one, clause (a). If the vacancy of the retiring director is not filled and the meeting has not expressly resolved not to fill it, the meeting stands adjourned to the same day in the next week, at the same time and place, or, if that day is a national holiday, to the next succeeding day which is not a holiday, at the same time and place.

Stage two, clause (b). If at the adjourned meeting the vacancy is still not filled and that meeting also has not expressly resolved not to fill it, the retiring director is deemed to have been reappointed, unless any of five things is true:

The Explanation to section 152 records that for the purposes of that section and section 160, "retiring director" means a director retiring by rotation.

Why an investor reads section 152

The rotation rule is the reason board renewal shows up as a routine AGM item rather than an event. Three things are worth reading against it. First, whether a company's articles displace the default by providing for retirement of all directors at every annual general meeting. Second, which directors are retiring, since clause (d) makes it the longest serving since last appointment and therefore predictable. Third, the deemed reappointment rule, because a director who is neither reappointed nor excluded by one of the five exceptions continues in office without a positive shareholder vote.

Section 152(5) adds a related disclosure for listed boards: where an independent director is appointed in general meeting, the explanatory statement annexed to the notice must state that in the Board's opinion the appointee fulfils the conditions the Act specifies for such an appointment.

Where this sits in the disclosure picture

• Appointment of directors under section 152 covers sub-sections (1) to (5) of the same section: the first directors, the DIN precondition, the declaration of no disqualification and the consent to act.
• Individual voting on director appointments covers section 162, which is exception (v) to the deemed reappointment rule.
• Additional, alternate and nominee directors, section 161 covers the appointments made between annual general meetings, which rotation does not reach.
• What is director disqualification under section 164 covers exception (iii) to the deemed reappointment rule.
• What is an explanatory statement, section 102 covers the statement annexed to the notice at which these appointments are put.
• What is a voting results filing is where the outcome of a reappointment resolution becomes public.
• What is a corporate governance report is the quarterly listed company disclosure of board composition that rotation changes.

Flock reports the filings themselves, each stamped with its date and linked back to the exchange or regulator that published it. What any of it means for you is your call to make.