The company's advisers have also resigned, leaving Liberty facing costly compensation payments and yet another "fundamental strategic review". The move has left Liberty without a single executive director after Andrew Garety, who was appointed chairman only last month, resigned along with managing director Ian Thomson.
The two non-executive directors, Brian Perry and Evie Soames, have also quit.
The four directors took the decision after being placed in an impossible position by the rebel investors, who include Bryan Myerson, the South African investor, and the founding Stewart-Liberty family. They requisitioned an emergency meeting to remove them.
As the rebels, backed by the Merchant Navy Pension Fund, spoke for 52 per cent of the votes, it made the outcome a foregone conclusion.
Mr Thomson and Mr Garety had supported Mr Cassidy's plans to spend pounds 43m on redeveloping Liberty's flagship store on London's Regent Street, a project which the founding family feels is too costly.
The two executive directors were both on two-year fixed contracts and will be in line for substantial compensation. Mr Thomson can expect almost pounds 300,000 while Mr Garety is in line for more than pounds 200,000. Mr Cassidy could receive pounds 150,000. It is understood that Mr Garety and Mr Thomson will remain to ensure an orderly handover but they will not be operating on a full-time basis.
The group's entire advisory team, including Barings, Cazenove and Slaughter & May, served notice to quit, fulfilling a promise made before Christmas if Mr Cassidy was removed.
Other institutional investors were incensed at the move, which they say may further erode shareholder value. One senior fund manager said: "I find the whole thing absolutely bizarre. It is farcical and, I think, without precedent.
"We have a majority of the shareholders clearing out the board, when the company is at a critical stage in its development. There is no chief executive and morale must be at rock bottom. Who would want to come in as chief executive. If you came in wearing the wrong colour tie, you could be chucked out."
Liberty did make one appointment yesterday. It has recruited Philip Bowman as non-executive chairman. Mr Bowman is a former finance director of Bass who has been working in Australia with Coles Myer.