CORPORATE GOVERNANCE

 (I): OFFICERS OF COMPANY – (DIRECTORS AND SECRETARY)

DIRECTORS

The meaning of directors is defined under section 244(1) of the Companies and Allied Matters Act, Cap C20, LFN 2004 as persons duly appointed by the company to direct and manage the business of the company.

The management of a company is the prerogative of a small group of persons called directors, such director manage the affairs of the company.

However, if a person not duly appointed as a director acts in the capacity of a director, he is guilty of an offence and punishable by imprisonment of fine, or both, and the company can restrain him from continuing to act – section 244(3) of CAMA. In such instance, his act will not bind the company and he will be personally liable – section 250 of CAMA. But, where it is the company that instructed him, his acts shall bind the company – section 250 of CAMA, and he and the company may be restrained unless he is duly appointed – section 244(4) of CAMA.

In Bolton (Engineering) Co. Ltd v. Graham & Sons (1957) 1 Q. B 159, Lord Denning stated that:

“A company may in many ways be likened to a human body. It has a brain and nerve centre which controls what it does. It also had hands which hold the tools and act in accordance with directions from the centre. Some of the people in the company are mere servants and agents who are nothing more than hands to do the work and cannot be said to represent the mind or will. Others are directors and managers who represent the directing mind and will of the company, and control what it does…”

A director includes any person occupying the position of a director by whatever name called. In Re Forest of Dean Coal Mining Company (1878) 10 Ch. 450, Jessel M. R stated thus:

“Directors have sometimes been called trustees, or commercial trustees, and sometimes they have been called managing partners. It does not matter what you call them so long as you understand what their true position is, which is that they are really commercial men managing a trading concern for the benefit of themselves and all other shareholders in it.”

The courts have held that by virtue of section 244, directors are persons appointed or elected according to law, authorized to manage and direct the affairs of a corporation or company – Longe v. First Bank of Nigeria Plc (2006) 3 NWLR (Pt. 967) 228 at 270; Baffa v. Odili (2001) 15 NWLR (Pt. 737) 709 at 737; Olufosoye v. Fakorede (1993) 1 NWLR (Pt. 272) 947.

TYPES OF DIRECTORS

1.      Shadow directors – This is defined under section 245(1) of CAMA as any person on whose instructions and directions the directors are accustomed to act. What this implies is that a shadow director is never appointed by anybody. His existence is by the operation of the law and only for the purpose of making him liable in the circumstances provided by CAMA. He is not entitled to the benefits, rights and responsibilities of directors generally. In Secretary of State for Trade and Industry v. Deverell (2000) 2 BCLC 133, Morritt L. J stated that the purpose of defining directors to include shadow directors is to identify those, other than professional advisers, with a real influence on corporate affairs.

2.      Executive or Special directors – This is a person who has a contract of employment with the company. He is an employee of the company whose status has been raised to that of a director but who continues essentially as such employee, e.g. a sales director. His appointment, tenure, power, rights, duties and discipline are regulated by the Articles of Association as well as his contract of service with the company. However, he may be elevated to full directorial status – Longe v. First Bank of Nigeria Plc. (supra) at 261-262. Thus, he is both a member of the company and a director, that is an employee and a member of staff – Cyclists Touring Club v. Hopkinson (1910) 1 Ch. 179.

3.      Alternate directors – This is a person appointed by a director to act in his place during his absence. This was emphasized in Baffa v. Odili (supra) at 747, where the distinction between a ‘director’ and an ‘alternate director’ was  stated that an alternate director is appointed by a substantive director where it is provided in the Articles of Association of the company, and the alternate director sits in for his substantive director when the substantive director cannot attend the meeting.

4.      Managing directors – This is a person who is appointed by the directors of the company and can also be removed by the Board – section 64(b) of CAMA. He ceases to hold office if for any reason he ceases to hold office as a Director – Yalaju-Amaye v.   Associated Registered Engineering Contractors Ltd. [1978] 1 LRN 146; [1978] All NLR 124; (1978) 11 NSCC 220.

5.      Assignee directors – This is a person who unlike an alternate director is appointed to a permanent delegation of powers and duties.

6.      Interloper/Intermeddler director – This is a person who is not duly appointed but acts or holds himself out as director of the company – section 245(3) & (4); Dipcharima v. Alli (1974) 1 All NLR 420.

DUTIES OF DIRECTORS

Directors have a general duty to manage the company to display utmost good faith in accordance with the provisions of the law and the constitution of the company – section 279(1) of CAMA. Thus, directors are liable to the company for loss caused by their illegal or ultra vires acts – Wallersteiner v. Moir (1974) 1 WLR 991.

The relationship between a company and director is that of agent and principal. Thus, directors as agents owe two major duties to the company viz: fiduciary duty; and duty of skill.

FIDUCIARY DUTY

Directors occupy a fiduciary position in the exercise of their management powers. Section 279(2) of CAMA states that a director shall owe fiduciary relationship with the company where he is acting as agent of a particular shareholder; and where even though he is not, such a shareholder or other person is dealing with the company’s securities. Thus, it means that they also owe a fiduciary duty to shareholders also.

A director of a company stands in a fiduciary relationship towards the company and shall observe utmost good faith towards the company in any transaction with it or on its behalf – Okeowo v. Milgore (1979) 11 SC 133, Per Eso JSC.

There are however several aspects of fiduciary duties owed which are:

a)      Duty to exercise power for the benefit of the company – He must display utmost good faith in exercising such powers which must be intra vires – Hogg v. Cramphom Ltd. (1967) Ch. 254. It is not enough that the transaction is honest. If it is not in the best of the company, it shall not be binding on the company – section 279(3) of CAMA.

b)      Duty not to fetter freedom to exercise discretion – He shall not restrict their right to exercise their duties and powers freely and fully. Thus, it will be a breach of this duty for directors to contract with one another or third parties as to how they shall vote at future board meetings – section 279(6) of CAMA. In Clark v. Workman (1920) 1 Ir. R. 107, it was held that the directors of a company must act strictly as trustees in carrying through transfers of shares, unfettered by any undertaking or promise to any intending purchaser.

c)      Duty not to allow his personal interest to conflict with that of the company – He must not place himself in a position where there is conflict of interest between him and the company – Mavitex Ltd. v. Bufield (1988) BCLC 104; unless the company consents. He must duly account to the company for any gifts or commission received from outsiders who he has had dealings with. He shall also be accountable to the company for any secret profits made by him – section 280 of CAMA; Boston Deep Sea Fishing Co. v. Ansell (1888) 39 CH. D. 339.

DUTY OF CARE AND SKILL

Under the duty of care and skill, section 282 of CAMA has replaced the Common Law rule of duty of care and skill that enables a director to be idle or to decide to attend all meetings or not as long as he can delegate his duties.

Section 282(1) provides that every director shall exercise the powers and discharge the duties of his office honestly, in good faith and in the best interests of the company, and shall exercise that degree of care, diligence and skill which a reasonable prudent director would exercise in comparable circumstances. Section 282(3) went further to state that each director shall be individually responsible for the actions of the board in which he participated, and the absence from board’s deliberations, unless justified, shall not relieve a director of such responsibility.

In effect, the new law under CAMA is to the effect that the standard of care required from a director is an objective one, that is, it is a fixed standard depending on the skill and knowledge a reasonable, prudent director of his class would exercise if faced with similar circumstances.

REMEDIES FOR BREACH OF DUTY

A breach of any of the above stated duties by a director may lead to an order of one or more of the following reliefs which is mainly available under the principles of common law and equity –

1.      Injunction or declaration; or

2.      Damages or compensation (referred to in the provisions of CAMA as cost); or

3.      Restoration of the company’s property where traceable; or

4.      Rescission of the contract occasioning the breach; or

5.      Account for profit; or

6.      Summary dismissal.

ENFORCEMENT OF DUTIES OF DIRECTORS

The responsibility of enforcing the duties of directors is in the hands of the company because the directors are the alter ego of the company saddled with the responsibility of management of the company.

The usual way to enforce such duties is for the directors to be removed from office under section 262(1) of CAMA. It also provides for the following remedies –

1.      Petition for winding up of the company on the company on the ground that it is just and equitable to do so – section 408(e) of CAMA.

2.      Relief on the ground that the affairs of the company are being conducted in an illegal and oppressive manner – section 311 of CAMA.

3.      Misconduct of proceedings against a director. Where there has been misappropriation of funds by the directors, an application may be made to court to compel him to repay.

APPOINTMENT OF DIRECTORS

Every company registered on or after the commencement of CAMA shall have at least two directors and every company registered before that date shall before the expiration date of six months from the commencement of CAMA have at least two directors – section 246(1) of CAMA.

Directors may be appointed in the following ways –

1.      By subscribing to the memorandum of association.

2.      By naming the first directors in the article of association.

3.      By an ordinary resolution of the members at a general meeting – section 247 of CAMA.

4.      By members at annual general meeting re-electing in case of death of a director – section 248 of CAMA.

5.      By the board of directors, in the event of a casual vacancy arising out of death, resignation, retirement or removal – section 249(1) of CAMA.

DISQUALIFICATION OF DIRECTORS

1.      Persons disqualified under sections 253, 254 and 258 of CAMA;

2.      Infants, that is, those under the age of 18 years;

3.      Persons of unsound mind or lunatic; and

4.      A corporation other than its representative appointed to the board for a given term.

ELECTION OF DIRECTORS OR QUORUM OF DIRECTORS

It is the articles of association of the company that fixes a quorum generally. Unless the articles provide to the contrary, the quorum of directors necessary for the transaction of the company is 2 (two) in cases where there are not more than 6 (six) directors. But where there are more than 6 directors, the quorum shall be one-third of directors, and where the number of directors is not a multiple of 3 (three), then the quorum shall be one-third of the nearest number.

In all the directors’ meetings, each director shall be entitled to one vote. Any question arising at any meeting shall be decided by a majority of votes, and the chairman shall have a second casting of votes in case there is a tie. However, if the stipulated quorum is not met, the meeting held will be irregular and the proceedings of the board will be invalid – sections 263 and 264 of CAMA.

Where the board is unable to act due to lack of quorum, the general meeting may act in place of a board meeting – section 265 of CAMA.

RETIREMENT OF DIRECTORS

This is not expressly provided for in CAMA but it can be implied that a director who has attained the age of 70 (seventy) will retire, unless the appointment is made or approved by the general meeting after special notice have been given to the company and its members – section 256 of CAMA.

REMOVAL OF DIRECTORS

The procedure for removal of directors can well be explained below which is provided under section 262 of CAMA. –

1.      Check to find out if direct and simpler power of removal other than Section 262 is provided by the Articles or contract and apply it if available.

2.      The person(s) wishing to remove the director must issue(s) notice of the resolution to the company at least 28 days before the date of the meeting – section 236 of CAMA.

3.      Upon receipt of the notice, the Secretary to the company will:

(a)              send a copy of it to the director concerned;

(b)              issue notice of the meeting at least 21 days before the date of the meeting.  The notice will be accompanied by any representations made by the director and state the fact of the representations having been made.

(c)              At the meeting:

                                                                          i.            give audience to the director and read to the members his representations if they were received too late or were not sent to the members owing to the company’s default.

                                                                        ii.            Pass ordinary resolution removing the director.

(d)             File form of particulars of directors and of any changes therein, that is, Form CAC 7 to the CAC to reflect the removal within 14 days of remove.

(e)           Enter the fact of removal in the Register of Directors and where necessary also amend the Register of Directors’ Shareholding – Yalaju-Amaye v.   Associated Registered Engineering Contractors Ltd. [1978] 1 LRN 146; [1978] All NLR 124; (1978) 11 NSCC 220.

REMEDIES FOR WRONGFUL REMOVAL OF A DIRECTOR

Where a director feels he has been removed wrongly, he may sue for –

1.      Declaration for wrongful removal.

2.      An injunction restricting the company from the continued removal and barring him from entering the premises.

3.      Damages for breach of contract.

4.      Compensation – section 262(6) of CAMA.

SECRETARY

By the joint provisions of sections 293(1) and 294 of CAMA, every company shall have a secretary and the same person cannot act as both secretary and director.

The secretary is a high-ranking officer of the company and usually part of the management. However, anything required or authorized to be done by or of the secretary may, if the office is vacant, be done by a deputy or assistant secretary, and if there is no deputy or assistant secretary, be done by any officer authorised by the directors of the company – section 293(2) of CAMA.

APPOINTMENT OF COMPANY SECRETARY

Under section 296 of CAMA, a secretary shall be appointed by the directors. And the articles may provide for his term of office and the conditions of his appointment subject to the Act.

QUALIFICATION OF COMPANY SECRETARY

Section 295 of CAMA deals with the qualification of a company secretary.

When it is a private company, the secretary of the company shall be a person who appears to the company to have the requisite knowledge and experience to discharge the functions of a secretary of a company.

When it is a public company, he shall be –

a.       A member of the Institute of Chartered Secretaries and Administrators; or

b.      A Legal Practitioner within the meaning of the Legal Practitioners Act, 1975; or

c.       A Member of the Institute of Chartered Accountants of Nigeria (ICAN); or

d.      Any person who has held the office of a Secretary of a public company for at least 3 years of the 5 years immediately preceding his appointment; or

e.       A body corporate or firm consisting of qualified persons under paragraphs (a), (b), (c) or (d) above.

DUTIES OF COMPANY SECRETARY

Section 298(1) of CAMA provides that the duties of a company secretary shall include the following:

1.      Attending the meetings of the Board of Directors of the company, its general meeting, whether AGM, statutory general meeting or extra-ordinary meeting.  He is also charged with rendering all the necessary secretarial services in respect of the meeting and advising on compliance by the meeting with the applicable rules and regulations.

2.      The Board of Directors have Committees.  When they are meeting, the Company Secretary is the one statutorily empowered to service these meetings.  The Company Secretary is the compliance officer, the liasing officer between the company and the CAC. 

3.      It is the Company Secretary’s duty to keep all statutory books, registers of members, register of debenture holders et cetera.  It is his duty to maintain the registers to ensure that they are properly kept.

4.      Carrying out such administrative and other secretarial duties as directed by the directors of the company.

By the implied provision of section 66 of CAMA, the secretary may also be assigned other responsibilities as an officer of the company either by the general meeting, the directors or the managing directors. But under section 298(2) of CAMA, the secretary shall not without the authority of the board exercise any powers vested in the directors.

DUAL STATUS OF COMPANY SECRETARY

In Barnett Hoares and Company v. South London Tramways Company (1887) 18 QBD 818 at 817, the position of the status of a Company Secretary was described thus:

“A Secretary is a mere servant. His position is that he is to do what he is told and no one can assume that he has any authority to represent anything at all…”

However, in Panorama Development (Guildford) Ltd. v. Fidelis Furnishing Fabrics Ltd. (1971) 2 QB 711, Lord Denning stated thus:

“Times have changed. A Company Secretary is a much more important person nowadays than he was in 1887.  He is an officer of the company with extensive duties and responsibilities….  He is no longer a mere clerk. He regularly makes representations on behalf of the company and enters into contracts on its behalf which come within the day to day running of the company. He is certainly entitled to sign contracts connected with the administrative side and so forth…”

In Nigeria, the courts have generally followed the same approach. Thus, in Okeowo v. Migliore (1979) 11 SC 138; (1979) NSCC 210, Idigbe JSC observed that in Nigerian law, a company secretary is

            “a principal officer of the company.”

Similarly, in Wimpey Ltd. v. Balogun (1987) 2 NWLR (Pt. 28) 232, where the question was whether service of a process on a clerk secretary employee instead of the company secretary was valid, the Court of Appeal held that the service was bad and that “a company secretary is indeed a high ranking officer in the company set up and is indeed part of the management of the company”. The company secretary has also been described as the “administrative officer of the company” – Migliore v. Metal Construction (WA) Ltd. (1978) NCLR 274. And as an officer of the company with important duties and responsibilities – Adebesin v. May and Baker Nigeria Ltd. (1973) FRCR 232.

Thus, a company secretary is both a member of the company, and a high ranking officer of the company.

REMOVAL OF COMPANY SECRETARY

Section 296(1) of CAMA provides for the removal of a secretary.

However, the Board of Directors can no longer arbitrarily remove a Company Secretary from office unless as provided under section 296(2) of CAMA.

THE PROCEDURE FOR THE REMOVAL OF COMPANY SECRETARIES

The procedure for the removal of a company secretary is as follows:

1.      The Board of Directors must serve a Notice on the company secretary stating:

a.   that it is intended to remove him from office;

b.   the ground for the proposed removal;

c.   that he may resign from office within 7 (seven) days; or

d.   that he may make a defence in writing which must be submitted within 7 days.

2.      If after the notice, the secretary neither resigned from office nor made any defence, the Board of Directors may remove him from office and report to the General Meeting at the next meeting.

3.      Where the company secretary makes a defence, written or oral, which in the opinion of the Board of Directors is unsatisfactory:

a.       If the ground on which the secretary is to be removed from office is fraud or serious misconduct, the Board of Directors may remove him from office and report the same to the company’s general meeting.

b.      If the ground on which the company secretary is to be removed is other than fraud or serious misconduct, the Board of Directors shall not remove him but may suspend him from office pending the next General Meeting of the company when the suspension will be reported and the company will take a decision.

If the next general meeting ratifies the suspension of the company secretary from office, he shall be removed from office and the effective date of removal shall be the date the Board of Directors suspended him from office.

It should be noted that the procedure for the removal of Company Secretaries must be strictly complied with – Eronini v. Habo and Ors. (1957) 1 NSCC 17.

(SAMPLE)

RESOLUTION FOR THE REMOVAL OF A DIRECTOR

SOULBEEZ & GRAM LIMITED

No. 3 Bwari Crescent, Bwari, Abuja

The Directors

Soulbeez & Gram Ltd

No. 3 Bwari Crescent,

Bwari, Abuja.

In accordance with sections 262 and 263 of Companies and Allied Matters Act, Cap C20, LFN 2004, I hereby give special notice of my intention to move the following ordinary resolution at a general meeting of the company, to be held not earlier than 28 days from the date of this notice.

ORDINARY RESOLUTION

That ……………………………………….. (name of director) be and is hereby removed from office as a director of the company.

Dated this …………….. day of ………………….

Yours faithfully,

___________________

(sign)

____________________

(name)

RESOLUTION FOR THE APPOINTMENT OF A DIRECTOR

SOULBEEZ & GRAM LIMITED

No. 3 Bwari Crescent, Bwari, Abuja

The Directors

Soulbeez & Gram Ltd

No. 3 Bwari Crescent,

Bwari, Abuja.

I hereby give notice pursuant to sections 246, 247, 248 and 249 of the Companies and Allied Matters Act, Cap C20, LFN 2004, I hereby give special notice of my intention to propose the following ordinary resolution at a general meeting of the company, to be held not earlier than 28 days from the date of this notice.

ORDINARY RESOLUTION

That ……………………………………….. (name of proposed director) be and is hereby appointed as director of the company.

Dated this …………….. day of ………………….

Yours faithfully,

___________________

(sign)

____________________

(name)

RESOLUTION FOR THE REMOVAL OF A SECRETARY

SOULBEEZ & GRAM LIMITED

No. 3 Bwari Crescent, Bwari, Abuja

The Directors

Soulbeez & Gram Ltd

No. 3 Bwari Crescent,

Bwari, Abuja.

In accordance with section 296 of Companies and Allied Matters Act, Cap C20, LFN 2004, I hereby give special notice of my intention to move the following ordinary resolution at a general meeting of the company, to be held not earlier than 28 days from the date of this notice.

ORDINARY RESOLUTION

That ……………………………………….. (name of secretary) be and is hereby removed from office as secretary of the company.

Dated this …………….. day of ………………….

Yours faithfully,

___________________

(sign)

____________________

(name)

RESOLUTION FOR THE APPOINTMENT OF A SECRETARY

SOULBEEZ & GRAM LIMITED

No. 3 Bwari Crescent, Bwari, Abuja

The Directors

Soulbeez & Gram Ltd

No. 3 Bwari Crescent,

Bwari, Abuja.

In accordance with section 296 of Companies and Allied Matters Act, Cap C20, LFN 2004, I hereby give special notice of my intention to move the following ordinary resolution at a general meeting of the company, to be held not earlier than 28 days from the date of this notice.

ORDINARY RESOLUTION

That ……………………………………….. (name of proposed secretary) be and is hereby appointed as secretary of the company.

Dated this …………….. day of ………………….

Yours faithfully,

___________________

(sign)

____________________

(name)