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29 Dec

COMPANY LAW 2.2 ORGANS OF CORPORATE ADMINISTRATION AND MANAGEMENT

CORPORATE ADMINISTRATION, MANAGEMENT AND LIABILITY

ORGANS OF CORPORATE ADMINISTRATION.

A company being an artificial person acts through natural persons whose mind and acts are attributable to the company. See Lord Denning’s dictum in Bolton (Engineering) Co Ltd V Graham and Sons Ltd. Also Lord Viscount Heldane L.C’s Dictum in St. Lennards Carrying Co V Asiatic Petroleum Ltd, where Mr Lennard was held to be the alter ego of the company and directing mind.

From Section 63[1] and 64 CAMA, we can note that the organs of the company are:

  1. The Members in General Meeting:
  2. The Board of Directors.

Note Section 37 CAMA, 65, Salomon V Salomon.

THE MEMBERS IN GENERAL MEETING: Comprises the shareholders. They are entitled to attend the meeting and vote thereat. The MGM exercises the residuary powers of the company.

Section 63(1). Section 211-Section 237. They pass resolutions. Kinds of Meetings:

  1. Statutory
  2. Annual general meeting
  3. Extraordinary General meeting

The Statutory Meeting: Section 211. Prescribed for public companies. It is the first meeting of the company to be held within the first 6 months of its incorporation after which a Statutory Report of the meeting is forwarded to shareholders not less than 21 days and also to CAC. Section 212 contains penalties for non-compliance. There should be independent valuation.

Annual General Meeting: Section 213. The Yearly meeting of the co. Not more than 15 months should elapse between one and the other. Look at sub 1(a). Although the CAC may extend the time. Both ordinary and special business are transacted in the AGM-Section 214 ordinary business may include; declaring dividends, presenting financial statement, appoint and fix auditors, etc.

Extraordinary General Meeting: To take care of things which cannot wait till the next Annual GM comes. The BOD may decide to convene an EGM. See Section 215. Section 216 provides that all SGM and AGM shall be held in Nigeria.

Notice of meetings in Section 217-221. 21 days notice must be given. This notice should clearly intimate them of the venue, time, items to be discussed, etc.

A creditor can insist on having a notice of meeting by having a stipulation to this effect in the debt contract.

 

Notice of Meeting: Section 221 deals with failure to serve notice. Those that are entitled to receive notice should be served notice. Non-compliance can invalidate the meeting. Longe V FBN.

Voting: in the Meeting. Decisions may be either by a show of hand (based on number that indicate that they are in support/against) or by poll (vote based on shares) see S 224..

Before the chairman of the meeting declares result of voting from show of hand, a member can request for a poll (vote based on shares).

Proxies: Section 230. A proxy is a person appointed by a shareholder to represent him at meetings. Steps into his shoes. Where it is a corporation/company that appoints, he is called a representative-Section 231

Quorum: The meeting is to reach a quorum (1/3 of total members) before they can start-Section 232.

Resolutions: The resolution may be special or ordinary-Section 233-238. Ordinary resolution requires just simple majority. Special requires ¾ i.e. 75 percent. Resolutions are passed at the general meeting-Section 234 and filed with the CAC where required-Section 233. Section 235. E.g. Resolutions are required for increase and reduction of capital[2], appointment of Directors, alteration of articles and so on.

Special Notice: Section 236 mandates that where special notice is required by the Act, it must be served. Special notice would be required for appointment of directors above 70 years[3], removing a director or to appoint some other person in his stead[4], for appointment, filling casual vacancy, reappointing and retiring auditors before the expiration of his term[5]. For special notice, a minimum of 21 days (to members then 28 to the company) is required. See Longe V FBN.

Minutes of Meeting: For every meeting there should be minutes of meeting which should subsequently be kept in company’s registered office.. The minutes constitute a record of what happens during the meeting. International Agricultural Industries (Nig) Ltd V Chika Brothers Ltd.

 

THE BOARD OF DIRECTORS: “directors” are defined in Section 650 to include person occupying the position of director by whatever name called and includes any person in accordance with whose directions or instructions the directors are accustomed to act”. Section 244 defines directors as persons duly appointed by the company to direct and administer the business of the company. Professor Gower sees them as “an expert body of directors who manage other people’s property for them”. The controller of the company’s affairs-Per Mccardis J.N, Morality V Regent’s Garage and Engineering Co Ltd. Directors are appointed by the Members in General Meeting[6] to oversee the day-to-day business of the company. Their powers shall be determined by the company’s articles[7]. The board must have a membership of at least two directors[8]. The BOD could delegate their functions/powers to the Managing Director(s) whom they appoint[9]. His powers shall be determined based on the terms of his appointment-Harold Holdsworth and Co (Wakefield) Ltd V Caddies: Read V Astoria Garage (Streatham) Ltd. Such MDs must be duly appointed and the termination of their appointment must follow due process and be in accordance with terms of appointment-Nelson V James Nelson and Sons Ltd. Section 262 empowers the company to remove a director even before the expiration of his tenure notwithstanding anything in the article or agreement to the contrary. But he can sue for damages for wrongful dismissal.

It is necessary to determine the definition of a director and ascertain their exact legal status or position. Professor Olawoyin[10] noted that directors have been variously described as agents, trustees, quasi trustees, employees, servants, paid servants, paid managers, managing agents, managing partners, organs and controllers of their companies… the relationship of the director, though akin to all these in some respects is not on is sui generis…”. He posits that the office is of a multifarious character and he concluded that “the director neither fits in completely with any of the positions”. Meaning that it is not on all fours stricto sensu with either of the categorization or terminology. Jessel M.R in Re Forest of Dean Coal Mining Co Ltd, noted that “it does not matter what you call them (company officers) so long as you understand what their true position is”. What matters is that they stand in a fiduciary relationship[11] Regal Hasting Ltd V Gulliver 1946 1 Al ER 378. Industrial Development Consultants Ltd V Cooley 1972 1 WLR 443. Canadian Aero Services V Omalley 1973 40 DLR 3D 371. BCE V 1976 Debenture Holders 2008 3 SCR 560. Boardman V  Phibbs 1967 AC 46. Official Secrets should not be used by Director-Section 280 British Industrial Plastics V  Ferguson 282(duty of care) 284. 287(on secret profit) 288, 290, 289. Also Section 283 which entitles the co to recover company’s money which the director took. Standard Chartered Bank V  Pakistan National Shipping Corp No.2. note Section 93.

Is the Officer a Trustee? Although the director (just like a trustee) is in a fiduciary relationship with the company and is always expected to act in good faith and for the benefit of the company. Unlike the trustee who has legal estate in trust property, the legal estate in the company is not vested on the director.

Agent?: although the usual powers and duties appertaining to an agent may also be applied to the director, he is not strictly an agent. A mis-description of a company’s name may translate in the agreement not binding on the company in the case of a director. This may not be so for an agent[12].

Lord Russell in Regal (Hastings) Ltd V  Gulliver noted that the directors occupy a position peculiar to themselves. *See the discussion above on types of directors.

Every company must keep at its registered office, a register of its directors and secretaries (containing names, address, occupation, etc.). Section 292, 275.

Share Qualification: there may[13] be a stipulation that a person must hold a minimum number of shares in the company to qualify as director. This is to ensure that the director has a material interest in the success of the company. Section 251(2) CAMA stipulates a maximum period of 2 months within which the director must purchase shares[14] to qualify as director else vacate his office. In Craven-Ellis V  Canons Limited, failure to purchase meant that the appointment had lapsed. Although the court held that he was entitled to remuneration in quantum meruit based on what he had done so far.

Disqualification/Vacation: Section 257 and 258 draws a distinction between disqualification and vacation. The former renders a person ineligible to join the board while the latter erodes the right of one who is already on the board from continuing to remain therein. The following persons are disqualified: -minors (below 18), -Lunatics, -convict for fraud/breach of duty (except leave of the court is gotten), -a corporation (other than its representative appointed to the board for a given term), -a person who has attained the age of 70 (unless appointment is approved in a general meeting by a resolution of which notice specifying age is given-Section 256). The articles may impose further disqualifications.

The office of Director may be “vacated” (Section 258) if he ceased to be a director having not obtained the prescribed share qualification, becomes bankrupt, unsound in mind, becomes prohibited pursuant to Section 254, resigns, retires by rotation, removal under Section 262.

Removal: Section 262 applies to director appointed for a specific or fixed period other than for life-Iwuchukwu V  Nwizu. Here a company is empowered to remove a director (by ordinary resolution of general meeting) before the expiration of his period of office notwithstanding anything in the articles or agreement prohibiting same. The procedure is that:

  • Due notice must be served to the director to be removed.
  • Special notice (i.e. 28 days) shall be given to the company and the company shall give the members 21 days notice of such proposal to remove the named director.
  • The director is entitled to give his defence (maybe sent to members[15] or read at the meeting). The director can then be removed by ordinary resolution and such is intimated to CAC through filling and filing Form CO.7 within 14 days of removal.
  • The director is entitled to compensation or damages.
  • Another director may be appointed to replace the vacancy created by the removal of a director in the same meeting.

In Bernard Longe V  First Bank of Nigeria, the termination and removal of Longe as managing director was held to be unlawful and void for not following the due procedure. He was not duly notified of the meeting where was to be removed. The High Court and Court of Appeal rejected his claim but the Supreme Court accepted his appeal vitiating removal on ground of improper service. Noting that the possible defences available under Section 266 include that the director was given the notice of the meeting, the person involved ceased to be a director and that the person involved is disqualified under Section 257 from getting the notice. Where the power to remove a director is specifically conferred by the articles on an individual, it appears that the provisions and procedure of removal in Section 262 may not apply. Note also Odusola Holdings Ltd V  Ladejobi 2006 12 NWLR 321

Remuneration: remuneration of directors may be determined from time to time by the GM OR may be fixed by the Articles. Note however that the company is not bound to pay remuneration but must reimburse directors for expenses they incurred in the course of furthering the business of the company. Where remuneration is provided for, unpaid remuneration can be regarded as debt payable out of the asset of the company. Remuneration fixed by the article shall be alterable only by special resolution-Section 256(3). Section 267 provides that (1)

See Section 279, Section 284, Section 263 n 266 stipulate certain managerial duties for the Directors.

Types of directors: a director may be executive or non-executive. The non-executive does little or nothing just merely attends a reasonable number of board meetings-Section 245 246 and 247. Executive directors are those who in addition to their roles as directors hold executive or managerial position to which they are appointed by the board-Longe V  First Bank Nigeria Ltd. The top of the executive director is the MD. We also have “shadow directors” (on whose instructions the directors are accustomed to act-Section 245). There are also “alternate directors” who can be appointed by a director to seat in his stead (subject to the articles of association). Generally, a person above 70[16], an insolvent[17] should not act as director.

Number of Directors: at least 2 directors-Section 246 CAMA. The Articles should provide the min and max-Re Alma Skimming Co (1889). Section 93. They are to comply with statutory requirements or face sanctions-Section 386 (for directors who knowingly pay out dividend out of capital). Section 506 penalises fraudulent trading

Appointment: exercisable in the manner provided in the Articles. They are generally appointed by the members in the general meeting[18]. Note however that a company cannot be a director-Section 257(d) but can have its representative appointed as director. Directors are removable at any time in manner prescribed by Section 262 CAMA.“First Directors” these are those appointed in writing by the subscribers of the memorandum-Section 247. In Onwuka V  Tymani, oral appointment was invalidated.

Casual Vacancies: where the seat of a director becomes vacant otherwise than by the expiration of the term of office (e.g. death, resignation, removal or disqualification). The BOD or MGM can appoint a person to fill the causal vacancy until the next general meeting-Barron V  Potter.

Loan to Directors: Section 270 makes it unlawful for a company to grant its directors loan. As loans to directors have the potential of undermining capital and resulting in a conflict of interest. There are however exceptions contained in the Section.

Loans may be granted to provide funds to enable the director meet expenditures incurred for the purposes of the company or enable him to perform his duties properly.

BOD V  MGM… WHO LEADS?

The Directors at common law were originally conceived to be mere agents of the company[19]. Odusola Holdings Ltd V  Ladejobi 2006 12 NWLR 321.In Automatic Self-cleansing Filter Syndicate Co Ltd V  Cumminghame[20], the court maintained a neutral position by holding that Shareholders (i.e. MGM) should not intrude in the director’s exercise of powers. In Marshals Valve Gear Co Ltd V  Manning Wardle and Co Ltd, the court was in favour of the shareholders.

:: The CAMA now makes the answer to this question dependent on what the Article says.

In John Show and Sons Salphored Ltd V  Peter Slaw and John Shaw, the court also maintained that the directors were not bound to receive instructions from the MGM where they are exercising the powers vested in them by the Articles. However, the MGM can alter the articles to promote them above the directors[21] or refuse to re-elect the director(s). Furthermore Section 262 empowers the MGM to remove a director at any time by special resolution. They may also invoke Section 311. It thus seems that the MGM wields more powers. But still, the answer depends on what the articles say.

:: Article 80 of Table A provides that the Directors shall manage the business of the co. Scott V Scott interference with director’s duties was frowned upon. In Quin and Astens V  Salmon, the articles required the consent of two managing Directors for the sale of a premises. One manager dissented. The MGM by a simple resolution purported to ratify the board resolution. The court granted an injunction to restrain such as the consent of the director was necessary.

:: (Subject to restrictions in the Act and Articles)The BOD shall not be bound to follow the directions/instructions of the members in general meeting provided they are performing their duty in good faith and due diligence. In essence, directors must be given a free hand in the execution of their functions.

Note however that (by the combined provisions of the CAMA and various cases[22]) the MGM have residuary powers and may act in the following instances:

  • Where the Board of Directors are disqualified or unable to act due to deadlock.
  • The MGM can institute legal proceedings in the name, for and on behalf of the company if the board neglects to do so.
  • The MGM can ratify or confirm actions taken by the BOD-Bamford V Bamford. Section 66 Kelner V   Section 197 and 69
  • The MGM can make recommendations to the board regarding action to be taken by the board.
  • The MGM can act where there is no functioning board[23] or board cannot make a quorum[24].

 

 

 

LIABILITY OF THE COMPANY FOR ACTS OF ITS OFFICERS.

 

 

The organic theory developed by Lord Heldane in St Lennard Carrying Co v. Asiatic Petroleum Co Ltd (supra) and Bolton Engineering Co Ltd V  Graham and Sons Ltd. Furthermore, RBB V  Turquhand and Spasco Vehicle and Plant Hire Co V Airlane Nigeria Ltd, transactors need not inquire as to regularity of internal proceeding or indoor management. The authority of the Director (just like an agent) can be express, implied, apparent or ostensible depending on the facts and circumstances of the case. E.g. in Hely-Hutchinson V Brayhead Ltd the acting managing director usually did not seek prior authorization while making large transactions on behalf of the company. Held that in this instant transaction, the company was bound since they had acquiesced. In Freemen and Ylockyer V Buckhurst Park Properties (Mangal) Ltd, K who though was not appointed was (to the knowledge of the board) acting as managing director. Held that in the instant transaction, the company was bound for acquiescing. Outsiders can presume that the director was duly appointed. (except there was no appointment in the first place-Norris V Kanssen). In essence, the Rule in Royal British Bank V Turquand[25]: is to the effect that a third party who deals with a company in reliance with its public documents is entitled to assume that all matters of internal management had been complied with. This rule has been enacted in Section 69[26] CAMA 1990 which enshrines the presumption of regularity for the purpose of protecting third parties dealing with the company. This rule has been applied in Metalimpex V A.G Leventis and Co Nig Ltd[27], Trenco (Nig) Ltd V African Real Estate Ltd[28].

Exceptions to the Rule in RBB V Turquand:

  • Where there are suspicious circumstances which ought to put the third party on enquiry- Underwood Ltd V Bank of Liverpool and Martins (in this case, the sole director and principal shareholder paid into his own account, cheques drawn in favour of the company. held that the unusual nature of the transaction ought to have put the third party on notice). On this, see also Craven-Ellis V Canons Limited: Obaseki V African Continental Bank Ltd[29].
  • Where the third party knows of the internal irregularity-Howard V Patent Ivory Manufacturing Co[30]. Also Morris V Kansen
  • Where the documents relied on by the third party is a forgery-Reuben V Great Fingall Consolidated Company.
  • Where it is a transaction between the company and one of its directors.

 

 

[1] Which provides that the co may act through its members in general meeting or its board of directors.

[2] Section 100.

[3] Section 256.

[4] Section 262.

[5] Section 364.

[6] Pursuant to Section 246-248.

[7] They cannot however do what the company itself could not do.

[8] Section 246.

[9] See Section 64 CAMA.

[10] Olawoyin, G.A, Status and Duties of Compnay Directors (University of Ile Ife Press, Ile-Ife, 1981) P.28.

[11] Re City Equitable Fire Insurance Co.

[12] Western Nigeria Finance Corporation V West Coast Builders Ltd.

[13] This may be provided in the Articles.

[14] Either in his name or as a trustee.

[15] Court may prevent sending to members if satisfied that defamatory statements may be circulated.

[16] Section 251.

[17] Section 253.

[18] Though the article can provide that the directors (or even an outsider) can appoint.

[19] Isle of Wright Railways V Tahourdin.

[20] In this case, the Articles vested the general management on the BOD. The MGM passed a simple resolution to sell the company’s assets. The court held that the BOD are entitled to refuse to comply with this decision. Also Gramophone Typewriters Ltd V Stanley.

[21] Section 48 CAMA. Provided that no alteration would invalidate any prior act of the BOD which would have been valid if that alteration had not been made

[22] The ones listed above, Alexander Ward Co Ltd V Samyang Navigation Ltd, Re Argentum

[23] Okeowo V Milgore.

[24] Poster V Poster,

[25] 1856, 6E and B 327, 25 Law Journal QB 317. In this case, the directors of the company borrowed money from a bank. It was held that the bank need not prove that there had been a resolution authorising the directors to borrow.

[26] Presumption that company’s memorandum and articles have been duly complied with, officers duly appointed to exercise the power it is carrying out and so on.

[27] (1976) 2 Section 91 (1976) UILR.

[28] (1978) 1 LRN 146.

[29] 1966 NMLR 35.

[30] (1888) 38 Ch. D 156.

Isochukwu

Quite eccentric really

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