CORPORATE LAW PRACTICE WEEK 14- CORPORATE GOVERNANCE 5 (MINORITY PROTECTION AND INVESTIGATION OF COMPANIES)
WEEK 14- CORPORATE GOVERNANCE 5:
MAJORITY RULE, MINORITY PROTECTION AND INVESTIGATION OF COMPANIES.
:: THE PRINCIPLES OF CORPORATE SOVEREIGNTY AND THE RULE IN FOSS V HARBOTTLE. Pursuant to the notion that a company is a separate entity (as upheld in Salomon v Salomon and Section 37[1]), The principle in Foss v Harbottle stipulates that only the company can ratify an irregularity or sue to remedy a wrong done to it. Yalaju Amaye v AREC. Edopkpolor and Co v Sem-Edo Wire Industries Ltd.
:: MAJORITY RULE: majority carries the day. Usually by resolutions.
:: MINORITY PROTECTION. In certain qualified instances.
:: WAYS MINORITY PROTECTION ACTIONS CAN BE CONSTITUTED/FORMULATED.
- Members’ Direct Action (Section 300) for Injunction or Declaration to restrain: – the company from entering illegal or ultra vires transaction, the company from circumventing special resolution (Edwards v Halliwel), – any action affecting the applicant’s individual right as a member, -committing fraud on the company or minority shareholders (Cooks v Deeks), -where a co meeting cannot be called in time to redress the wrong, -where directors are likely to have profited from their breach or negligence.
- Representative Action: members who share common interest in the matter can with leave of the court nominate person(s) to represent them in court.
- Derivative Action: bring an action in the name or on behalf of the company-Section 303. By originating summons with leave of court, verifying affidavit, and written address. The affidavit must show: the directors of the company who are also wrong doers refused to address the illegality after notice; a notice of intention to approach the court was given to the directors; the applicant (who may be a past or current member or director) is acting in good faith and in the interest of the company. The company and directors should be joined as defendant.
AGIP Nigeria v AGIP Petroli International.
- Petition for a relief on the Ground that the affairs of the company are being conducted in an oppressive and Unfairly Prejudicial manner[2].
- Winding up on Just and Equitable Ground.
- Application to CAC for investigation of the Company.
:: INVESTIGATION OF A COMPANY AND IMPORTANCE OF INVESTIGATION. The CAC can investigate into how the company’s affairs are being run to ensure good practices.
:: PROCEDURE AND CONSEQUENCES OF INVESTIGATION.
- Investigation could be instigated or initiated pursuant to (314 and 315):
– application/petition of Members of not less than 25 percent shareholding or number (for co without shares), – application by the company itself; – Court Order or Commission on its own volition/discretion on grounds of fraud, unfairly prejudicial conduct, illegality, misfeasance, unfairness to members, etc. Spectre v Stabilini Visionini Ltd.
- Competent inspector(s) is/are to be appointed and shall make a report.
- The CTC of inspector’s report can form basis or evidence of CAC’s bringing civil proceedings on behalf of the company or winding up petition and Criminal proceedings by the AG Section 321-325. The commission can also conduct investigation on the company’s ownership and determine the true persons in control or financially interested in the success or failure of the co Section 326.
[1] Veil would be statutorily lifed where number of members is below legal minimum, directors is below 2, Fraud by officer of a company, misappropriation of loan/money-Section 290 , investigation into related companies, political donations, etc.
[2] A member, director/officer (present and past), a creditor, CAC or other person permitted may apply by petition.
