When it comes to directors, articles of the company supersede the provisions of CAMA.

 So their rights duties and tenure are regulates by the articles of association.

Know how to draft a service contract.

Is he being held out by company. Is he parading himself ? s244 and 250

Olufosoye v Fakorede 1 [1993]- this case states the difference between when a man is parading himself as a director and the company is holding him out as a director.

 In favor of the third party there is a rebuttable presumption that he was duly appointed. It is always a question of fact, if he’s the one parading himself he assumes personal liability and the company would not be liable. The company can also restrain him from acting, see S244 and 250.

 

Types of director and appointment

The duties are the same on all them imposed by law

• Managing director and other executive directors. – usually they have a service contract. Managing director are usually employed from the members, employees of the company and directors. They manage the day-to-day affairs of the company.
• Appointed by other directors: s263(5
• dual role – servant and director

 

life or permanent director – s 255

He can be removed at any time, s 262

Managing director can be removed at any time by the board of directors, this doesn’t stop him from still being a director.

 

Where a company acts a director to another company, that company has the right to appoint another person that would act as its nominee/representative.

 

Alternate director doesn’t receive notices, rather it goes to the substantive director. The substantive director is expected to file the details of the alternate director to the company.  The alternate director vote. All the rights of the substantive director are bestowed on the alternate director but the alternate director cannot be voted for. However a nominee can be voted for, this is because he’s representing a company.

Where there is no provision for the appointment of alternate directors in the articles of the company, then an alternate director cannot be appointed.

 

Shadow director

-

 

Life director

This director can be removed but is not subject to rotation. He does not submit himself for re-election.

 

Chairman

He is also a director only he presides at company and director’s meetings. A chairman must be a director. May or may not be executive. In case of an equality of votes, the chairman shall have a second or casting vote. Section 240(4) and 263(2)

 

Non – executive directors

Usually part-time but does not need a service contract. Neither do they earn salary but are paid out-of-pocket expenses. The out-of-pocket expenses is fixed by members at annual general meeting.

He is not the servant of the company but the company’s alter ego

 

Number of directors

• Minimum of 2 directors for all companies excluding minors
• Company is at liberty to impose a greater minimum in its articles of association. Also another legislation governing the industry of company may prescribe another minimum
• The board of directors may increase the number of directors as long as it does not exceed the maximum allowed by the articles
• But the general meeting shall have the power to increase or reduce the number of directors generally and may determine in what rotation the directors shall retire. Provided that such reductions shall not invalidate the prior acts of the removed director – s 249(3)

 

Where the number of directors are less than two

Such company is given one month to appoint new directors and if it fails to do this, it shall not carry on business after one month until new directors are appointed: section 246(3). The sole director who is carrying on the business assumes personal liability if breach extends beyond 60 days. So the director would be liable for all just debts and liabilities incurred by the company during that period when the company so carried on business.

 

Appointmentof first directors

Named by the subscribers or named in the articles on the formation of the company, consent: s 247- For the appointment to be valid it must be consented to by the directors. In some articles it is provided that for directors to qualify as such they must take up some shares in the company in addition to being named, this is called share qualification - section 251.

 

Subsequent appointment

• Look at articles
• Can other directors appoint? Yes
• Is this subject to confirmation by shareholders?
• Directors to fill casual vacancies subject to confirmation by members at the next AGM?

 

Mode of appointment

• Section 261 (1) subsequent appointments

a private company, can appoint two or more directors by a single resolution. But, for a public company, each director must be appointed by a separate resolution. However, if the company wants to appoint two or more directors by a single resolution, it MUST first pass a unanimous resolution authorizing the use of a single resolution for that purpose.

 

Note that if the board wants to appoint one of its members as executive director or managing director, the procedure is as follows:

• 14 days notice of board meeting
• Board resolution to make appointment
• Presenting the new executive director before general meeting

 

RESOLUTION to appoint directors

• That x(name) and (name) be appointed directors of the company
• Note it does not matter the name a director is called – what are his functions?

 

Subsequent appointment

Subsequent appoint is by members at a general meeting.

Elections or re-elections of directors following retirement by rotation or removal of directors are reserved to the company in general meeting s248(1).

Note: if vacancy is not filled on day of retirement or removal then other directors can fill vacancy subject to ratification by company in AGM

 

 

Death of all directors and shareholders

• Personal representativescan apply to Federal high court to get a court a court order convene a court-ordered meeting for voting and appointing new directors. Section 248(2).
• Failing which the creditors can apply: s 248 (2)
• Alternatively the articles can provide for the appointment of a particular person in such an event.
• Where all the directors die but there are still members, the members have the responsibility of appointing new directors.

 

Summary-ways-appointment

Appointment by a third party pursuant to powers conferred in the company’s memorandum of association.   s41(3) – this is the codification of the English rule in Woodland V Logan

It is also possible for the memorandum to allow outsiders to appoint directors, especially outsiders who have an interests in the company e.g. bankers

 

So three people can appoint directors - The board, the company (general meeting) and outsiders. At the incorporation of the company, it’s the subscribers or articles that appoints the directors.

 

Acts carried out by defective directors are valid.

 

Defective Appointment

A company may wish to repudiate a contract on the grounds that:

• It was made by persons acting as directors who were not directors; or
• It was made by the board of directors (properly appointed) acting either in excess of the company’s legal capacity to contract i.e. an ultra vires contract, or acting within the company’s

As far as transactions/actions with third parties are concerned his actions are valid notwithstanding the defect with his appointment or qualification, this provision is to protect the third party and not to condone the company. S 260. Iwuchukwu v Nwizu & ors

Examples of defective appointment

1. Failure to take up share qualification or

 

Notification of change of director

Inform CAC

 

Particulars of directors in trade catalogues etc.

• Company to state names of directors on its letters, trade circulars and show cards
• On any letter the forename or initial, nationality if not Nigerian s 278(1)
• It is offence if breached, CAC may prosecute with consent of AG of the federation

 

Register of director’s shareholding

• Every company to keep a register showing shares or debentures of the company or its subsidiary or holding company, which are held by or in trust for him: s 275
• For at least 2 hours daily as follows –
• 14 days before an AGM and up to three days after the date of its conclusion

it shall be open to the inspection of any member or holder of debentures of the company; and

 

Disqualification

• Infant under 18
• Insolvent person: 253 (1)
• A lunatic or person of unsound mind
• A company other than its representatives, s257
• A director who fails to take up qualification shares has committed an offence and is disqualified form acting as a director until and unless he takes up those shares

 

Share qualification

If the articles so require:

• The director on first appointment has two months after his appointment to comply

At the expiration of two months, if he does not take up shares he is disqualified form acting as a director. If he sells his shares he must vacate office forthwith and cannot return as a director or re-appointed until he buys the qualifying shares / obtains his share qualification.

If he does not have the shares and does not vacate office he is liable to a fine S 251 and 258

 

 

Disqualification order on conviction

Disqualification – 10 years on conviction by a high court of any offence concerning the promotion, formation or management of a company: s254 R v Goodman [1993] 2 ALL ER 789. What disqualifies him is not the conviction but rather the disqualification order. So if after the conviction he has a disqualification order, he has a 10-year bar for being a director in any company

 

Vacation of office – s 258

In vacation of office by a director, he has been appointed but an event has occurred which disqualifies him from continuing as a director. The office f director shall be vacated if the director:

• Is bankrupt or makes arrangement with his creditors
• Fails to obtain a share qualification or sells it ; s251
• After disqualification order under s 254
• Resigns
• If he becomes insane
• Age: public company – 70+: Disclosure to the members before appointment. S 252 – vacate if the company does not ratify his appointment after disclosure. He must disclose his age by giving Special notice of appointment: s 256. But in the case of a private company, there is no age restriction
• Vacation after removal from office
• Vacation after retirement
• Vacation after expiration of tenure e.g. central bank of Nigeria (CBN) rule of 10 years for bank chief executive

 

Special notice – appointment of director who has attained 70

The board of directors

I hereby given notice, pursuant to s 236

 

The ordinary resolution must accompany the special notice

That x (name) who attained the age of 7l

 

Retirement

• Before a person can be eligible to be appointed as subsequent directors, he must, unless he is a retiring doctor, be either RECOMMENDED by the board of directors (or majority of them);or be NOMINATED by member of the company in accordance with a s 259(4).
• Unless there are contrary proviso in the articles, then the provisions of retirement apply – not mandatory
• Otherwise, 1^st AGM all directors (excluding life directors to retire)
• Subsequent AGM’S one-third to retire. If the number is not three or a multiple of three, then the number nearest to one-third to retire: s 259(1)

 

By section 258(2) of the CAMA where a director present himself…..

Those longest in office since their last election or re-election to retire first but if elected on the same day , by lot (s 259(2) ( unless they are able to agree amongst themselves

Any director can be removed at anytime

 

Removal from office

• Director including life directors can be removed from office before expiration of terms of office:
• Possible

Procedure:

• A special notice given at least 28 days before the meeting s236

Or

• Special notice and requisition by holders of minimum 1/10^thpaid up capital: s215

 

Procedure on requisition

Requisitionist to deposit a signed requisition at the registered office stating resolutions which he intends to propose:

If they fail to call the requisition after 21 days any one or more of the requisitionist representing more than one-half of the total voting rights of the requisitionist can ra

 

Removal

An MD must still be removed in accordance with CAMA that’s s 262. See Longe V FBN – it says that for you to remove the MD you have to remove the director under s 262.  See also  Yalaju- Amaye v AREC, IWUCHUKWU V NWIZU and compare

 

An executive director ceases to be so if removed as a director. The converse is not always the case so an executive director removed under service contract remains a director unless the service contract provides that removal as executive is removal as director.

S 64(b) CAMA

 

 

Removal by statute

A regulatory authority acting in accordance with law can suspend or remove a director of a company, thus , the central….

 

Grounds for removal – 33 BOFIA

• Where a bank informs CBN that –
• it is likely

 

Vacancy – created by removal

A new person may be appointed at the same meeting but special notice is also required:262(2)

If the vacancy is not filled at the meeting it may be filled as a casual vacancy by directors subject to ratification at the general meeting (CAMA, s 262(4)).

Note casual vacancies are not permanent the director holds office until the next AGM

Companies regulations 2012

 

Where a life director dies, his tenure cannot be replaced by casual vacancy

 

Number of directors can be increased by the board of directors and the general meeting but this must not conflict with the provision of the articles.

 

 

Non-contractual compensation

Only if it is approved by the members of the company in general meeting after proper disclosure has been made: S271, CAMA 

 

Remuneration of directors

There is no automatic right to remuneration (except executive directors with service contract)

Provision could be in the company’s articles to entitle a director to remuneration. Once fixed, it becomes a debt due to him. Where the articles have fixed remuneration However, they may be paid all traveling, hotel and other expensed properly incurred by them in attending and rerunning form meetings.

Remuneration is gross subject to income tax. Unlawful to pay remuneration free of tax: s 269

S268

 

Service contract

 A contract of employment of more than five years or

That can only be terminated in certain circumstances is not allowed s291

 

Remuneration of MD

S 268 also provides that where the MD works without a contract, he is entitled to remuneration

 

Duties of director

TRENCO LIMITED V AFRICAN REAL ESTATE AND INVESTMENT & anor

As an officer and an agent of a director has 2 basic duties imposed on him, a fiduciary duty and a duty of care. S 279(1)

 

Utmost good faith

• he must observe utmost good faith towards the company: industrial development consultants ltd v Cooley [1972] 2 All ER 162

 

Resolution of the board filling casual vacancy.

 

Class scenario on company secretaries

Constructive notice doesn’t apply to CAC, the company is bound by whatever transaction the company sectary enters into on behalf of the company that the company authorizes him to with a third party even if he goes beyond the authority given him - this is because of ostensible authority.

 

 

When you see a question on secretary, first see if the company is a public or private one.

 

Rotation is about retirement and the process of re-election. If the question is about rotation, don’t just stop at retirement.

Casual vacancy is not about the issue of tenure. Read s 249 in line with s 262, note s262(4)

 

Removal of directors s262, special notice according to s236

 

 

Rotation of director- at the first AGM all first directors must retire to be re-elected.

Board of directors and members at the general meeting have the responsibility/can increase the number of directors provided it does not exceed what the articles provide for.   Subsequently at the next AGM one-third of the directors to the nearest whole number based on their appointment must retire.

Scenario: where there are 6 directors, and 3 (other than those due for retirement) opt to retire the other 3 (those who ought to retire) are automatically re-appointed. If however none of to retire then out of the one-third of directors due for retirement can cast lots but this is not needed if they agree on who is retiring amongst themselves.

 

Notice of nomination for appointment of directors should be given no less than 3 days and not more than 21 days.

Where a director who ought to retire puts forward himself to be re-elected and the  company is silent he is deemed automatically re-elected unless the company makes a resolution

Where a retiring director is re-elected he is then the newest in office.

 

Council of elders Nigeria Ltd a foremost Nigerian leather manufacturing company has the following as the board of directors,

1. Mrs sonia , a life director who became a director in 1984
2. Mrs Ajayi an alternate director, 1990
3. Mrs Toun , an executive director appointed in 1995
4. Mrs Adams , a shadow director, 1990
5. Mr John a non-executive director, 1995
6. Mr Richard , a director 1996
7. Mr Ijesha, a director 1995

Advise the company as to the directors eligible for removal at the company’s AGM in 1998 ? as a general rule one-third to the nearest whole number oldest in office. In this case certain people don’t constitute the quorum. A life director is not subject to rotation. A shadow director is not formally appointed, you can’t remove an alternate director in place of his substantive. So you cannot include these people in the calculation. Thus we are left with 4 directors, so one-third of 4 is one. To identify the person due for retirement we have to use dates. Three directors were appointed in 1995 so to determine who would go they cast lots or agree 

Would you answer be the same if the company was to hold her first AGM in 1998?

Generally at the first AGM All the directors are to retire with the exception of life director and shadow directors. But the alternate director would retire because the substantive would go.

 

 

Scenario 2

A,B,C,D  were appointed as directors of XYZ in august 2000, September 2000 A,B died and where replaced by E,F to fill in the casual vacancy. Comment on the duration of the tenure of E, F.

Generally the duration of a directors tenure would commence from the date of his appointment. However where the directors is appointed to fill in a casual vacancy, his tenure would subsist for only the remaining period of the tenure

 

Assuming A is a life director, advise the company on who is entitled to retire in 2000.

Answer either or if the question appears confusing.

Assuming A,B,C,D  are alive, one-third

 

Appointing over 70

In a plc , generally no , but they can if he discloses his age and a special notice is given along with the resolution appointing him

 

Share qualification for directors is not provided for under CAMA

 

A director can be removed by any of the following ways

1. S 262 CAMA
2. Service contract
3. Articles of association
4. Legislation regulating that sector

 

A suspended director can still receive notices – LONGE V FBN

Generally directors are not entitled to be paid with the exception of executive directors. However they can be paid out-of-pocket expenses as provided for by their articles and service contract. Where the remuneration is fixed, it can only be altered by special resolution.

Where a director has made secret profit he has to account.

The first board meeting is to be within 6 months. Agenda for the first board meeting – appointment of chairman, adoption of common seal, adoption of banker

Length of notice – 14 days to the meeting

Quorum of board of directors – 2 of they are not more than 6, one-third where they are more than 6 and if the number is not a multiple of 3 then it shall be one-third to the nearest number.

Removal of director – s 262