DUTIES AND POSITION OF COMPANY DIRECTORS UNDER NIGERIAN COMPANY LAW

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Author

Presented To

Department of Law

DUTIES AND POSITION OF COMPANY DIRECTORS UNDER NIGERIAN COMPANY LAW

INTRODUCTION

The enormous and challenging responsibilities of managing incorporated companies are vested on directors by the Companies and Allied Matters Laws of the Federation, 2004.

Consequently I am attracted into researching about these human agents, trustees and organs of the company whose acts within the purview of the Law could be said to be the acts of the company. Though “ownership” normally are vested on shareholders (it is not the objective of this project to discuss extensively on shareholding) for they bear the ultimate risk in the event of any mishap to the company. It is an established fact that directors stand in a fiduciary relationship to the company and also owe duty of care and skill.

Generally directors owe certain obligations to the companies in the performance of their functions. It must be noted that the Act also provides for circumstances upon which a director could be removed. The responsibility of enforcing the duties of directors lies with the company, technically speaking therefore, it is the responsibility of the directors to enforce this duties. It is pertinent to note that the rule in Foss V Harbottle has been whittled down by certain exceptions, which are also statutorily provided. This project also highlights the liability of directors and when a shareholder could institute derivative action for and on behalf of the company.

Finally, I shall proffer suggestions on the ways of improving corporate management through directors and where necessary, suggest for the amendment of certain provisions in the Act which does not reflect contemporary corporate management in Nigeria and the need for our courts to live up to their constitutional responsibilities in the interpretation of statutes as it affects company directors.

CHAPTER ONE

MEANING, APPOINTMENT AND QUALIFICATIONS OF DIRECTORS

1.1   WHO IS A DIRECTOR?

A director is a person duly appointed by the company to direct and manage the business of the company.1 This definition goes a step further than the 1968 Act2 by adding due appointment as a condition precedent. Section 244 (2) provides a rebuttable presumption that all persons described by a company as directors, whether as executive or otherwise, have been duly appointed. This safeguards third parties dealing with the company. In Aberdeen Railway Co. V. Blaikie Bros3, Lord. Cransworth defined directors to be somebody to whom is delegated the duty of managing the general affairs of

    1.    Sec 244(1) of the Companies and Allied Matters Act CAP C20 LFN 2004– the term “director” of a company would be defined “as a person appointed or elected according to Law, authorized to manage or direct the affairs of a company or Corporation” Sofowara, Mordern Nigerian Company Law”, second edition, 2006, p.425

2.    Formally Companies Decree No. 51 of 1968 at p

3.    (1859) 3 & 4 Macq 461 at p. 471

the company. Section 245 (1) of the Act4 defines a shadow director as “any person on whose instructions and directions the directors are accustomed to act”. A shadow director is also deemed to be a director. Although this definition is not explicit, it is deemed to take care of the practice where recognized groups or corporations nominate directors on another company’s board to represent and protect their interests. This is usual with some banking institutions, which lend huge amounts of money to companies. Another good example of shadow director is where a government nominates some directors to represent its interest in a company where the government has substantial or controlling shares, for instance, the Nkalagu Cement Company Ltd has in its board some directors nominated by the government of Enugu, Anambra, Imo and Abia States. These four state governments could be described as shadow directors in relation to the Nkalagu Cement Company Ltd, because their nominee ‘directors’ are

    4. Decree No.1 of 1990 later designated as “Act”

accustomed to act on their instructions. It should be noted that the above mentioned situation is a deviation and an exception to the rule that directors must only be appointed by shareholders at a general meeting of the company as provided by Section 248 of the Company and Allied Matters Act, CAP C20 LFN 2004.

However, it is pertinent to mention that persons who give advice to directors in their professional capacities are not included in the concept of shadow directors.