DUTIES AND POSITION OF COMPANY DIRECTORS UNDER NIGERIAN COMPANY LAW

DUTIES AND POSITION OF COMPANY DIRECTORS UNDER NIGERIAN COMPANY LAW

BACKGROUND TO STUDY

A director is a person duly appointed by the company to direct and manage the business of the company. This definition goes a step further than the 1968 Act 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 Bros, Lord. Cransworth defined directors to be somebody to whom is delegated the duty of managing the general affairs of the company. Section 245 (1) of the Act 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 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

Whilst the Companies and Allied Matters Act (CAMA) provides exhaustively for duties of directors from sections 279 to 283, the SEC Code of Corporate Governance for Public Companies (SEC Governance Code) stipulates salient principles that should guide directors of public companies in the discharge of their duties. For starters, there are established corporate governance structures setting out the hierarchy of decision making within corporations as gleaned from a combined reading of Sections 63 and 64 of CAMA. Section 63(1) CAMA specifically empowers a company to act through its board of directors, officers or agents, appointed by, or under authority derived from the members in general meeting or the board of directors. While a cursory reading of Section 63 CAMA leaves no one in doubt as to the 'statutory recognition' of the functions and/or duties of directors, Section 64 CAMA empowers the board of directors to: (a) exercise their powers through committees consisting of such members of the body as they think fit; or (b) from time to time, appoint one or more of their body to the office of managing director. The board of directors may also delegate all or any of their powers to such managing director. It goes without saying, therefore, that directors play a very major role in the continued existence of a company. Indeed, it can be safely asserted that directors are the 'mind and will of the company'.

It is in this respect that the authors agree with Dr. Kunle Aina when he opined that the (board of) directors are not only responsible for the management of a company but also have the responsibility 'for adopting corporate governance and practice in the company'.

1.2 OBJECTIVE OF THE STUDY

It is against the foregoing background that this article analyses, in the succeeding chapters, the duties of directors in line with CAMA, corporate governance codes and case law.

Having adopted the black-letter approach as well as a comparative approach to our legal analysis, the article proceeds with an examination of corporate law jurisprudence and a review of the duties of directors under three broad categories  fiduciary duties, the duty of care and duty of loyalty. This article also seeks to elucidate on certain pertinent terms like what it means for directors to act 'in the best interests of the company' or for 'corporate benefit'.

1.3 SCOPE OF THE RESEARCH

The scope of this research is limited to the central issues of interests and accountability arising from the position and the duties of a director under the company law. The study examines the relevant provisions of the Companies and Allied Matters Act, 2004 as well as the Code of Corporate Governance by Securities and Exchange Commission, 2011 and Code of Corporate Governance for Banks, 2006 by the Central Bank of Nigeria, respectively, among so many other corporate laws. Additionally, due to the global relevance of the subject matter of the research, references to and cases from foreign jurisdictions have been extensively used.      

1.4   RESEARCH METHODOLOGY

The research is largely based on doctrinal method. Two types of data – secondary and primary sources – are used in this research. Primary sources of data which are case law arising out of the decisions of courts and relevant statutes have been extensively used in writing this research. On the other hand, the secondary sources of data used in this research include text books, journals, magazines, newspapers and internet. This, it is strongly believed, will help for scholarship and deep appreciation of the subject matter. In all, an analytical mode of writing has been adopted followed with a descriptive style wherever necessary. Relevant data collected from different sources are duly acknowledged and analyzed at the foot of every page where they appear; and adequate recommendations made thereon.

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