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CHAPTER ONE

GENERAL INTRODUCTION

1.0 INTRODUCTION

The need to keep pace with the realities of commerce and industry and comply

with the stipulations of the law may result in the carrying out of commercial

activities or business ventures by more than one person. This, when done with a

view to profitability, which naturally results from the pulling together of

resources; money or money’s worth by investors, the creation of an entity, a

vehicle called the company is underscored.

Although one person can profitably carry on business alone, it is however not

guaranteed that the business would long continue especially if he becomes

incapacitated or dies. The threat to the continuity of even the most viable business

in an economy as a result of death, according to Paul Davies, Gower & Davies 1“

A company has perpetual succession; an incorporation, being an artificial person,

is not susceptible to the thousand of natural shocks that flesh is susceptible to. It

cannot become incapacitated by illness, material or physical, and it has no need of

allotted life span”.

1
Paul Davies, Gower & Davies Principles of Modern Company Law 17 th ed. (Sweet & Maxwell, London, 2003)

1
Other forms of business organizations hinge extensively on the fact that a

company is an artificial person recognized by law. It is within the limits of law

detached from those hinge extensively on the fact that a company is an artificial

person recognized by law. It has its duties, rights and obligations, which it attends

to, through the instrumentality of natural persons. To this end, the law recognizes

any company formed in accordance with the existing law.

Furthermore, general principle of agency states that an agent is not personally

liable on the contract/transaction entered on behalf of his principal. It is essential

to note that when a director acts as an agent on behalf of a company, he is, like

any other agent, not personally liable on the contract. On the whole a company

can only be liable for the acts of its Directors when he has duly acted on behalf of

the company.

It was held in the case of Vassilev V Pass Industry Nig. Ltd, and Other 2
“a

director of a public Company is an agent of the company, where it liability will

attach to the principal and principal alone, the liability is that of the company”. It

was also held in the subsequent paragraph of the same page; “when the principal

and agent are two different and distinct persons, the principal should be liable for

2
(2000) ALL FWLR (pt.19) 420. (Para 6.)

2
a contract which was specifically entered into by the agent for and on behalf of

the principal”.3

The same position was upheld in the recent case of Dansa Foods Nig. Ltd and

Anor V Isong4 “The company is distinct from his promoters or directors and a

director is an agent of the company. Consequently, where a director enters into a

contract in the name of the company or purporting to bind the company, it is the

company, as the principal that is liable, not the director”.

The Companies and Allied Matters Act has commendable provisions on how

accounts of the company are to be controlled as well as how Directors who

manage the affairs could be accountable. Furthermore, liability and penalty have

become enshrined statutorily as a means of checking erring directors and officers

of a company, the case of Nigeria Deposit Insurance Corporation V Vibelko

Nig. Ltd and Anor 5; “There is a clear distinction between a company and its

directors and members in terms of corporate liability. Upon incorporation of a

company, it becomes a body corporate and in the eyes of the law, a person distinct

from its members or shareholders. Therefore, a director of an incorporation can


3
Ibid page 19 (Para 4)
44
(2011) ALL FWLR (pt.596) 594

5
(2006) ALL FWLR (pt.336) 391.

3
not be held liable for the loan granted in favour of the company except the

director is either a surety or guarantor of the loan granted, A company is an

artificial legal entity, which is separate & distinct from its shareholders and

directors or from the members and organs of the company.

Therefore, this long essay will address the liabilities of a company for the acts of

its directors especially on issues relating to the Directors, in carrying out their

duties and responsibilities as a company Director.

1.1 BACKGROUND OF THE STUDY

A company, being a corporate entity, can sue and be sued in its corporate name.

As a matter of law, it has separate existence and identity from the brains, minds,

and hands of the operating it to commercial functionality. The law therefore

draws a clear cleavage between the company as the artificial person and the

natural persons with life and limb (operating it).

This is because a company, being an artificial person, can only act through its

human agents and officers. This position was adopted in Lennnard’s Carrying Co

v. Asiatic Petroleum Co Ltd by Lord Viscount Haldane6 in a passage quoted with

approval by Aniagolu, J.S.C in Trenco (Nigeria) Ltd. v. African Real Estate Ltd7

6
(1915) A.C. 705
7
(1978) LRN 146 153

4
where he said, inter alia „…a corporation is an abstraction. It has no mind of its

own any more than it has a body of its own; its active and directing will must

consequently be sought in the person of somebody for some purpose may be

called an agent but who really is the directing mind and will of the corporation,

the very ego and center of the personality of the corporation…”

In Bolton (engineering) Co Ltd v. Graham and Sons8, Denning, L J

characterized the position as follows

A company may in many ways be likened to a human body. It


has a brain and nerve center which controls what it does. It
also has hands which hold the tools and act in accordance
with directions from the center. Some of the people in the
company are mere servants and agents who are nothing more
than hands to the work and cannot be said to represent the
directing mind and will of the company, and control what it
does

In Delta Steel (Nigeria) Ltd v. American Computer Technology Inc9, Aderemi,

JCA, referring to acts imputed to the company, explained as follows. “In cases

where the law requires the personal acts or faults of an individual so as to make a

legal fiction like a company to be liable, the directors, the manager or the

8
(1957) 1 QB 159
9
(1999) 4 NWLR (pt. 597) 53 at 66.

5
managing director are, in the eyes of the law, the directing mind and the will of

the company; they control what the company does; the state of mind of this

special class of employees is the state of mind of the company”. The same

position was held in the recent case of Igwen & Co Ltd and Anor V. Igwebe10

It was held in the case of Zest News Ltd V. Waziri11 “A Ltd Liability Company is

a separate and distinct entity from its directors and or shareholders; it has a legal

personality separate and distinct from its directors. Accordingly, the property

rights and privileges of the company does not automatically inhere on its director

or shareholders”.

1.2 OBJECTIVES OF THE STUDY

The objectives of this essay is to extensively discuss the duty and study the

position of the law as stated in the Companies and Allied Matters Acts, 2004 on

the powers and the proceedings of Directors and their personal liabilities. The

duties and responsibilities of directors etc, would be discussed, with a view to

letting the directors know the extent to which the company can be liable.

This project work would also aim at ensuring that the company is liable for the acts

of its directors during the operation of carrying out its duties. Furthermore, it is

also aimed at ensuring the position of CAMA, 2004 as it relates to when the

company would be liable for the acts of its Director and why?

10
(2010) ALL FWLR (pt. 540) 1291 at 1311
11
(2003) ALL FWRL (pt. 186) 663 (Para G-H)

6
1.3 FOCUS OF THE STUDY

This long essay will focus very importantly on the liabilities of a company for the

acts of its officers and agents for acting on its behalf, and also in the instances

when the company will not be liable for such acts of its agents and officers.

1.4 SCOPE OF THE STUDY

The long essay will give account of the origin of company law, definition of a

company, types, formation and the sources of powers of a company. Reference

will also be made to the study of directors of a company, their types, appointment,

powers, proceedings as well as their liabilities. Not leaving out the main purpose

of the study which is the liabilities of a company on the acts of its directors (both

civil and criminal liabilities).

1.5 METHODOLOGY

This write up, which has its motivation mostly from lectures derived from NOUN

textbook on company law as well as the personal interest of the writer, It will be

based on primary and secondary sources. The primary source will include the

Companies And Allied Matters Act Cap 20 LFN 2004. The secondary source

would include lecture notes from facitators, journals and relevant law reports on

the subject matter and issues to be addressed in the course of completing the

project work.

7
1.6 LITERATURE REVIEW

The essence and needfulness of the project work is to examine the liabilities of a

company for the acts of its directors. It should be noted that various views of

various authors such as E. O. Akanki, J. Olakunle Orojo, Robert R.

Pennington, etc. will be put into consideration amongst many others.

According to E. O. Akanki on Essays on Company Law, he is of the view that

the law regulating the liability of the company for the acts of the various organs of

the company and the agents and the officers of such company is divided into two

(a) The acts of the primary organ of the company i.e. The general meeting

and the board of directors which are regarded as the acts of the company

itself, and

(b) Those acts of its agent and officers, duly authorized, in respect of which

the company is liable on the basis of vicarious liability.

Also, J. Olakunle Orojo12; is of the view that when a director contracts as agent

on behalf of the company, like any other agent, he is not personally liable on the

contract. This is the application of the general principle of agency. So also under

those principles, the director may be personally liable where he contracts in such a

manner as to assume personal liability. Where the director expressly makes

12
Orojo J. O, “Company Law & Practice in Nigeria” 5th Ed. (Interpak Books Pietermaritzburg 2008) page 271

8
himself liable, no difficulty arises, but he may be liable without express

assumption of liability as where he contracts in his own name without disclosing

that he is acting for a principal, in which case, he is personally liable to third

parties on the contract as in the case of Elkington and Co v. Hunter13. Even

where he contracts as a director but without using words that bind the company,

he will be personally liable.

Furthermore, (Robert R. Pennington)14 is of the view that the company will be

liable for the acts of its agents and officers if their acts are in utmost good faith

i.e. in the benefit of the company and not in the officer’s interest then the liability

will be that of the company’s.

1.7. DEFINITION OF TERMS

Considering the fact that the main focus of this essay is company law; it is trite at

this time to define the following viz. company, Artificial person, Juristic person,

liability, director, act etc.

The word “Company” is generally used to refer to a body or an association of

persons with distinct legal personality. Sometimes, however, it is used to refer to a

body without legal personality such as a partnership.

Therefore, in the case of Agro Allied Development Ltd V. Reefer and Anor15

13
[1892]2 Ch.452
14
Quoting with approval Pennington’s ‘Company law’ (7th Ed, Butterworths, London, 1995). Pg. 247
15
(2009) ALL FWLR (PT. 481) 862.

9
defines a Company or existing company to mean “a company formed and

registered in Nigeria before and in existence of the commencement of the act”.

Lord Lindley in his own contribution defines a company as a voluntary

association or an organization of many persons who contribute money or money’s

worth to a common stock and employs it in some trade or business and who

shares profit or loss arising there from.

Felix C. Amadi16 defines company as a business entity with clear objects made

up of a body or association of persons who contribute to the capital of the

business with a view of profits or loseses

Black’s Law Dictionary17 defines company as a corporation or less commonly,

an association partnership or union – that carries on a commercial industrial

enterprise.

(B) a corporation, partnership association, joint-stock company, trust, fund, or

organized group of persons, whether incorporated or not, & (in an official

capacity) any receiver, trustee in bankcrupcy, or similar official or liquidation

agent, for any of the foregoing investment company Act.

16
Amadi F.C. ‘Fundamentals of Company Law & Practice in Nigeria’ 1st Ed. Port Harcourt: (Rodi Printing &
Publishing Company, Rivers State 2004)
17
Black’s Law Dictionary, 10th Edition page 393 (Bryan A. Garner)

10
Company according to L. C. B. Gowe18 implies an association of a number of

people for some common objectves the number need not be more than two and

the interest of one need not be more than nominal as in the so called one man

company.

Liability can be described according to the Oxford Dictionary of Law19 as an

amount owed or legal duty or obligation.

The term director does not have a precise and accurate definition owing to

complexities of legal definitions. However, owing to various definitions given to

a director, it becomes therefore pertinent to examine this term under three heads,

broadly grouped thus by the courts, by statutes and the legal writers.

CHARLSWORTH AND CAIN20 states that since a company has no physical

but only a legal existence, it becomes imperative to entrust the management of its

affairs to human instrument who are called “directors”, whose exact position in

relation to the company is rather hard to define. Furthermore, they asserted that

directors are not servants of the company, but that they are rather managers who

18
Gower ‘Principles Of Modern Company Law’ 6th Ed. (Sweet and Maxwell 2000) page 226
19
Oxford Dictionary of Law, 6th Edition (edited by Elizabeth A. Martin) page 314
20
Charlsworth and Cain ‘Company Law’ (Stevens and Sons)1972 10th ed. P.260

11
in some certain circumstances may be said to be in a position of quasi trustees and

agent of the company.

To buttress this point Lord Johnstone’s dictum was cited in Milintock v.

Campbell21 where he stated that, “the directors’ functions are in one vein those of

an agent and in another, those of a trustee” but the former predominates over the

latter.

Black’s Law Dictionary22 defines a director as a person appointed or elected to

sit on a board that manages the affairs of a corporation or other organization by

electing & exercising control over its officers.

Director was further defined in the case of Longe V. First Bank of Nig. PL233 as

“those appointed by the company to direct and manage the business of the

company”.

Blackburn24 defined director as a person appointed, elected according to law,

authorized to manage and direct the affairs of a corporation or company.

21
[1919] S.C 960 at 980
22
Black’s Law Dictionary, 10th Ed. page557 (Bryan A. Garner)

23
(2010) ALL FWLR (pt. 252) 266
24
[1854] IMACQ 461 – 471 – 472 (SC)

12
On the other hand Orojo25 defined directors simply as those who direct the affairs

of the company. Almost all the case law definitions of director tends to say the

same thing put in different ways, but the following dicta embrace almost all the

principles to be derived from others:

Lord Cranworth L.C. in Aberdeen Railway Company v. Blaike Bros.26 stated

thus, the directors are a body to whom is delegated the duty of managing the

general affairs of the company. However, the most instructive definition of

director is one offered by Sir Jessel M. R. in Re Forest of Dean Coal Mining

Company27 thus, Directors have sometimes been called trustees or commercial

trustees and sometimes they have been called managing partners. It does not

matter what you call them so long as you understand what their true position is,

that they are commercial men managing a trade for the benefit of themselves and

all other shareholders of the company.

According to the Osborn’s Concise Law Dictionary28, a director is a person

charged with the management of a company’s money and property, and having

fiduciary position. Statutory definition on the other hand tends to adopt the same

approach in dealing with the above questions. Section 650 of the Act defines

25
Orojo J.O. ‘Nigerian Company Law & Practice’ p. 243
26
(1854) UKHL Macqueen 461
27
(1878) 10
28 th
9 London Sweet & Maxwell (2001)

13
“Director” as including “Any person occupying the position of the director by

whatever name called.”

Section 244(1)29 provides that “Directors of a company registered under the Act

are persons duly appointed by this company to direct and manage the business of

the company”29. Where a person is not duly appointed a director as such, his acts

do not bind the company. But where the company describes a person as a director,

there is in favor of any dealing with the company, a rebuttable presumption that

all persons, who are described as directors, whether as sales executive or

otherwise, have been duly appointed30

A conglomeration of all the above definitions shows that the directors maintain

quite a unique and enviable position in the company and are to be regarded as the

framework within which the company stands. Company directors are in a

privileged position within the companies, the reasons being that they have

numerous and wide powers of management of the companies.31

29
Section 244(1) Company & Allied Matters Act 2004
30
Section 244(2) CAMA 2004
31
Oladeje Akani; Abuse of Power & Breach of Duty by Company‟s Directors, Nigeria Journal Of Contemporary
Law,Unilag.1975.Vol No. 1&2 Pg.1

14
1.8 CONTRIBUTION TO KNOWLEDGE

The project can contribute to enhance the awareness of right, liability and

duties of would be directors and general public to the management of companies.

It will also help to create checks and balances between the directors and the

company they manage. It also helps to strength companies legal statutes as an

entity of its own, separately from the managers.

The project will contribute to the knowledge on the general Company Law

rule which stated that it is only the company itself and not its Directors or

Shareholders that can contest a wrong done to the company or ratify an irregular

conduct. It will contribute to the knowledge on Section 300 of CAMA which state

exceptions to the rule, which entitles Shareholders to commence an action in a

Court of Law, are provided for in where the Directors are likely to derive a profit

or benefit, or have profited or benefited from the negligence or from their breach of

duty.

15
CHAPTER TWO

THE DIRECTORS OF A COMPANY

2.1 INTRODUCTION

Since a company is an artificial person, its management has to be entrusted to

human agents, these are the directors. They may be described as director

governors, governing or any other similar expression, and section 567 of the Act

defines directors as including any person occupying the position of director by

whatever name called.

A directors of a company registered under the Act are persons duly appointed by

the company to direct and manage the business of the company32.

In Olufosoye v Fakored33, a director was described as… “a person appointed or

elected according to law, authorized to manage and direct the affairs of a

corporation or company”34.

In recognition of this position, companies legislation throughout history, have as a

matter of tradition, accorded special attention to the company Director, by

regulating his manner of appointment, his functions, powers and duties in order to

achieve a greater level of efficiency and effectiveness. In accordance with

32
CAMA, Cap, C20, LFN, 2004, section 244(1
33
(1993)1 NWLR (pt. 272) 947
34
See also Longe v First Bank Nigeria PLC (2010) 6 NWLR (pt 1189) 1SC or (2010) ALL FWLR(pt252) 266

16
tradition, the Companies Allied Matters Act 1990 has introduced a great number

of innovations in this area. A company as an artificial person, has to be entrusted

to human agents, these are the directors. Accordingly, every company must have

at least one Director and a Public company must have a minimum of two 35.

The question of who a Director is a question of function. It is provided that

“Directors” include any person occupying the position of a Director, by whatever

name he is called. Therefore, if any of the members of the managing body is called

“Trustees” or “Governors, they are nonetheless Company Directors by virtue of

their powers.

2.2 TYPES OF DIRECTORS

1. Alternate Director: He is appointed by a director to sit on the board in his

place under powers contained in the articles.36 It is the absent director that

appoints his alternate director but the appointment is approved by the resolution

of the general meeting. The alternate director ceases to hold office whenever the

substantive director cease to hold office. While the powers of an “executive” or

“special” director may be so limited as to take him out of the definition of

“directors” under section 567, an “alternate” director will be within the definition.

2. Executive Directors: Officers holding service contracts of the company


35
Section 245 CAMA, LFN,2004.

36
Palmer ‘Company Law’ (3rd ed. Butterworths,London,1995)para.60-62

17
appointed to the board in a two-tier system comprising executive and non-

executive directors. Executive directors are responsible for the day to day running

of the company and their powers are usually circumcised by the articles. See

further Longe v. First bank of Nigeria Plc37. An executive director’s position is

usually created in practice for administrative convenience. His appointment is

usually by service contract where in his schedules of roles and obligations are

stipulated.38

3. Non-Executive Director: He is a duly appointed director and carries out affairs

of the company. However, he is not involved in the day-to-day management

and he is not an employee. These are part-time directors who are not entitled to

remuneration but only reimbursement for their out of pocket expenses in

carrying out the company affairs except as provided in the Articles of

Association.

The Companies and Allied Matters Act recognizes executive and non-executive

directors. For example, section 282(4) of the CAMA states that the same standard

of care in relation to the director’s duties to the company shall be required for

both executive and non-executive directors

37
(2006)3 NWLR (Pt.967)228 at 261-262
38
N.C.S Ogbuanya, Essentials of Corporate Law Practice in Nigeria (Novena Publisher Ltd, Lagos Nigeria 2010) pg
32

18
4. Managing Director: The day-to-day management of the affairs of a company

is delegated to the management directors. At common law, since the appointment

involves a delegation of the powers of the directors, the latter cannot appoint one

unless the articles so provide or the company so authorizes . In addition to the

provision in the article, the managing director will usually have a contract with

the company and therefore, the terms of his appointment will be governed by the

articles and any such contract, “A managing director is an employee of the

company, just like the executive director, he has a dual position as an employee

and alter ego of the company”. Lee v Lee Air farming company39 The board is

empowered to appoint one of its members as managing director and to delegate

any of their powers to him. So a person cannot be appointed a managing director

unless he is a director.

In Longe v First Bank Nigeria PLC40, where an executive director in a

company was appointed as its managing director, it was held that the

managing director ceases to hold the post of an executive director (which is

contractual) as soon as he was appointed the managing director.

5. Shadow Directors: A person on whose direction and instruction the Directors

39 (1961) AC 12 PC
40
(2010) ALL FWLR (pt252) 266

19
are accustomed to act,41 but the fact that persons in their professional capacities

give advice and director act on it will not be construed to bring such persons

under the category as persons in accordance with whose directions or

instructions the directors are accustomed to act.42 Whether a person is or is not

a Shadow Director is a matter of fact to be decided on the circumstance of each

case.

6. Life Director: A person may be appointed a director for life, in which case no

re-election is necessary, but he is nevertheless removable.43 If a director claims

to be appointed for life or some indefinite period, the terms of the appointment

must be clear and definite.

PERSONS WHO CANNOT BE DIRECTORS

This to some extent is a matter for the articles and they may provide that a minor

or an alien shall not be appointed a director of a company. Certain persons cannot

be appointed as directors by virtue of the statutes:

(1) AGE

A person who has reached the age of seventy cannot be appointed director unless

41
Ibid section 245 (3)
42
Section 567 of CAMA Cap. C20, LFN 2004
43 CAMA, Cap, A20, LFN, 2004 section 262.

20
the company is a private and not the subsidiary of public company, or the articles

otherwise provide, or he is appointed or approved by a resolution of which special

notice, stating his age, has been given44; the exceptions are such as to make this

section effective.

A director of a public liability company must disclose the fact of his age to the

members at the general meeting, and if he fails to make the disclosure, he will be

guilty of an offense and liable for a fine. A person may be appointed a director of

a public company notwithstanding he is seventy years or more of age; but special

notice is required of such a director and the notices given to the company and by

the company to its member must state the age of the person to whom it relates.45

(2) ARTICLES OFASSOCIATION

Further disqualification may be imposed by a company’s article. It imposes no

such disqualification, but merely specifying the grounds on which directors will

vacate office. Thus unless there are such express provisions, a person is not

disqualified merely because he is minor or an alien.

(3) BANKRUPTCY

An undercharged bankrupt must not act as a director of, or be concerned in the


44
Ibid section 252
45
Ibid section 256

21
promotion, formation or management of a company without the leave of the

court by which he was adjudged bankrupt46. Such a person may be liable if he

acts whilst disqualified.

(4) DISQUALIFICATION

A director who has been disqualified from acting as a director under the

Company Disqualification Act 1986 cannot be a director whilst so disqualified.

The following persons are disqualified from being directors:

(a) An infant, that is, a person under the age of 18years.

(b) A lunatic or a person of unsound mind.

(c) A person disqualified under Section 253 (insolvent persons), Section 254;

where

(d) a court makes an order disqualifying a fraudulent person for a specific

period, and Section 258; where the director vacation office.

(e) Section257; A corporation other than its representatives appointed to the

board for a given period.

(5)A person cannot be a Company’s Sole Director and its secretary at the same

time nor a Director and Auditor at the same time.47

46
Section 11 Company Directors Disqualification Act 1986
47
Section 294 of CAMA Cap. C20, 2004

22
2.3 APPOINTMENT OF DIRECTORS.

With regards to subsequent directors are left to the members at the Annual

General Meeting who shall re-elect or reject directors and appoint new ones. In

the event of all the directors and shareholders dying, any of the personal

representative shall be able to apply to the court for an order to convene a meeting

of all the person representative of the shareholders entitled to attend and vote at a

general meeting to appoint new director to manage the company and if they fail to

convene a meeting, the director, if any, shall be able to do so 48. The articles may

give power to some particular persons to nominate a director.

The Court of Appeal emphasized in the case of NIB Investment West Africa v

Omisore49, that unless the articles provide otherwise, by the provision of section

247 and 249 of the Act…”the appointment of directors is the business of the

general meeting or the board of directors, and not that of any individual member.

Furthermore, in the event of any casual vacancy arising out of death, resignation,

retirement or removal, the board is empowered to appoint new directors 50, but this

however, is subject to the approval of the general meeting51. A concurrent power

of increasing the number of directors is given to both the directors at the general

48
Ibid section 248 (2)
49
(2006) 4 NWLR (pt. 969) 172 at pg 199

50
Section 249 (1) CAMA 2004
51
Ibid sec 249(2)

23
meeting but it is only the latter that shall exercise the power generally or increase

and determine in what rotation they are to retire

The law states that the action of such a person acting as a company director

without being duly appointed shall not bind the company and he shall be

personally liable for such action; provided that where it is the company which

holds him out as director the company shall be bound by his acts52.

In Ejekam. V. Devon Industries Ltd53, the burden of proving that one is a director

of a company was the issue. Here the learned counsel for the plaintiff submitted

that the burden of proving “that a person who holds himself out as a director of a

company and acts on behalf of the company and has no such authority, is on the

person who challenges his authority to act as such director by proving that;

(a) He is not a director

(b) Even if he is a director he has no authority to maintain the action in the first

place.

Here, the court agreed with the learned counsel that the burden is on the director.

To be eligible for the appointment into the board, certain qualifications must be

satisfied; the most usual which is the share qualification may or may not be

required by the articles of association. And unless and until so fixed no


52
Sec 250 CAMA 2004
53
(1998)1 NWLR(Pt.533)417

24
shareholding qualification shall be required54.

The object of this provision is to ensure that the director has an interest in the

success of the company and will consequently devote their best endeavor in its

service, if only to preserve the value of their own shares55. However, it has been

held that directors are not bound to take this qualification shares from the

company. The company cannot also allot them to him without his request.

The court is empowered to disqualify the following persons from taking part

either directly or indirectly in the management of the company for a period not

exceeding 10years:

(1) A person convicted of an offence in connection with the promotion,

formation or management of a company.

(2) A person who in the winding up process of a company was found guilty of

fraudulent trading or while an officer of the company was found to be guilty of

fraud or breach of duty towards the company.

54
Section. 251(1) .CAMA 1990
55
Re-Metropolitan Public carriage and Repository Co. (1873)9 Ch App.102

25
2.4 PROCEEDINGS OF DIRECTORS

Section 263(1) provides that “The directors may meet together for the dispatch of

business, adjourn and otherwise regulate their meeting, as they think fit; provided

that the first meeting of the directors shall be held not later than 6months after the

incorporation of the company”.

The need to hold a meeting within six months of incorporation accords with the

provisions of section 33(4) that the directors must at their first meeting determine

the date to which their financial statements should be made up. Majority vote

wins when there is any question arising at any meeting but where there is equality

of votes the chairman has a second or casting vote section 263(3). It is, however,

not necessary to give notice of a meeting to any director for the time being absent

from Nigeria, but if he has given an address in Nigeria, the notice should be sent

to such an address.

Director summons meeting of the directors at any time section 263(3). A written

notice of meeting must be given to every director fourteen days before the

meeting and if it’s not done the proceeds at the meeting will be void. In Longe v

First Bank Plc56 the Supreme Court held that further to section 266 of the

56
(2010) ALL FWLR (pt. 252) 266.

26
CAMA, the removal of a managing director of the Bank was unlawful because he

was not given notice of the Board meeting in which he was removed. That any

decision taken in the meeting was illegal and null and void.

The quorum is the number of directors “qualified to act as a board”. The quorum is

necessary for transaction of the business of the directors is (where there are not

more than six directors and where there are more directors), one third. So that

where three directors attend the meeting requiring a quorum of two but two of

them were disqualified from voting, it was held that the decision of the board at the

meeting was void. If the board is unable to act because a quorum cannot be

formed, the general meeting may act in its place and if it is the committee that

cannot meet because a quorum cannot be formed the board may act in place of the

committee (Section 265). In Okeowo and others v. Migliore and others57, the

Supreme Court interpreted Article 80 table A and held that where the board of

directors was unable to act the general meeting could act in matters of

management. In that case appellants contended that since the application was for a

court directed meeting under Sec.128 Companies Act 1968 to consider terminating

the service of the company’s secretary, the application should be granted as it was

the board of directors and not the general meeting which could appoint a secretary.

57
(1979) LPELR 36 SC

27
Section 24158 states that every company shall:

(1) Cause minutes of all proceedings of general meetings.

(2) All proceedings at meeting of its director and;

(3) Where there are manager, all proceedings at the meetings of it managers, to

be entered in books kept for that purpose.

If directors fail to keep minutes of their deliberations in board meetings, they

cannot complain of inference drawn from the records even if this differs from what

they allege to be right. Where minutes are duly made, until the contrary is proved

the meeting is deemed to be duly held and convened, and all decisions taken there

are deemed to be validly taken59.

The directors may delegate any of their powers to committees consisting of such

member of their body as they think fit and any committee so formed, must in the

exercise of the powers to delegate, conform to any regulations that may be

imposed on it by the directors.

58
Section 241 (3) CAMA
59
Ibid section 263(8)

28
2.5 CONCLUSION

Directors, being the managers of the company, are very important in the affairs of

the company and every limited company must have at least two company

directors. Though, the company is controlled at his instruction, he may be

personally liable where he contracts in such a way to assume personal liability.

Directors of a company are fiduciary agents and such power conferred on them

cannot be exercised in order to obtain some private advantages or for any

purpose, foreign to the power.

Therefore, directors of a company have been safely referred to as quasi-trustee to

the company and not its members.

29
CHAPTHER THREE

DUTIES AND RESPONSIBILITIES OF DIRECTORS

3.1 INTRODUCTION

Directors for certain reasons may be described as an organ of a company as they

are in some circumstances agents of the company by whom its acts and the

relation between them is governed by the general principles of the law of agency;

when the principal and agent are two different persons, the principal should be

liable for a contract which was specifically entered into by the agent for and on

behalf of the disclosed principal. Vassilev V Pass Industry Nig. Ltd, and

Others60. When they are acting within the scope of their authority and on behalf

of the company, they may be regarded as agents of the company under Part III of

the Act.61 Like other agents, they incur no personal liability, Abosi J.C.A decided

in Oriebosi v Andy Sam Investment Co. Ltd62. “The law is that a company is in

law a person distinct from its promoters or directors. However, a director of a

company is in the eyes of the law, an agent of the company for which he acts and

the general rule of principal and agent would apply. Where a director enters into

a contract in the name of or purporting to bind the company. It is the company

which is liable on it not the director.

60
(2000)ALL FWLR (pt 19) 420 (para 4).
61 (2004)CAMA, Cap. C20 LFN, Section 283(2)
62
(2014) LPELR 23607 (CA)

30
Section 65; Any act of a managing director while carrying on in usual way the

business of the company shall be treated as the act of the company itself and are

accountable for any secret profits made,63 but if they exceed their authority they

may become liable for breach of warranty, Afri Bank Nig. Ltd v Muslad

Enterprises Ltd and Anor64, and they will also be liable if they contract in their

own names or otherwise assume liability as agents.65

3.2 DIRECTORS AS TRUSTEES AND AGENT OF THE COMPANY

The position of a director is somehow equated with that of an agent and as such

agent, they owe fiduciary duty of care to the company. Agency was defined in the

case of Port Harcourt Refining Company Ltd (PHRC) v Orkoro66 “Agent is used

to constitute the relationship which exists when one person has authority to or

capacity to create legal relationship between a person occupying the position of

principle and a third person” A director of a company is an agent of the company

for which he acts, and the general principle of the law of principal and agent

would apply. Thus, where a director enters into a contract in the name of the

purported company to bind the company, it is the company; the principal which is

63 1990 CAMA
64
(2007) LPELR 5126 (CA) (Pp19-20 paras B-A)
65
See Palmer‟s ‘Company Law’ para 62-02.See
66
(2012)ALL FWLR (pt 606) 468

31
liable on it, not the director.

It was held in the case of Oforkaja v Taraba State Government and Anor67 An

agent is not liable and cannot be sued or joined in a suit for the wrong of his

principal where the principal is disclosed. In such a case, only the disclosed

principal is liable and he only can be sue68

Therefore, directors like other agent incur no personal liability on contract made by

them on behalf of the company, provided they act within the purview of their

authority. Moreover, directors being alter ego are ascribable to the principal; the

company is bound by a contract made by its director within their extensible

authority on behalf of the company. If however, director exceeds the power given

to them but still within the authority of the board, the board may rectify. And

equally too, if the board acts beyond the scope of its authority on act intra vires the

holding the act may be rectified by the company in a general meeting. Directors are

not subject of general rule of agency so that secret profit made by virtue of his

office without the consent of his principal is accountable. Director may be

specially appointed agent for the shareholders to negotiate a sale of the company

share. In such situations the shareholders are liable for their fraud.

Directors are trustees of the company’s money, properties and while acting within

67
(2004)ALL FWLR (pt 197) 987 para 11.
68
(2003)ALL FWLR (pt178)1041 para 1

32
his authority and the power of the company are regarded as agent of the

company69.

3.3 DIRECTOR’S CONFLICT OF INTEREST

According to Section 297 directors are declared to be in a fiduciary relationship

towards the company. A requirement to avoid a conflict of duty and self-interest

means that a director is precluded from obtaining for himself, either secretly or

without the informed approval of the company any property or business advantage

either belonging to the company or for which it has been negotiating, especially

where the director or officer is a participant in the negotiation. Obaseki Adejumo

decided in the case of Odudu v Onyibe70 “A director as an agent of the

company must not allow his own interest to conflict with his obligation to his

principal” The imposition of fiduciary duty on directors is meant to prevent

abuse of power and conflict of interest on the part of directors in several area of

private governance.

Court of Appeal held in the case of Wema Bank v Olotu & Anor71 that there was

a breach of duty and loyalty, which arose as the appellant rather than performing

some aspect of the contract on behalf of the respondent used his privilege position

and knowledge and usurped and appropriated the respondent’s contract by having

69
Section 283 , CAMA 2004
70
2015) LPELR 25589 (CA)Pp 157 paras D-A
71
(2015) LPELR 42157 (CA)Pp10-11 paras F-D

33
the contract awarded to itself.

This principle affect all person who are subject to fiduciary duties that no one

having such duty to discharge shall be allowed to enter into engagement in which

he has, or can have a personal interest conflicting or which possibly may conflict

with the interest of those whom he is bound to protect. “A director breaches his

duty of loyalty when he becomes self appointed agent representing the trust and

putting himself in the conflict of interest” Anyaorah and Ors v Anyaorah72.. The

underlying principle is that good faith must not only be done but must manifestly

be seen to be done

3.4 DIRECTORS INTEREST IN CONTRACT

The general rule is that a director cannot make or be interested in a contract with

the company unless affirmed by it, but the rule may be modified by the articles

which may permit a director to be interested in a contract provided he declares his

interest in accordance with section 277 The section provides that “it shall be the

duty of a director of a company who is in any way, whether directly or indirectly

interested in a contract or proposed contract with the company to declare the

nature of his interest at a meeting of the directors of a company73

72
(2001) FWLR (pt73) 178 at 203&204(CA)
73
CAMA, Cap. C20. LFN, 2004 section 277(1)

34
If he is interested in a proposed contract, the declaration must be made at the

meeting of the directors at which the question of entering into the contract was

first considered, and where the directors becomes interested after the contract is

made, the declaration must be made at the first meeting of the directors held after

the director becomes interested74. Disclosure required must be made to a meeting

of the full board of directors; disclosure to a sub-committee does not meet the

statutory requirement. It would make no difference that all board members knew

of the interest in question, if there was no disclosure to a duly convened meeting

of the board.

It is sufficient for the purpose of the section if the director gives a general notice

to the directors of the company that he is a member of a specific company or firm

and is to be regarded as interested in any contract which may subsequently be

made with the company or firm, provided the notice is given at a general meeting

of the directors, or that reasonably necessary steps are taken to ensure that it is

brought and read at next meeting after it is given75

Failure to give notice of the director’s interest will make the contract voidable at

the instance of the company, but section 277 does not affect any rule of law

74
CAMA, Cap. C20. LFN, 2004 section 277(2)
75
Ibid 277(3)

35
restricting directors from having any interest in contract with the company.76

A director of company must not allow his own interest to conflict with his

obligation to his principles. Odudu v Onyibe77

3.5 DIRECTORS AND SECRET PROFIT

The general rule is that a company director shall not in the course of the

management or in the utilization of the company’s property opportunities or

information, and he will be accountable to the company where he makes such

secret profits.78 The fact that a company fails or is unwilling to use an opportunity

is not justifiable for the director making such a secret profit79. The golden rule is

that a director must not, without the consent of the company, make any profit out

of his position in the company beyond his ageed remuneration. The duty of a

director not to misuse information obtained from the company by virtue of his

position continues even after he has ceased to be a director or officer of the

company.80

If, in breach of his fiduciary duty to the company, a director enriches himself

unjustly, he cannot keep such enrichment. He must account for it and the company

76
Ibid 277(5)
77
(2015) LPELP 25589 Pp157 paras D-E
78
CAMA ,CAP C20 LFN, 2004, section280(2)
79
Ibid section 280 (4)
80
Ibid section 280 (5)

36
may bring an action for restitution to recover it. A director may, however, escape

liability to account if he discloses his interest to the company a general meeting

before the transaction and before the secret profit is made81

Apart from the prohibition of secret profit, a director must not accept secret benefit

in the form of bribe, gift or a commission from any person or a share of the profit

of that person in respect of any transaction involving the company and that

person82. If a director receives such benefit, he must account for it and the

company may recover it from him83. The fact that the company benefited from the

transaction or that the benefit was accepted in good faith does not avail the

defaulting director84

3.6 FIDUCIARY RESPONSIBILITIES

As a director, you must act in good faith in the interests of the company as a whole.

1. The company is a separate legal entity from its directors, shareholders and

employees. The best interests of the company are not always the same as the

best interests of the shareholders. For example, it might be in the interests of

the shareholders of the company to declare a large dividend. But if the

company faced a cash shortage this would conflict with the interests of the

81
CAMA, CAP C20 LFN, 2004, section 280 (6)
82
Ibiid section 287 (1)
83
Ibid section 287 (2)
84
Ibid section 287 (4)

37
company. A director must also consider the interests of other stakeholders

such as creditors and employees.

2. A director must give equal consideration to all shareholders. Even if a

director holds most of the shares, or act as the nominee of the major

shareholders, a director must consider the interests of shareholders as a

whole. In practice, it is very difficult for minority shareholder to have a

significant say in decisions made by holders of the majority of the shares.

3. A director must not use his position to make private profits at the company’s

expense. If a director is found to have secretly profited from a contract he

won because he is a director of the company, he might be forced to hand it

over to the company.

4. A director is legally obliged to declare any potential conflict of interest. For

example, if a director has interests in another company with which his

company is planning to do business. A director should not vote on such a

deal. If he does, his vote should be disregarded.

If a director personally plans to enter into substantial deals with the company,

they must

5. be approved by the shareholders in a general meeting. For example, if a

38
director wants to sell property to or buy property from the company.

6. A director must declare any dealings in the shares, within five days. This

obligation extends to shares held by his spouse and any children under 18.

A director must at all time act in accordance with their statutory duties and

common law. Ngwuta J.C.A. decided in Iwok and Ors v Uni Uyo and Anor85

“that trustee and an agent owe fiduciary obligation to the beneficiary in the case

of trustee and principal in the case of agent.

3.7 CONCLUSION

It can rightly be said, that the Act86 has provided under various sections the duties

and interest of directors and the conflicts in between. Also Section 27987 which

has taken care to cover the fiduciary relationship.

85
(2010) LPELR 4345(CA)
86
CAMA 2004

87
CAMA 2004

39
CHAPTER FOUR

LIABILITIES AND REMEDIES OF DIRECTORS

4.1 INTRODUCTION

A company being an artificial person can only incur liability through organs,

agents and officers.

In Ifeanyi Chukwu Osondu Co. Ltd v Sole Boneh Nig Ltd88 in view of the fact

that an artificial person or company vested with legal or juristic personality lacks

the natural or physical capacity to function as a human being, those who work in

it do all things for and on behalf of it…It is therefore the law that when the agent

or servant has committed an act, the company may rightly be said to have

committed the act since in law, the act of the agent or servant is the act of the

company.

A company may in many ways be likened to a human body. It has a brain and

nerve center which controls what it does. It also has hands which hold the tools

and act in accordance with directions from Centre. Some of the people in the

company are merely servants and agents who are nothing more than hands to do

the work and cannot be said to represent the will of the company.

Others are the directors and managers who represent the directing minds and will

88
(2002) ALL FWLR (pt. 27) pg. 2050 para 1.

40
of the company, and control what it does. The state of mind of the company and is

treated by law as such

It is on this basis that a company is at common law, generally liable in crime, tort

and contract like an individual. This is now made statutory, for Section 65 89

provides that any act of the members in general meeting, the board of directors or

of the managing directors while carrying on in the usual way the business of the

company, shall be treated as an act of the company itself and the company shall

be criminally and civilly liable therefore, to the same extent as if it was a natural

person.

4.1.0 LIABILITIES OF THE COMPANY FOR THE ACTS OF ITS

OFFICERS AND AGENTS.

With regards to the acts of officers and agents of the company, Section 66

specifies the circumstances in which the company will be liable either directly or

vicariously.

Section 66 of the 1990 Decree expressly provides that the acts of an agent or

officer should not be deemed to be the acts of the company unless in the following

circumstances: he ought

89
CAMA 2004

41
(a) Where expressly or impliedly authorized by the company, or

(b) The officer or agent has been held out by the company as having such

authority unless such a third party had actual knowledge that the officer or agent

lacks authority, or by virtue of his position and relation to the company, he

ought to know of lack of such authority or the irregularity.

Section 66(3) preserves the common law rule by providing that nothing in

Section 66 shall derogate from vicarious liability of the company for the acts of

its servant within the scope of their employment

Where the act of the agent or officer as the case may be, is out of the scope of

authority such act has been ratified.

PROVISIONS EXEMPTING OFFICERS AND AGENT FROM LIABILITY

Section 67(1) provides that

Any provision, whether contained in the articles of a


company or in any contract with a company or otherwise, for
exempting the officer of the company or any person (whether
an officer of the company or not) employed by the company
as auditor from, or indemnifying him against, any liability
which by virtue of any rule of law, would otherwise attach to
him in respect of any negligence, default, or breach of trust
of which he may be guilty in relation to the company, shall

42
be void.

(2)Notwithstanding the provisions of subsection (1) of this

section-

(a)A person shall not be deprived of any exemption or a right

to be indemnified in respect of anything done or omitted to

be done by him while any such provision as mentioned in

that subsection was in force; and

(b)A company may, in pursuance of any such provision as mentioned in subsection

(1) of this section, indemnify any such officer or auditor

against any liability incurred by him in defending any


proceedings, whether civil or criminal in which judgment is
given in his favor or in which he is acquitted or in connection
with any application under section 641 of this Act in or in
which relief is granted to him by the court.
The section provides that in any proceeding for negligence, default or breach of

duty or breach of trust against an officer of the company or a person employed

by a company as auditor it appears to the court hearing the case that the officer

or person is or may be liable in respect of the negligence, default or breach of

duty or breach of trust, but that he had acted honestly and reasonably and that,

having regard to all the circumstances of the case, he ought fairly to be excused

43
for the negligence, breach of duty or breach of trust, that court may relieve him,

either wholly or partly, from his liability on such terms as court may deem fit.

The rationale for the above provision (section 67) is to protect the company in

appropriate circumstances and at the same time protect the officer or auditor

where such officer has acted honestly and reasonably and ought in the

circumstances to be protected.

4.1.1 CRIMINAL LIABILITIES

Section 65 now provides that a company may be criminally liable for the acts of

its members in general meeting, the board of directors, or the managing director

as if the company were a natural person.

The modern general principle of criminal liability of companies was established

in the case of Agbebaku v State90, As was decided by Onyekachi Aja Otisi JCA;

it was held that the principle enunciated there in is that a corporation which can

only have knowledge and form an intent through its human agents, will be liable

in the circumstances are such that the knowledge and intention of the agent must

be imputed to the corporation.

The directors and managing directors or officers of the company represents the

90
(2015) LPELR 25763 (CA) Pp 19-22 para A

44
directing mind and will of the company, if proof of mens rea as necessary

ingredient; the Court stated that the company or corporation houses can no longer

claim immunity from criminal prosecution on ground that they are incapable of

possessing the necessary mens rea for the commission of criminal offences. By

way of principle of attribution, the criminal body corporate, that is the person or

group of persons in control of the affairs of the company and at the helm of it

affairs, can be attributed to the company and the company can be prosecuted. This

means attributing the will of the individuals on to the company to attract criminal

liability of the corporate body. “It is true that a corporation can only have

knowledge and form an intention through its human agents and be criminally

liable for the acts of its agents. However there is exception to that, in FDB

Financial services ltd v Adesoza91;it was well stated that directors, officers and

employee of a company can be held criminally liable for any criminal act that

they personally commit regardless of whether they were acting in furtherance of

the corporation’s interest. Then directors officers and employee must answer for

any personal wrong done and cannot be shielded by the corporate entity. The

court will then occasion demands lift the veil of incorporation to identify wrong

doers. but circumstances may be such that the body corporate, if the responsible

agent of a company, acting within the scope of its authority, puts forward on its

91
(2002)8 NWLR (pt668)170 at 173 Pp24 para c-f

45
behalf a document which he knows to be false and by which he intends to

deceive, I apprehend, that his knowledge and intention must be imputed to the

company”.

LIABILITY IN CONTRACT.

Corporation Act 124 slates that once a company is registered, it is granted the legal

capacity and power of an individual, which includes, quite naturally, the ability to

enter into a valid contract in its own name.

Aka’ahs JCA opined in Afri Bank Nig. Ltd v Muslad Enterprises Ltd and Anor92;

it was the second respondent who accepted the terms and condition of the facilities

granted to the first respondent on exhibit P1. It is a well known principle of law

that a limited liability company is an entity different and distinct entity from its

managing director or human agents who act for it. So even though the second

respondent was the sole signatory to the acts of the first respondent, and he was a

moving spirit behind the activities of the first respondent, he cannot without more,

be held liable for the debts of incurred by the first respondent.

However, as a director of an incorporated company he can be held liable for the

loan granted in favour of the company if he is either a surety or guarantor of the

loan.

92
(2007)LPELR 5126 (CA) (Pp19-20 paras B-A)

46
Obaseki-Adejumo JCA stated in Daily Times v Sky Bank Nig Ltd93 Loans may be

granted to provide funds to enable a director meet expenditures incurred for

purpose of the company or to enable him to perform his duties properly. Also

where the ordinary business of the company includes the lending of money or

giving of guarantees for loans made by the other persons.

In the second case, the loan or guarantee must first be approved by the company in

general meetings of a condition imposed that if it is not approved at or before the

next general meeting, the loan must be repaid or the guarantee discharged within

six months from conclusion of the meeting.

I am therefore not hesitant to conclude that the provision of section 270 of CAMA

does not Ipso facto render any guarantee executed without complying with the

provision, illegal and unenforceable but merely renders the director themselves

who authorizes it liable to the company for losses arising therefore. In other words,

the loan/guarantee shall not be affected by the reason of failure to obtain prior

approval of the members in general meetings

93
(2017) LPELR-43539 (CA).

47
4.1.2 CIVIL LIABILITIES

The principle of vicarious liability of a company for the act of its staff while acting

in the course of their employment has also been well articulated by legal

authorities, In other to be able to hold a company vicariously liable, it must be

established that the acts complained about were firstly committed by the officers of

the company, secondly, that such acts were carried out on the course of the

employment of the company.Ogundare JSC in Ifeanyi Chukwu Osondu and Co

Ltd v Soleh Boneh Nig. Ltd.94 state that the principle of law is that a master is

liable for any wrong even if it is a criminal offence or a tortuous act committed by

his servant while acting in the course of his employment. It was also stated that;

The Corporation aggregate may be liable to be sued for any tort provided that;

a It is a tort in respect of which an action will be brought against a private

individual

b. The person by whom the tort is actually committed is acting within the scope

of his authority and in the course of his employment as agent of the corporation.

c. The act complained of is not one which the corporation would not in any

circumstances , be authorized by its constitution to commit unless perhaps the

corporation has expressly authorized the act.

94
(2002) ALL FWLR (pt27) pg 250 para 1

48
Karibi-Whyte JSC in his contribution in Agbanelo v Union Bank of Nig. Ltd95

stated; The liability of the master is dependent on the plaintiff being able to

establish the servant’s liability for the tort and also that the servant was not only

the master’s servant but that he also acted in the course of his employment has

been said that any director who personally commits a fraud or any other tort in the

course of his duties is liable to the injured party. This is on the principle of that

whoever commits a wrong is liable for it himself, and nonetheless so that he was

acting as an agent or servant on behalf, and for the benefit, of another. A

corporation is answerable on the ordinary principle of vicarious liability. The

liability of a corporation for torts committed by its agents or servants is governed

by the same rules as those which determine the liability of any other private

individual.

Misappropriation of funds in a company constitutes civil liability: In the case of

Alade v Alice Nig. Ltd and Anor,96 The defendant company raised a loan from the

plaintiff to be used in trading, however, the loan amount was instead used to offset

the company’s prior indebtedness. The Supreme Court found all directors of the

company liable in accordance 290 0f the CAMA for applying a loan for a purpose

other than that for which it was obtained.


95
(2015) LPELR 25763 (CA)
96
(2010) 19 NWLR (pt 1226) 111.

49
4.2 REMEDIES

At common law, a shareholder did not have the right to bring an action for a

wrong against a company. It was stated that a shareholder cannot bring an action

on behalf of the company based on the principle of corporate personality. If the

wrong is one that can be ratified by the majority, known as the majority rule.

Under the exception to the rule in Foss v. Harbottle97, a shareholder can sue to

redress a fraud perpetrated by those in control of the company. By Section 29998,

the company shall where irregularity has been committed in the course of a

company’s or by a minority member as remedy for breach of duty by directors.

The company is the proper and only plaintiff or defendant in an action for a wrong

done to it or done by it through its accredited employee. In First Bank Nig. PLC

v Aboko;99 In the instant case the second defendant was not answerable

personally for any wrong he might have committed in the course of discharging

his former duties. He was not a party to the action and his name was accordingly

struck out.

Eko JSC decide in Total E & P Nigeria Ltd v Emmanuel & ors100; It is the

plaintiff suing a company or incorporated body to sue in its registered name. It

97
(1843)2 Hare 461
98
CAMA 2004
99
(2006) ALL FWLR (pt301) 1897
100
(2014) LPELR 22679(CA)

50
was also decided in Usuah v G.O.C. Nigeria Ltd101, where the party sued is

G.O.C. Nigeria Ltd, it was held that the said party cannot by process of

amendment be substituted with G.O.C. Nigeria Ltd. Total E &P Nigeria Ltd

cannot be a misnomer, synonyms or substitute for the party sued----Total

Exploration Production Company Nigeria Ltd.

It was decided in the case of Odutola Holdings Ltd and Anor V Ladejobi and

Anor102 that a director of a company can authorize that action be taken to protect

the business of the company. In the instant case, there was no evidence that the

article of association of the appellant has provisions which prevents the board of

directors from action to protect the business of the company.

The term breach does not include a failure to observe a duty of good faith and

loyalty, care and skill, but also an act utlra vires the powers conferred upon the

directors or ultra vires the board as a whole or the company itself. Equally, if the

company is in liquidation, the liquidator will in general meeting have the conduct

of the action in the company’s name though if the breach of duty falls within

Section 310103 of the Act, he or the official receiver, or any creditor or contributor

etc. may instead be able to invoke the simpler procedure of a summons in the

liquidation.
101
(2012)3WRN 123
102
ALL FWLR 2006 (pt322) 1397
103
Sec 311 CAMA

51
A right of petition under this provision is available to members who has been

unjustly excluded or removed from his position in the directorate or management

of a company. The application shall be made to the Court, the ground being

misfeasance and the Court may require the director to account.

INJUNCTION(S) OR DECLARATION(S)

Injunction as a remedy may be primarily adopted to prevent a director from

further breach or where a breach is threatened but has not yet occurred. The

essence of a derivative causation, but also problem or ultimately shifting liability

back to the shareholders through indemnification or insurance. It further went on

to check the potential problem of damages being excessive, in relation to the

magnitude of the director’s sins, as well as promoting a dialogue between the

court and the corporate board with respect to the boards proper function.

Moreover, the prospect of being sued is itself a substantial deterrent for many

corporate executives or being enjoined for failure to perform ones duty. The court

can use its injunctive power in imaginative way such as to improve the

management of corporation either by removal of a fraudulent director or in

pursuance of their inherent equitable powers.

52
In Agip Nig. Ltd v Agip Petroleum International and ors104; A derivative action

also known as a shareholder derivative suit is a law suit brought by a shareholder

on behalf of the company against a third party. Often the third party is an insider of

the corporation such as the directors or executive officers. Under the traditional

corporation law, management is responsible for bringing and defending the

corporation against suit. The second basic requirements at common law for a

derivative action are;

1. That the alleged wrong or breach of duty s one that is capable of being

ratified by a simple majority of the members and

2. That the alleged wrong doers are in control of the company, so that the

company which is the claimant cannot claim by itself.

Therefore, suits for equitable relief can motivate director to act prudently and in

the best interest of the company. According to Prof. Gower, this remedy appears

to be the most satisfactory course, provided the action is taken within a reasonable

time.

Derivative action may only be brought where the wrong complained of

1. Amount to a fraud on the minority and the wrong doers are in control of the

company.

2. Activities by the directors, officers and employees causing harm to the


104
(2010) ALL FWLR (pt520)1203 para 2

53
company breach of duty etc. that cannot be ratified by ordinary resolution..

3. Is outside the company’s objectives and so cannot be ratified under any

event

DAMAGES OR COMPENSATION

At common law, damages are for breach of duty of care, whereas compensation is

the equitable remedy for breach of fiduciary duty.

It is unlawful for a company to make to any director of the company any payment

by way of compensation for loss of office, or as consideration for or in connection

with his retirement from office unless particulars, with respect to the proposed

payment and the amount, have been disclosed to members and the proposal is

approved by the company.105 Similarly, if in connection with the transfer of the

undertaking or property of a company it is proposed to make any payment to a

director by way of compensation for loss of office, or as consideration or in

connection with his retirement from office, the payment will be lawful unless

particulars of the proposal and the amount have been disclosed to members of the

company and approved by the company.106; if a director receives payment in

contravention of this provision, the amount received by him in trust for the

company.107

105
Ibid. Section 271.
106
Ibid. Section 272(1).
107
CAMA, Cap. C20,LFN, 2004,Section 272(2)

54
REVISION OF CONTRACT IN WHICH THE DIRECTOR IS

INTERESTED

Where there has been an arrangement, which derogates from the rules regarding

entering in to contract in which the director is interested, may be avoided at the

instance of the company, provided restitution in integrum is possible and the right

of a bonafide third party have not accrued.

ACCOUNTING FOR PROFIT

A director who makes secret profit out of the performance of his duty will be

accountable to the company. 108

“It is quite clear that if an agent uses property with which he has been entrusted

by his principal so as to make profit for himself out of it without his principals

consent, then he is accountable for it to his principal …so if he uses a position of

authority, to which he has been appointed by his principal so as to gain money by

means of it for himself, he is accountable to his principal

for it …Likewise with information or knowledge which he has been employed

by his principal to collect or discover, of which he has otherwise acquired for

the use of his principal, then again if he turns it to his own use so as to make

profit by means of it for himself, he is accountable … for such information or

108
Ibid. Section 273(1)

55
knowledge is the property of his principal just as much as an invention is

…‟.The company may claim an account of any profit made by director whether

or not he rescinds the contract, if the profit arises out of the contract with the

company.

4.2.1 RELIEF FROM LIABILITY

A director must make commercial decisions. These decisions often involve some

form of commercial risk and are sometimes made on the basis of limited

information.

It would be unjust to hold director personally liable for a breach of duty regardless

of the situation; Section 1318109 provides some protection for company officers

against the consequences of a breach of duty in limited circumstances. The

section confers a discretionary power on court which reads

proceedings are taken that the person is or may be liable in respect of

negligence, default or breach but that the person has acted honestly and that,

having regard to all circumstances of the case, including those connected with

the person’s appointment, the person ought fairly to be excused for the

negligence, or default or breach, the court may relief the person either wholly or

109
Corporation Act 2001

56
partly from liability on such terms as the court thinks fit.

The purpose of the corporations Act and its predecessor was for permitting the

economy to be advantaged by such entrepreneurial ventures with limited liability

and regulate the rights of members inter se, the right between and creditors of

corporation.

In As long as there is full disclosure to the general meeting and ratified by the

passing or an ordinary resolution, a director will be relieved of any liability

arising thereto. He could equally be indemnified against liability in respect of

breaches of duty if he acted on the orders of the company and within its powers.

Vassilev V Pass Industry Nig. Ltd, and Others110.The plaintiff now respondents

filed a suit before the Plateau State High Court, claiming against the defendants

jointly to severally for a certain sum of money per-day, as per the agreement

executed by both parties, in 16th July, 1992.The case was heard without the

defendants attending court and judgment was entered against the defendants

jointly and severally.

The second defendant, who was the managing director of the first defendant, filed

an appeal challenging the judgment in the basis that the claim against the

defendants was jointly and severally and thereby occasioned a serious miscarriage

110
(2002) ALL FWLR (pt 19) 418 CA

57
of justice. A breach of duty bearing directly upon the personal right of individual

shareholders as defined in the article or refusal to register a transfer of share for

an improper purpose cannot be ratified by the general meeting.

Finally therefore, whereas under some circumstances a director may be relieved

or not relieved from the liability, the directors are more vulnerable now in the

management of the affair of the company than at any time before. Hence prudent

directors may consider safeguarding their position as director in respect of

negligence out of omission.

4.3 CONCLUSION

In conclusion, despite the fact that a company is a juristic person who act through

its agents and officers; who though are immune from liabilities, may be liable for

their acts in certain afore stated circumstances.

Finally no doubt, a closer look at the Act shows that, directors are neither liable

for not attending board meeting nor as a corollary for failing to prevent their

colleagues from negligent act. Liability is based on personal

wrongdoing138.Therefore the company remains liable for the acts of its directors

who are acting specifically under the instructions and benefits of the company

58
CHAPTER FIVE

CONCLUSION AND RECOMMENDATION

5.1 CONCLUSION

The principle of corporate personality, though fundamental in company law was

never meant to be sacrosanct to the extent that it could be used to protect crime,

fraud or unethical commercial practice.

However, the corporate structure lends itself easily to numerous fraudulent

dimensions; it permits criminals to operate behind a veil of anonymity, it also

fosters notions of respectability based on a cooperate image which may have

been carefully contrived by dishonest insiders. The challenge posed to the law

by persons who deliberately use the corporate personality concept for dishonest

or criminal motives are formidable.

This is not to say however, that in every case where a company is involved in

crime, the agents and officers are responsible. The advantage of incorporations

has been put to dubious use by insiders to the disadvantage of the company.

However, in recent times officers and agents of a company for whose act the

company will be held liable are equally held liable with the company as

59
principal offenders111

Corporate liability ensures that the offence committed either by agents or

officers while acting in their capacity as such will not go unpunished and the

fine proportionate to the gravity of the offence.

Thus, the imposition of liability on the company gives all those acting as the

„brains‟ and directing mind of the company an interest in the prevention of

illegalities and they are in position to prevent them.

Moreover, it will make them be on their guard since such convictions of the

company can give them a bad image in public.

5.2 RECOMMENDATION

An attempt has been made to examine the officers and agents of a company: their

appointment, duties, remuneration, removal and liabilities under the Company

Allied Matters Act 2004.The Act even though was made for the protection of the

officers also gave room for instances where these right can be boycotted that is,

lifting the veil of incorporation.

Be that as it may, there is the need for companies in Nigeria to employ committed

officers and agents who seek to uphold the course of the company at all times and

111
See Section 7 Criminal Code

60
not people who run after their own selfish interest or means of defrauding the

company.

The area of the law in Nigeria need further development as to curb the rate at

which fraud is being perpetrated by the officers and agents of the company who

hide under the principle of corporate personality to defraud the company.

Therefore, a more stringent method of appointment of officers and agents should

be employed.

61
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