Short Notes Questions DADA AFA
Write short notes on the following:
Directors
According to section 179(1) of the Companies Act, directors mean
those persons by whatever name called, who are appointed to direct and
administer the business of the company.
The law looks at the substance and not the form. Specifically, they need
not be called directors to perform the roles of directors.
Directors are in charge 0f the day to day management of the company.
The law in section 137(3) of Act 179 is that, the business of the
company shall be managed by the board of directors who may
exercise the powers of the company that are not by this Act or the
Regulations required to be exercised by the members in general meeting.
Directors are supposed to steer the company in the proper direction for
the realization of the objectives and aims of the company. He/she is the
administrative head of the company. As Hayfron-Benjamin J said in
Okudjeto v Irani Brothers, “The conduct of a company’s business is the
responsibility of the board of directors”.
Directors are also required to convene the first Annual General Meetings
(AGM) within 18 months of incorporation according to section 149(1). A
general meeting is needed to be convened for the discussion of matters
concerning the company which includes appointment of directors,
declaration of dividends, amongst others.
Section 123 of Act 179 provides that the directors shall ensure that the
company keeps proper books of the company’s account. Furthermore, the
directors shall cause to be circulated to members and debenture holders
of the company’s financial statements and the directors’ and auditors
report as reflected in section 124.
The law takes cognizance of certain types of directors recognised: de
facto and shadow, substitute and alternate directors, executive
and non-executive directors.
Short Notes Questions DADA AFA
De Facto Directors
A De Facto Director refers to a person who holds himself out as a director
or knowingly allows himself to be held out as a director although not duly
appointed as a director. Such a person shall be saddled with the duties
and liabilities of a director as if he were duly appointed. This is the effect
of section 179(2)(a) of the Act.
Apart from being fixed with liabilities of a director, there is a penalty for
such an irregularity. Section 179(3) provides that if any person, not
being a duly appointed director of a company, shall hold himself out, or
knowingly allow himself to be held out, as a director of the company such
person or the company as the case may be, shall be liable to a fine not
exceeding one hundred pounds.
Under section 179(4), a person who is described as director of a
company, whether such description is qualified by the word "local",
"special", "executive", or in any other way, shall be deemed to be held out
as a director of that company.
In Commodore v. Fruit Supply(Ghana) Ltd, where the name of a non-
shareholder who had not been appointed director was printed on the
company’s letterhead as a director and this person was allowed to
transact the business of the company, the Court of Appeal held that he
was nevertheless a director despite the fact that he was not duly
appointed as one, unless the person whom he dealt with knew or should
have known of the irregularity.
This case is consistent with the decisions in Re Sykes (Butchers Ltd)
and West African Express v Craig.
In Buosiako Co Ltd v. Cocoa Marketing Board, the plaintiffs relied on
a letter written by the defendant board, where the defendants had agreed
to make certain payments to them. The defendant board denied the
validity of this letter written by Dr. Erybnn. Osei-Hwere J in disposing this
argument, held that Dr. Erbynn who wrote as the chairman of the Tender
Board had the fullest authority to write on behalf of the defendants to
announce their awards, although acting ultra vires.
Short Notes Questions DADA AFA
In Kwapong v Ghana Cocoa Marketing Board (Consolidated), Osei-
Hwere J observed that; The appointments of the members of the interim
management committee of the CMB by the President, not having been
made with the advice of the Council of State, was in clear contravention of
the Constitution, 1979, art 57 and were therefore quite irregular.
However, since they constituted the de facto governing body of the CMB
they could properly execute the lawful powers of the CMB.
The test for determining whether a person is a director or not is based on
whether that person is engaged in the central management of the
company, if not, this person will not be a de facto director even if the title
of director is conferred on him. This principle of law was highlighted in the
case of Secretary of State v Tjolle, where the court held that the
purported director did not occupy any important role and as such was not
a de facto director.
For the protection of third parties, they are entitled to assume that a
person has been appointed as a director lawfully although he was a de
facto director and was not involved in the central management of the
company.
Shadow Directors
A shadow director by section 179(2)(b) of the Companies Act is any
person, not being duly appointed director of a company but on whose
directions or instructions the duly appointed directors are accustomed to
act.
That person being a shadow director shall be subject to the same duties
and liabilities as if he were a duly appointed director.
In Re Hydrodam, the liquidator of a company brought disqualification
proceedings against two of its directors that they were either de facto or
shadow directors. The court held that the allegation that a person could
be both a de facto and shadow director was embarrassing.
The court distinguishing between shadow and de facto director held that a
shadow director, unlike a de facto director, does not claim or purport to be
a director. He claims not to be a director. Rather, he lurks in the shadows,
sheltering behind others who, he claims, are the only directors of the
company to the exclusion of himself.
Short Notes Questions DADA AFA
The court was of the view that, to establish that a defendant is a shadow
director it is necessary to allege and prove:
1. Who are the directors of the company, whether de facto or de jure.
2. That the defendant directed those directors on how to act in relation
to the company or that he was one of the persons who did.
3. That those directors acted in accordance with such instructions; and
4. That they were accustomed so to act.
A determination of “Accustomed to act” in accordance with the
instructions of the alleged shadow does not mean that in all decisions of
the board, they followed the instructions and directors of the alleged
shadow director.
This position of the law was confirmed in Australian Securities
Commission v AS Nominees Ltd. In the court’s opinion, accustomed to
act does not require that there be instructions embracing all matters
involving the board. More properly put, as and when the directors are
directed or instructed, they are accustomed to act. “The third calls the
tune and the directors dance in their capacity as directors”
In Re Unisoft (No.3) it was said that the shadow director must be, in
effect, the puppet master controlling the actions of the board. The
directors must be people who act on the directions or instructions of the
shadow director as a matter of regular practice.
Substitute Directors
A substitute director is appointed by the company, unless the Regulations
otherwise provide-section 187(1) of Act 179
By section 187(2), a substitute director is one who is appointed to act as
a deputy for another named director and as his substitute in his absence.
A substitute director shall not be counted as a director for the purposes of
any provision in this Code or the company's Regulations prescribing a
minimum or maximum number of directors-Section 187(3).
A substitute director may be counted for quorum purposes. He can attend
meetings of directors but cannot vote at a meeting where the named
director whom he substitutes is present-section 187(3)
A substitute director shall be deemed to be a full director of the company
for all purposes and shall be appointed and may be removed in the same
way as directors are required to be appointed and removed-section
187(4)
Short Notes Questions DADA AFA
He shall not cease to be a director by reason of the fact that the director
for whom he is a substitute ceases to be a director-section 187(4)
In Professor Gower’s Comments on section 187, he indicates that:
The permanent substitute director under section 187 is a full-fledged
director and must be appointed by the members. He differs from the
normal director only in that he is counted as one with his ‘principal’ for the
purposes of minimum and maximum numbers and he cannot vote at a
board meeting if his principal is present.
Alternate Directors
An alternate director is appointed by the named director, unless the
Regulations prohibit such appointment-section 188 of Act 179.
Where a director is absent from Ghana for a period not exceeding 6
months in time or for whatever reason is unable to act as a director, he
may appoint another director or any other person with the approval of the
board of directors as the alternate directors-section 188(1).
Section 188(2) provides that the appointment shall be in writing signed
by the appointor and appointee and lodged with the company.
Every alternate director so appointed shall, for the period of such
appointment, be deemed for all purposes to be a director and officer of
the company and not the agent of his appointor. Where the code or
regulations stipulate a minimum or maximum number of directors, he will
not count to satisfy the stipulations. But he can be counted for the
purposes of quorum.
An existing director may be appointed as an alternate and shall have an
additional vote for each appointment. However, stemming from the Latin
maxim delegatus non protest delegare, an alternate director cannot
appoint another person as an alternate.
By section 188(8), an alternate director cannot vote or attend directors’
meetings when his alternate is present. That is when the alternate is
himself not a director already. An alternate director may act for at most
six months.
The appointment of an alternate director ceases if his appointor ceases to
be a director.
Short Notes Questions DADA AFA
Where the alternate director is not an existing director, his appointment
as an alternate must be approved by the board of directors. Thus, in
Okudjeto v Irani Brothers, the High Court per Hayfron-Benjamin J,
held that; the plaintiff attorney was not a director, and there was no
resolution of the board approving him, hence his appointment as an
alternate director was irregular.
Executive Directors
They are directors appointed to perform managerial roles or functions of
the company. eg. Managing Director.
This is governed by section 192 of the Companies Act.
The law provides that unless the company's Regulations shall otherwise
provide, the directors may from time to time appoint one or more of their
body to such other office for such period and on such terms as they may
determine and, subject to the terms of any agreement entered into in any
particular case, may revoke such appointment;
Subject to compliance with section 194 of this Code and subject to the
provisions of section 195, such office (executive director) may be
remunerated by way of salary, commission, share of profits, participation
in pension and retirement schemes, or partly in one way and partly in
another, as the directors may determine.
Managing Director
A managing director is a director to whom other directors have entrusted
to and conferred on any or all power(s) exercisable by the directors with
such terms and restrictions that the board of directors deem fit-section
138(b).
Short Notes Questions DADA AFA
Section 4 of the First Schedule of the Companies Act defines managing
director as a director to whom it has been delegated some of the powers
of the board of directors, to direct and to administer the business of the
company.
The board of directors may revoke or vary such powers-189(1)(c). The
MD has the ostensible authority to undertake commercial transactions on
behalf of the directors and the company. But the MD has no right unless
the same are conferred on him either by Regulations or resolution of the
board to institute legal action on behalf of the company.
Section 193(a) of the Act provides that directors may appoint from
time to time one or more of their body to the office of managing director,
unless the regulation forbids.
An MD holds his position by virtue of the fact that he is a member of the
BOD. Hence once he ceases to be part of the BOD, automatically, he loses
his position as MD. Case in point is Southern Foundries v Shirlaw. Per
Lord Atkin, there can be no doubt that the office of a managing director
could only be held, and that upon the office holder ceasing for any cause
to be a director the office would be ipso facto be vacated.
The MD has two separate contracts. One as a member of the BOD and
another appointing him as MD.
Every MD is an Ex Director but Not every Ex Director is an MD. And Every
Director is Not an Ex Director. But every Ex Director is a Director.
With respect to MDs, the acting MD has all the power of the substantive
MD.
In West African Express v Craig, in 1957, the plaintiff, a married
woman, was employed by the defendant company whose head office was
in Accra as a manageress of their Kumasi travel agency. There was no
properly drawn up contract of employment. However, the plaintiff was to
have for her services 50 per cent. of the commission income earned by
the establishment after deduction of expenses. By October 1959 she had
received nothing by way of remuneration. Meanwhile she was offered
employment by another travel agency. She therefore wrote to her
employers threatening to terminate her employment with them and to
close down the Kumasi office unless she was offered a new and more
satisfactory agreement. As a result of this threat, the general manager of
the company who was acting as the managing director in the absence on
Short Notes Questions DADA AFA
leave of the substantive holder of the post, entered into a new agreement
with the plaintiff. The question for the determination of the trial court was
whether the acting managing director had the authority to enter into the
agreement. The court held that he had the authority to do so. The
defendant appealed to the Supreme Court against the ruling.
Held: the general manager acting for the time being as the managing
director had authority to enter into the agreement. As acting managing
director he had a general authority to act in the best interest of the
company to prevent part of the company's business from being closed
down.
How An Md’s Actions Can Bind The Company.
For a Managing Director’s actions to be binding on the company, the MD
should be action for or on behalf of the company. Depending on the
circumstances, it may not be enough for the person to sign a contract as
MD but they should go further and sign for and on behalf of the company.
In Promexport International(Ghana) Ltd v First Ghana Building
Society, the Court of Appeal was presented with a situation where one
Raymond Okudjeto, described as an MD of Promexport reached an
agreement with Kuottam Enterprises Ltd to purchase latter’s property.
FGBS claimed to be the owner of the property occupied by promexport
Ltd, and the latter had refused to pay rent or recognize the title of FGBS.
Consequently, FGBS sued Promexport for recovery of possession of the
premises occupied by Promexport and for mense profit.
On Appeal, the CA ruled that, the description of Okudjeto as the MD of the
defendant company does not ipso facto make him agent for or on behalf
of the defendant company. Hence, it cannot as a matter of law be said
that Raymond entered into the said contract for or on behalf of the
defendant company, and did not bind the company to the transaction.
In Hely-Hutchinson v Brayhead Ltd, the plaintiff sued the defendants
for losses incurred after a failed takeover deal. The CEO, chairman and the
de facto MD of Brayhead Ltd, Mr. Richards, had guaranteed repayment of
money, and had indemnified losses of the plaintiff in return for injection of
money into the plaintiff’s company, Perdio Electronics Ltd.
Perdio was then taken over by Brayhead and the plaintiff gained a place
on the board, but Perdio limited did not recover. It went into liquidation,
Short Notes Questions DADA AFA
the plaintiff resigned and sued for losses. Brayhead refused to pay on the
basis that Mr Richards had no authority to make the guarantee and
indemnity contract in the first place.
Lord Denning held that he did have actual authority because the fact that
the board had let Mr. Richards continue to act had created actual
authority.
Casual Vacancy
Any vacancy created as other than as a result of the completion of the
term of office of the director. For instance; death, resignation, dismissal,
removal and disqualification. Okudjeto v Irani Brothers provides an
example of casual vacancy by removal of a director at an EGM.
In Politis and Another v. Plastico Ltd(No.2) it was held that section
181 (5) of the Companies Code, 1963 (Act 179), gave a sole surviving
director power to appoint another to fill a causal vacancy, and a casual
vacancy was any vacancy not occurring by effluxion of time, i.e. any
vacancy occurring by death, resignation or bankruptcy.
Section 181(5) provides that, notwithstanding any provision in the
company's Regulations, any casual vacancy in the number of directors
may be filled by,
(a) the continuing directors or director notwithstanding that their
number may have been reduced below that fixed as the necessary
quorum of directors; or
Short Notes Questions DADA AFA
(b) by an ordinary resolution of the company in general meeting.
In exercising their power to fill such vacancy the directors shall observe
the rules laid down in sections 203 and 204 of this Code and shall not
appoint any person to be a director unless they have taken reasonable
steps to satisfy themselves that he is a person of integrity and suitable to
be a director of the company;
If the casual vacancy so filled is one which, under the terms of the
company's Regulations, should be filled by an appointment by any class of
shareholders, debentureholders, creditors, employees, or other person,
the director appointed by the continuing directors or by an ordinary
resolution of the company in general meeting, as the case may be, shall
cease to hold office so soon as any other director is duly appointed in
accordance with the Regulations.
