Author: Barbara Ewoenam A. Kukah
Introduction
Every year, several businesses are registered in Ghana. According to a report, a total of 92,455 businesses were registered in Ghana in 2019. Many of these registered businesses are companies which require a board of directors such as companies limited by shares, companies limited by guarantee and unlimited companies. However, many directors, especially first-time directors, are unfamiliar with their duties and the legal requirements placed on them.
Being a director of a business entity is more than simply being named in company registration documents or attending board meetings. The Companies Act 2019, (Act 992) serves as the foremost statutory authority to assist both new and experienced directors in the course of the performance of their duties. This article examines, simplifies and explains the general provisions of the law on the appointment, duties and liabilities of directors and how this applies to them.
Who Are Directors?
Directors are persons who are appointed to administer the business of a company (Section 170 of the Companies Act, 2019 (Act 992)). It does not matter by what name they are called. Whether they are called a governing council, board of directors, council of elders, etc, as long as they are appointed to administer the business of a company, they are regarded as directors by the Companies Act.
Even if a person was not formally appointed as a director but the directors of the company are accustomed to act on that person’s instructions, that person will be subject to the same liabilities as the directors. This applies to persons who hold themselves out as directors of a company or allow themselves to be held out as directors of a company when they have not been duly appointed as such.
In the case of Commodore v. Fruit Supply (Ghana) Ltd [1977] 1 GLR 241, one Attoh Quarshie, although not appointed as a director of a company, used to act and conduct business on behalf of the company. His name was also on the company’s letterhead, and he was held out as a director by the company. In a dispute over money in which the Defendant claimed she had paid some of money to Attoh Quarshie on behalf of the company, the company denied that he was a director and averred that he was not authorized to receive payment on behalf of the company. The Court of Appeal however held that the company was estopped from denying him as a director since it had held him out as such. It also held that as a director, Attoh Quarshie owed a fiduciary duty to the company and as such had to account for all monies he received on its behalf.
Number of Directors
The minimum number of directors a company can have is two (Section 171 of Act 992). The actual number of directors a company can have is usually determined by the constitution of the company.
Appointment, Qualification and Removal of Directors
Qualification of Directors
Per section 173 of Act 992, any person is qualified to act as a director of a company except the following:
- An infant;
- A person adjudged to be of unsound mind;
- a body corporate;
- a person who is prohibited from being a director or promoter of, or being concerned or taking part in the management of a company as a result of an order made under section 177 so long as the order remains in force unless leave to act as director has been granted by the court in accordance with that section;
- an undischarged bankrupt, unless that bankrupt has been granted leave to act as director by the Court by which that person was adjudged bankrupt.
Section 177 of Act 992 restrains persons who have been convicted of an offense involving fraud or dishonesty, insider dealing, an offense in connection with the promotion, formation or management of a body corporate or any offense which is not a misdemeanor whether in or out of this country from managing companies except with leave of a court.
Again, section 177 provides that a person is automatically disqualified for appointment to as director of a company for five years if that person has:
- been convicted within the last five years of an offence involving fraud or dishonesty, or relating to the promotion, formation or running of a company;
- been a director or senior executive of a company that has become insolvent within the last five years on account of or partly as a result of the culpable activities of that director; or
- has been disqualified to act as Company Secretary, receiver, manager or liquidator of a company.
Where this person is subsequently subject to a second conviction, that person shall be automatically disqualified for a period of ten years and shall be permanently disqualified as a director if convicted for the third time.
Should you as directors appoint a person who is not qualified to act as a director to the board of a company, you have committed an offence and shall be liable to on summary conviction a fine of not less than five hundred penalty units and not more than a one thousand penalty units or to a to a term of imprisonment not less than two years and not more than five years. (One penalty unit currently amounts to twelve cedis)
Appointment of a Director (Sections 172, 300)
Any person who is appointed as a director must consent in writing to be appointed as a director. This consent must be filed with the Registrar of Companies within 28 days.
Before the appointment, the person must make a statutory declaration and submit it to the company and subsequently to the Registrar of Companies declaring that within the past five years, that person has not:
- been charged with or convicted of a criminal offence involving fraud or dishonesty;
- been charged with or convicted of a criminal offence relating to the promotion, incorporation or management of a company; or
- been a director or senior manager of a company that has become insolvent or if the person has been, the date of the insolvency and he particular company.
The Registrar of Companies must be notified of the appointment of a new director within twenty-eight (28) days of the appointment.
Casual Vacancy
Ordinarily, a director should serve as director till his/her term of office expires. However, in due to various circumstances, the office of a director may become vacant before the expiry of the term of his/her office. This is known as casual vacancy. It can occur when any of the following happens:
- when a director dies
- when a director resigns
- when a director becomes incompetent to as a director by reason of being convicted for a crime involving fraud, dishonesty or in connection with the management of a company.
- When a director ceases to hold office by virtue of not holding the specified share qualification of a company.
- When a director is removed from office.
When a director’s term of office ends, it is not classified as a casual vacancy.
The remaining director(s) may fill the vacancy by an ordinary resolution of the company in a general meeting or by the continuing director(s). A shareholder or creditor of the company may also apply to the court to appoint a director in the event that there are no directors, or that the number of remaining directors is less than the quorum or in the event that it is not possible or practicable to appoint directors in accordance with the company’s constitution.
Duties of Directors
The duties of directors in general are regulated by section 190 of Act 992. They include the following:
1.1 Fiduciary Duties
A director of a company stands in a fiduciary relationship towards the company and shall observe the utmost good faith towards the company in any transaction with or on behalf of the company. (Section 190(1).
This means that a director is to act in the best interest of the company. Section 190(2) of Act 992 provides as follows:
A director shall always act in what he believes to be the best interests of the company as a whole so as to preserve the assets, further the business, and promote the purposes for which the company was formed, in such manner that a faithful, diligent, careful and ordinarily skillful director would act in the circumstances and in doing so shall have regard to
- the likely consequences of any decision in the long term,
- the impact of the operations of the company on the community and the environment, and the desirability of the company maintaining a reputation for high standards of business conduct.
In considering whether a particular transaction or course of action is in the best interest of the company as a whole, a director may consider the interests of the employees, as well as the members, of the company. If the director was appointed by, or is a representative of, a special class of members, employees, or creditors may give special, but not exclusive, consideration to the interests of that class. (Section 190(4)).
Exercise of Powers
Directors are required to act in accordance with the constitution of a company, and only exercise powers for the purposes for which the powers are conferred (Section 190(3)).
It must be noted that nothing in the company constitution or a contract can relieve a director from their duty to act in the best interest of a company. Similarly, directors cannot be relieved from any liability they incur as a result of breaching the provisions of Act 992 in respect of fiduciary duties.
Directors are also required to exercise independent judgment in performing their duties.
Directors can only exceed the powers conferred on them by the company constitution with the approval of an ordinary resolution of the company. Should a director fail to obtain such approval, that director will be personally liable to pay the company or any other person the amount of money lost or the monetary value of damage caused to the company or that person as a result of the director’s action.
Conflicts of Duty and Interest
Part of the fiduciary duties of a director is the duty to avoid conflict of duty and conflict of interest. As a director of any company, you are to avoid placing yourself in a position where your duties to the company conflict with or may conflict with your personal interests or duties to other people. Section 192 of Act 992 provides that as a director you are to avoid the following:
- Using the company’s money, property or confidential information (which was obtained in your capacity as a director) to your advantage.
- Having a direct or indirect interest in a business which directly competes with the company unless it is a public company in which you are a shareholder or debenture holder.
- Having a personal interest whether directly or indirectly in a contract or transaction, which the company enters into.
What Constitutes Material Interest?
Holding two (2) percent or less of the shares or a class of shares in a public company or being a debenture holder of a public company does not constitute material interest. Likewise, holding debentures in a company does not constitute material interest.
For interest to be considered material, it must be more than two (2) percent of the shares if held in a public company or must be shares held in a private company. Every material interest must be disclosed in order to avoid conflict of interest.
Full Disclosure
As a director, you can however proceed with potential conflict of interest situations when the company gives its consent. This is done when the following is fulfilled:
- You make full disclosure by giving notice in writing to the directors at a board meeting (Section 194(4). This notice must state the nature and extent of your interest.
- The directors have a general meeting and pass an ordinary resolution to proceed or to authorize the transaction. (The interest holding director cannot vote on this resolution).
- You cause your interest to be registered in the company’s Interest Register (Section 195(1)).
Once this is done, you are entitled to enter into contracts with the company and are not required to account for any profit made from it (Section 194(1)).
Interest Register
The company is required by Act 992 to maintain an Interest Register which is to be kept at the same place as the Register of Members. When a director has an interest that is likely to create a conflict of interest, apart from disclosing this interest, the director is also to cause that interest to be entered into the Interest Register.
Professional Services To The Company
As a director, you or your firm may render professional services to the company and receive remuneration for it – provided full disclosure is made. You or your firm can however not act as the company’s auditor.
Company Information (Section 198 of Act 992)
In the course of your duties, you may have access to company information that would not have been available to you had you not been a director. The law stipulates that you are not to disclose this information to anyone or make use of that information except in the following circumstances:
- For the purposes of the company.
- As required by the law.
- When it is authorized by the Company’s constitution.
- When it is approved by a written resolution of the company which has been signed by three fourths of all members who are entitled to attend and vote at meetings.
- On receiving approval from the company at a general meeting by an ordinary resolution (You cannot vote on this. Neither can any person who holds shares in which you have a direct or indirect beneficial interest.) This approval can be given either before or after your action or transaction.
The Board of directors may also authorize you to disclose or act upon such information where they are satisfied that doing so is not likely to affect the company. However, you are accountable to the company for any profit you make from using this information.
In all these, you must act in utmost good faith and in the best interest of the company.
Acting As Company Secretary
As a director, you can also act as company secretary. However, where a legal provision requires an act to be done by both a director and a secretary, you cannot perform the act in both capacities. You can only act as either director or secretary in respect of that act. (Section 213).
Breach Of Fiduciary Duties
Should you breach your fiduciary duties to the company,
- You and any other person who knowingly participated in the breach are liable to compensate the company for the loss the company suffers as a result of the breach.
- You are also liable to account to the company for any profit you make as a result of the breach.
- The company can also rescind any contract or transaction between you and the company that was done in breach of your fiduciary duties to the company.
- The company can also bring legal action against you to restrain any threatened breach of your duties, enforce any liabilities you owe it or recover any of its property that is in your possession.
Other Things To Note
- Act 992 requires that at least one director of a company shall at all times be resident in the country. Should there be a willful breach of this provision, the Company and every director that is in default shall be liable to pay the Registrar an administrative penalty of twenty-five penalty units for each day during which the default continues. (Section 182)
- Directors are required to meet at least once in every six months in each year to consider the financial and operational affairs of the company. They may meet in the country or elsewhere. (Section 188).
- A director may summon a meeting of directors at any time. (Section 188(2)(b)).
- A director who becomes disqualified to act as a director is under a duty to report it to the Board and the Company Secretary in writing immediately. Failure to report within twenty-one (21) days of the qualification is an offence and on summary conviction the director shall be liable to a fine of not less than five hundred penalty units and not more than one thousand penalty unit or to a term of imprisonment of not less than two years and not more than five years or both a fine and imprisonment. (Section 178)
- The fees and other remuneration of directors shall be determined from time to time by an ordinary resolution and not by a provision in an agreement or in any other way. The company’s constitution may however make provision for benefits payable to the directors. (Section 185)
- A director who is also employed by the company may have their remuneration fixed by the terms of employment, but the person shall not receive any remuneration in addition to the fees which they are entitled to as a director of the company. (Section 185)
Conclusion
In all things directors are to be guided by the constitution of the company and by the Companies Act. They must always keep in mind that they are to act in utmost good faith and in what they believe to be the best interest of the company.
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