LIABILITIES FOR CORPORATE MISGOVERNANCE UNDER NIGERIAN LAW
Akwapoly Journal of Communication and Scientific Research (APJOCASR)
DOI:
https://doi.org/10.60787/apjocasr.v7no1.16Keywords:
liabilities, penal provisions, corporate governance, organization, fraudulent acts.Abstract
Corporate governance involves effectively running and administrating a company's business to achieve its objectives and policies while considering the interests of shareholders, stakeholders, and customers. It is a set of norms adopted as the standard practice for managing organizations, which aims to balance interests among everyone involved. A healthy corporate organization thrives on the effective distribution of organizational powers, which encourages promoting and sustaining democratic values in the sharing of corporate power, representation, and participation. However, in the Nigerian context, there have been cases of directorial abuse of power resulting in corporate misgovernance. This paper seeks to explore the legal implications of such actions and their direct or indirect impact on the well-being of the corporate organization to ascertain the penalties for misgoverned. Acts that endanger the interests of the company, its investors, creditors, and customers are detrimental to the country's economy. Notably, legal instruments such as the Company and Allied Matters Acts (CAMA) 2010, Failed Banks (Recovery of Debts), Financial Malpractices in Banks Act 1994, and Investment and Securities Act (ISA) 2007 curb such actions. These legal instruments contain penal provisions for fraudulent acts or omissions by the controllers and agents of such entities. The focus of this paper therefore is to review these penal provisions and the instances of their application to fraudulent company executives in the past. One of the key objectives is to evaluate the presence of liability provisions in legal instruments that hold companies and their officers accountable for non-compliance. Ultimately, the goal of the paper is to encourage and support the implementation of sound corporate governance and management practices in Nigeria.
References
1 It is observed that ‘the governance of corporations is now as important to the world economy as the government of countries. Corporations create jobs, generate tax income, produce a wide array of goods and services … and increasingly manage our savings and secure our retirement income’. See Bunmi Oni, “Corporate Governance: A Leadership Challenge in Nigeria”, (paper presented at the 5th Adetunji Ogunkanmi Lecture, November 24, 2005), p.2.
2 Section 37 of CAMA 2010 provides that once a company is duly registered and incorporated it becomes a corporate entity having perpetual succession and a common seal, which means that it can sue and be sued in its own name; it can also acquire and hold property. ‘It has the powers to the things normal humans can do.’ See also section 71 of CAMA.
3 Section 39(1) of CAMA 2010 provides that ‘a company shall not carry on any business not authorized by its memorandum and shall not exceed the powers conferred upon it by its memorandum or this Act’. Thus, thus a company should keep within these powers or risk liability for exceeding them; not minding the fact that the act was executed by officers of the company. See the case of Ashbury Carriage Co. v Riche (1875) L.R. 7 H.L. p. 653; this does not however affect a contract of conveyance to and from the company. See Section 39(3) of CAMA.
4 Because it’s a general rule that where any act of the company does not pass through the General Meeting, the Board of Directors or a Managing Director but through a single director or some officer or agent, the company is not liable for such acts. See Dr. Olugbenga Shoyele and Dr. Patrick Oche, ‘Civil and Criminal Liabilities of the Board and Management of Public Companies, Journal of Public and Private Law, University of Jos (online), p. 139
5 H.L. Boston (Engineering) Co. Ltd. v T.J. Graham & Sons Ltd. [1957] 1 Q.B. 159 at 172; [1956] 3 All E.R. 624 at 630; that is why it is provided in section 65(b) of CAMA that where an act done is not in furtherance of the authorized business of the company it will render the company liable to third parties provided it emanated from the embers of the company in general meeting, the board of directors or of a managing director (… ). That is why in most instances of liability under CAMA the defaulting officers are held jointly liable with the company.
6 It should be noted that officers had been defined in section 567 of CAMA 2004 in relation to a body corporate to include directors, managers or secretary.
7 This is a principle of law that protects the employees of a company because the company its enjoys a separate and a distinct personality from its shareholders, owners and directors. See Lee v. Lee Air Farming Ltd.(1961) A.C. p 12 where the court held that the deceased family was entitled to compensation from the Lee Air Farming Ltd although the deceased was the owner of the company, as well was in active employment of the company as a director and also an employee because the company upon its incorporation acquired a separate personality from the deceased owner and employee.
8 It was based on this principle that Economic and Financial Crimes Commission (EFCC) was able to prosecute the former CEO’s and key officers in Oceanic International Bank, Fin Bank, Intercontinental Bank Plc; and the ongoing prosecution of the CEO of Bi-Courtney company.
9 Section 71 of CAMA provides that a duly incorporate company can enter into a contractual agreement which if entered into by an individual would be valid and legally binding. It can as a matter of principle enter into these contracts through the agency of its officers. That was why in the case of WAA Nig. Ltd. v WAP Ltd. (1968) 1 ALR Commercial 65, the court did not find it difficult in finding the defendant company liable for the credit facilities given to the defendant by the plaintiff. Here the defendant company contention that its general manager lacks the power to enter into such contract was swiftly dismissed by the court as the general manager is part of the controlling minds of the company and which was not position was not wrongly exercised in this circumstance and as such the contract and its attendant liability was held to bind the defendant company. See also Lord Denning’s statement in H.L. Boston (Engineering) Co. Ltd. v T.J. Graham & Sons Ltd. Op. cit.
10 2002 NWLR (PT 643) 1 CA. In this case, the respondent ordered for certain equipments assuming he was doing was doing so on the authority of the company; which position was not effectively proved during the proceedings. The court dismissed his contention.
10 See the case of ELkington & Co v Hunter (1892) 2 ch. 452.
11 Section 18 of CAMA states that ‘any two or more persons having the requisite legal capacity can float a company thereby making the minimum number to be 2 members’.
12 It should be noted that the section did not specify whether the debt meant here includes both reasonable and reckless debts. I should think that the likely interpretation should be an unreasonable debt as the company itself is jointly and severally liable such other officers as there is at the time of default.
13 Membership of a company is as defined by section 79 of CAMA which provides that a member of a company is one who is a subscriber to the memorandum of the company, or one who agrees in writing to become a member of the company and whose name is entered in the register of members. The section concluded by stating that every shareholder in a company holding at least one share in case of a company having share capital is a member of such company. See Berliet v Francis (1987) 2 NWLR pt. 56 at 67 where the court held that there are two ways of becoming a shareholder/member of a company in Nigeria. Firstly, one must show a contract of agreement and secondly, establish that one’s name is in the register of members.
14 See Section 211 and 215 of CAMA.
15 Defined in section 567 of CAMA as ‘includes any person occupying the position of a director by whatever name called; and includes any person in accordance with whose directions or instructions the directors of a company are accustomed to act.
16 This provided for in section 250 of CAMA. It contains a proviso that when such a person is held by the company its representative in any such capacity, the company will bear the liability.
17 Section 283 of CAMA specifically provides that ‘directors are trustees of the company’s money’s, properties and powers and as such must account for all the moneys over which they exercise control and shall refund moneys improperly paid away, and shall exercise their powers honestly in the interest of the company and all its shareholders, and not in their own or sectional interest.’
18 See Aberdeen Railway Co. v Blaike Bros (1854) 1 Macq.(H.L.) 461; where the a company made a contract for the supply of goods from another firm, later to discover that its chairman is a partner in that other firm. The company refused to accept the goods and the matter went to court. The court held
19 The former CEO of Oceanic Bank Plc, Mrs Cecilia Ibru was discovered to have used the proxy companies (e.g. Cloudy Heights, Enifor, Prisky Gold, Bliss Bloss, Velvox and Circular Global) to acquire over 275 million shares in First Bank Nigeria Plc for N275,795,139; over 64 million shares in Union Bank of Nigeria valued at N64, 218,000; 93 million shares in the United Bank for Africa for N93,750,000; and shares in Oceanic Bank for N1,076,220,421. Other acquisitions included: 13 million shares in Oando for N13, 200,000; 388 million units of shares in other companies; and 600 million shares in BGL Plc. Prisky Gold, another company with which she had links, was used to purchase the following shares: 48.8 million in Access Bank Plc; 8,140,500 in Dangote Flour; 12,480,000 in Dangote Sugar Refinery; 12,500,000 in Fidelity Bank; 27,434,791 in First Bank; 25,316,400 in Japaul Oil; 10, 280,000 in Zenith Bank; and 200,000,000 in Transcorp Plc. Africa Lloyd, another company traced to her, purchased 431,201,702 million shares in Oceanic International Bank Plc. See generally, The Sun Newspaper, 9 October 2010.
20 (1942) 1 All E.R. 378; (1967) 2 A.C. 134; here the company wanted to purchase a property (a firm) but owing to its financial state was not able to. One of its directors alongside others put some money together and bought the property and sold its shares more than they bought making quite a profit. The company brought an action for the profit made by that director. The court held that the directors were accountable to the company for their profits since they had obtained it from an opportunity that came to them as directors; and that it was immaterial that the company had lost nothing since it had been unable to make the investment itself.
21 See Section 29
22 See Dominic Asada ‘Civil Liabilities of Company Directors for Corporate Mis-governance in Nigeria’, available online at www.researchgate.net/publication. We humbly disagree with the learned writer, the said section used the phrases ‘with intent to defraud’ and ‘any officer…in default’ which are suggestive that it is not a strict liability but a subjective one. Hence, we are of the view that for a suit to succeed against a director on this section, the plaintiff will first of all have to lead evidence to establish that there was ‘intent to defraud’.
23 Park v. Daily News Ltd. (1962) Ch. D 927; Where a director in a bid to prioritize these interests decided to sell the company and distribute the proceeds to the employees for their up keep while the shareholders got nothing. The court held that the arrangement was unfair and void, thus the director was liable for the proceeds he shared.
24 Section 270(3) of CAMA 2010
25 ‘Liabilities of Company Directors’ Paul Usoro & Co. Journal (online) April, 2008
26 See Re City Equitable Fire Insurance Co. (1925) Ch. 407
27 March 24, 2010, 151/10 X, (although it refers to criminal responsibility) – the provision discussed therein is similar to the one under CAMA. See webinformation at www.internationallawoffice.com/information/
copyright.aspx, accessed on 08/08/2010
28 Section 287(4)
29 See Re Claride’s Patient Asphalt Co (1921) Ch. 543; and section 641 of CAMA
30 See Re Dupmatic Ltd. (1969) 2 Ch. 305.
31 This is with respect to auditors appointed by the company as a director.
32 Section 288(1) of CAMA.
33 There had been raging controversy over the issue of white-collar crime constitute in itself crime properly so called. See American Sociological Review X (April 1945) 132-139.
34 Nigerian Criminal Code, Cap C38, Laws of the Federation 2004; and S. 3(1) of the Panel Code respectively.
35 See Lord Atkins dictum in Proprietary Articles Trade Association v. Attorney General for Canada (1931) AC 310 at p. 324.
36 C. Reasons, ‘Crime Against the Environment: Some Theoretical and Practical Concerns’, Crim. L.Q.Vol. 34 Nov. 1 (1991): in David Folorunsho Tom, ‘Corporate Crimes and Liability under Nigerian Laws’.
37 See E.A. Sutherland, White Collar crime, (New York, Dryden Press, 1949) p. 8.
38 (1914) 3 K.B. 98. This rule is based on the common law principle of public policy which demands public rights to be redeemed before individual rights are redeemed.
39 Section 276(3)
40 Section 277(4)
41 Section 281 of CAMA; see also Thomas Marshal (Exporters) Ltd. v. Guinle (1978)
42 This does not apply with respect to banks.
43 Section 278(3).
44 Section 288(1) of CAMA.
45 Section 289(1).
46 Section 289(1).
47 Section 288(2) of CAMA.
48 Officer here in relation to body corporate involves directors, managers and secretary.
49 Dominic Asada, Op. cit.note 40.
50 Section 502(1) (a).
51 For every other offence under the section, note that if a director can prove that he had not intent to defraud the company with respect to paragraphs (a), (b), (c), (d), (f), (v), and (vi); and paragraphs (h), (i) and (j) if he can show that he had no intent to conceal the state of affairs of the company or defeat the law
52 This section of the Law corresponds with S. 307, 1968 Companies Act. See also S. 418 of the Criminal Code Act.
53 Proper books of accounts are books exhibiting and explaining financial transactions and positions of the trade or business of the company, showing cash received and paid, statements of the annual stock takings etc.
54 See sections 35, 36 and 37 of CAMA on the incorporation status.
55 See section 644 CAMA, see also S. 506(2) which says a company need not be in liquidation before prosecution can commence.
56 However, a fourth requirement has been added (though not envisaged under section 506 CAMA) in the case of R v. Kempt (1988) 2 WLR 975.The court held that an offence is deemed to have been committed if business is carried on with the intention to defraud the company’s custom
57 Scoth (1975) AC 838.
58 Section 506(3)
59 This phrase first gained recognition in Tito v. Inaddel (No.2) (1977) ch. 106, where Megaru, V.C. first made use of it.
60 Section 174 of the 1999 Constitution of Federal Republic of Nigeria As Amended. See DPP v. Akozor (1962) 1 All NLR 235. See also Tukur v. Gov. of Gongola State (1988) 1 NWLR (Pt. 68) 37 Ibrahim v. The State (1986) 1 NWLR (Pt. 18) 650
61 See generally, Okwonkwo & Naish, Criminal Law in Nigeria (Ibadan: Spectrum Books, 1992) at p.281 37. See also U.K. Law Commission Working Paper No. 44 (172) p. 34 and 38.
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