An Appraisal Of The Duties Of Directors Of A Public Company In Nigeria
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ABSTRACT
In accordance with the Enterprises and Allied Matters Laws of the Federation of 2004, directors are tasked with the management of big and challenging corporations. This offers a formidable obstacle.
As a result, I am compelled to do research on the corporation‘s human agents, trustees, and organs. These persons are the ones whose activities, from a legal standpoint, might be seen as those of the corporation. Although “ownership” is often vested in shareholders, it is not the intention of this project to examine shareholding in detail, as it is not the objective of this project to explore shareholding in depth. Shareholders carry the ultimate risk if anything goes wrong with the business. It is generally known that, in addition to their fiduciary obligations, directors owe the company they serve a duty of care and competence.
In the course of their responsibilities, directors are often obligated to perform a variety of obligations owing to the companies they represent. It is essential to note that the Act explicitly defines the circumstances under which a director may be removed from office. Theoretically, the corporation is responsible for enforcing the responsibilities of the directors since it is obligated to do so; nevertheless, in fact, the directors themselves are accountable for doing so. It is essential to remember that the Foss v. Harbottle precedent has been tempered by a number of statutorily permitted exceptions. This obligation also highlights the responsibilities of company directors and the circumstances under which a shareholder may launch a derivative action on behalf of the firm.
In closing, I will provide some recommendations on how directors might enhance company management. If necessary, I will also offer suggestions for the amendment of certain provisions of the Act that do not reflect modern corporate management in Nigeria, as well as the requirement that our courts live up to their constitutional responsibilities in interpreting statutes as they pertain to company directors.
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CHAPTER ONE
MEANING, APPOINTMENT AND QUALIFICATIONS OF DIRECTORS
1.1 WHO IS A DIRECTOR?
A director is a person who has been lawfully appointed by the business to govern and manage the company’s operations.
1 This definition goes beyond that of the 1968 Act2 in that it contains the condition that must be met before a legitimate appointment may be made. According to paragraph (2) of Section 244, there is a rebuttable presumption that all people designated as directors by a company, whether in an executive or other capacity, have been legitimately nominated to their posts. This protects third parties who do business with the company. In Aberdeen Railway Company v. Blaikie Bros. 3, Lord Cransworth defined directors as those to whom an organization delegates responsibility for managing its overall operations.
In line with Section 244(1) of the Companies and Allied Matters Act CAP C20 LFN 2004, the word “director” of a company would be defined as “a person appointed or elected according to law who is authorized to manage or direct the operations of a company or corporation.” This concept may be found in the second edition of Sofowara’s Modern Nigerian Company Law, which was released in 2006. Page 425.
Established initially by Companies Decree No. 51 of 1968 on page
(1859) 3 & 4 Macq 461, beginning on page 471, the enterprise.
The Act4 defines a shadow director as “any individual whose instructions and directions the directors are accustomed to following.” This term is available in Section 245 (1). Multiple directors are able to collaborate on a project. Despite the fact that this definition does not directly cover the practice of recognized organizations or corporations nominating directors to serve on the board of another company in order to represent and protect their interests, it is commonly assumed to be included. This is standard practice for several financial institutions that lend significant quantities of money to corporations. A further instance of a shadow director is when a government appoints directors to represent its interest in a corporation in which it has considerable or controlling shares. For instance, the Nkalagu Cement Company Ltd board of directors comprises directors chosen by the governments of the states of Enugu, Anambra, Imo, and Abia. Because their nominations for “directors” are not actively associated with the firm, these four state governments might be called “shadow directors” with regard to the Nkalagu Cement Company Ltd.
Decree No.1 of 1990 was then renamed “Act,” and those used to following directions did so. Section 248 of the Company and Allied Matters Act, CAP C20 LFN 2004, which was passed in 2004, stipulates that directors of a company can only be appointed by shareholders present at a general meeting of the company. However, the situation described above represents both a departure from and an exception to this rule.
It is crucial to emphasize, however, that the concept of “shadow directors” does not include people who give professional assistance and suggestions to directors in their capacity as directors.
1.2 statement of problem
The obligations of directors under CAMA, corporate governance legislation, and case law shall be discussed in the following paragraphs. This will be done in light of the facts supplied before. After performing our legal study using both a black-letter method and a comparative approach, this paper examines corporation law jurisprudence and reviews the obligations of directors categorized into three main categories: fiduciary duties, the responsibility of care, and the duty of loyalty. In the investigation, both black-letter and comparison techniques were used. In addition, the objective of this article is to define a number of essential phrases, such as “operating in the best interests of the company” and “for the benefit of the corporation.” 5
The Nigerian company law provides that directors have a fiduciary duty to the business. This obligation entails acting with “the highest degree of good faith” toward the company in all interactions with it or on its behalf. 7 A director is expected by law to behave at all times in “what he believes to be in the best interests of the firm.” This is done to safeguard the firm’s assets, promote the company’s activities, and further the purposes that prompted the founding of the company. 8 This legal principle is established in our laws as a clause contained in Section 279(3) CAMA, which states:
A director must always behave in a manner that he thinks to be in the best interests of the company as a whole in order to safeguard the company’s assets, promote the company’s operations, and further the reasons for which the company was created. In addition, the director must operate as a loyal, devoted, cautious, and typically competent director would under the same circumstances.9
Notably, the phrase “in the best interests of the firm” appears in § 279(3) of CAMA, which was stated before. This terminology has filled the corporate law jurisprudence in Nigeria and other nations with a feeling of legal uncertainty.
10 Although there is a dearth of case law on what the legislature had in mind when it used the term “what he feels to be in the best interests of the corporation,” a literal interpretation of the clause reveals that the words employed are subjective rather than objective. This is because there is a dearth of case law defining what the legislature had in mind when it used the words “what he deems to be in the company’s best interests.” The authors respectfully propose that the subjective test should be used in this circumstance because a close reading of the relevant legislative clause reveals that the intent of the draftsmen was to empower the board of directors to choose what is “in the best interests” of the firm. While the authors are aware that the criteria for what defines “the best interests” of the corporation might be vulnerable to differing interpretations, they respectfully propose that the test should be applied consistently.
Despite the above submission, the authors will continue to research how the term “in the best interest of the company” has been construed in a variety of jurisdictions.
1.3 Objectives of study
The purpose of this research is to analyze the duties of the board of directors in order to promote excellent corporate governance principles and recommendations in line with the Company Law Report and the Code. This necessitates research into the nature of corporate governance, the enforceability and effectiveness of the Company law Report and the Code, the links between the Companies Act of 2008 and the extent to which the responsibilities of directors as outlined in the Company law Report and the Code constitute legal obligations, and the nature of the links between the two.
1.4 STRUCTURE OF DISSERTATION
In the first chapter of the book, an overview of the topic is presented. This chapter’s objective is to examine the suggestion to analyze the board of directors’ responsibilities in light of the Company Law Report and the Code. Due to the various evaluations that have been done and the modifications to the system of corporate governance, as well as the fact that the Companies Act 71 of 2008 integrates for the first time regulations pertaining to corporate governance, this analysis is important. The introduction offers a summary of the content addressed in the subsequent chapters.
The second chapter provides a comprehensive overview of corporate governance and explores the regulatory framework of corporate governance in Nigeria. This chapter’s purpose is to analyze the components of excellent corporate governance. Once the structure of corporate governance has been determined and specified, the directors’ legal duties may be defined. There is also an analysis of the meaning and relevance of corporate governance. This debate concludes with an examination of the causes that led to the enactment of new corporate governance legislation. This is necessary in order to fully comprehend the rationale behind all of the adjustments made by the new Act. This investigation’s major objective is to uncover the defects in the prior Act and to examine the causes that led to the legislative body’s decision to change the previous Act.
In Chapter 3, we examine whether Company law may be implemented legally in Appraisal Of The Duties Of Directors. Consequently, this kind of evaluation includes study on the efficacy and enforcement of business law. Consequently, it is necessary to explore the responsibilities that the board of directors is obliged to accomplish under the Company law, as well as the relationship between the Company law and the Companies Act 71 of 2008.
Chapter 4 examines the history of corporate governance in the United Kingdom, as well as its subsequent development. Consequently, it is feasible to distinguish the numerous committees and reports.
The aim of this dissertation is to provide a solution to the fundamental problem addressed, and one of its objectives is to compare and contrast the legal and regulatory frameworks of two nations.
In Chapter 5, the Nigerian legislature and other policymakers are supplied with a summary of the key arguments offered in this dissertation on Appraisal Of The Duties Of Directors as well as ideas for strengthening corporate governance standards in Nigeria.
1.5 RESEARCH METHODOLOGY
The research on Appraisal Of The Duties Of Directors would include examining the relevant legislation in Nigeria and other nations to establish the responsibilities of the board of directors with regard to furthering the principles of good corporate governance. Using case law, books, articles, and research reports as sources of knowledge, the study will be broadened. In addition, a comparative examination of the United Kingdom’s legal system will be conducted. Finding a solution to the problem stated in this dissertation was the major purpose of the comparative study conducted.
A comparative study is, at its most fundamental level, a rigorous research that strives to illuminate the similarities and differences between two or more nations or regions. The comparative method demands us to first identify similarities and differences, and then to defend our rationale behind them. In the study of comparative law, a thorough knowledge of the different legal systems may lead to the discovery of key lessons from each system. These insights have the ability to influence the growth of the law and to motivate imitation and genuine attempts to converge or unify legal norms. [1]
In addition, it seems that a comparative study is of particular importance because section
A clause of the Companies Act 71 of 2008 reads, “[t]o the extent necessary, a court interpreting or executing this Act may consider international company law.” This clause appears in section 5. (2). This is a helpful complement to section 5(1) of the Act, which specifies that the Act “must be construed and used in a manner that accords effect to section 7’s purpose.” Section 7(e) of the Act states that one of its objectives is to “continue to allow for the development and usage of firms in a way that increases Nigeria’s economic wellbeing as a global economy partner.” This objective is cited as one of the reasons the Act was passed.
[1] Phillip C. Aka, “Corporate Governance in Nigeria: An Analysis of the Dynamics of Corporate Governance,” in Corporate Governance in Nigeria:
Governance Reforms in the Rainbow Nation appeared in North Carolina Journal of International Law and Commercial Regulation number 33, pages 254-255, in 2007. In this research, Aka provides a synopsis of Nigeria as well as the scholarly literature on comparative corporate governance legislation. He continues by stating that the comparative corporate governance school of thought seeks to understand and shed light on the approaches that governments in various regions of the world take towards the regulation of corporations, paying special attention to the origins of the differences between countries or regions and how long they tend to last.
An Appraisal Of The Duties Of Directors Of A Public Company In Nigeria
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