Lip 502 Corrected Compiled Company Law Notes
Lip 502 Corrected Compiled Company Law Notes
i. SHARE
Section 868 CAMA defines a share to mean the interests in a company's share
capital of a member who is entitled to share in the capital or income of such
company; and except where a distinction between stock and shares is expressed
or implied, includes stock. Therefore, a share is a unit of a member’s interest in
a company which attaches to it rights and liabilities (CAMA 2019 S. 138;
BORLAND’S TRUSTEE V. STEEL BROS. & CO). Supreme CT held in
OKOYA V SANTILI that shares represent a unit of the bundles of rights and
liabilities which people hold in companies. Finally, a share is a chose in action,
personal property, which is transferable in the manner prescribed in the Articles
(s.139 & OKOYA V. SANTILI).
LIABILITIES OF SHARES
1) To pay for shares issued to him in the company
2) To forfeit his shares where calls are made for the shares and he is unable to
pay within the time limit
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3) Liable to contribute to the company upon winding up – to the extent of the
number of shares unpaid held by the individual in the company (for limited
liability companies)
4) Where the veil of the company is lifted and it is discovered that it is carrying
on business with less than the statutory minimum, the directors and members
are individually liable
NOTE: the rights and liabilities attaching to the shares of a company shall be
dependent on the terms of issue and the terms in the Articles of Association –
SECTION 138(a). HOWEVER, rights of shareholders are the same with rights
of members
TYPES/CLASSES OF SHARES
S143 CAMA allows different classes of shares
S144 CAMA allows varying rights to various classes of shareholders
Ordinary, preference shares, deferred/founder’s shares.
Shares shall not be treated as being of the same class unless they rank
equally for all purposes S. 143(2)
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2. Equity or Ordinary Shares
3. Founders or Deferred shares
This type of shares entitles the holder to a fixed preferential dividend, this
means that the dividend payable by the company to the holder of such shares is
fixed at a specific figure e.g. 5%, 10% etc. Dividend only becomes payable
when it is declared. Preference shares have priority over ordinary shares. Thus,
dividend must be paid to preference shareholders before the ordinary
shareholders. However, they cannot participate in the profit of the company in
excess of the fixed dividend unless they are Participating Preference Shares.
Preference shares may be cumulative or non-cumulative.
The Act however allows a company limited by shares, on the authorisation of its
articles to issue preference shares which are redeemable at the company’s
option (s.184 CAMA 2019)
The conditions for such redemption by the company are provided in S. 182(2)
CAMA: The shares shall not be redeemed unless they are fully paid, and
redemption shall be made only out of: (a) profits of the company which would
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otherwise be available for dividend; or (b) the proceeds of a fresh issue of
shares made for the purposes of the redemption.
2. EQUITY/ORDINARY SHARES
Ordinary shares are referred to as the equity share capital of the company. They
carry the remaining of distributed profits after the preference shares have been
paid their fixed dividend.
They are the risk bearing shares. However, they enjoy unrestricted right to
participate in the surplus assets of the company.
3. DEFERRED SHARES
This is also referred to as Founders’ shares where they are issued to
promoters or management shares if the issue is made to Directors. They
usually carry the right to the remaining of distributed profits after a certain fixed
dividend has been paid to the ordinary shares.
RIGHTS ISSUE
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d. Upon any resolution for the winding up of the company or during the
winding up of the company.
e. Any special resolution of a company increasing the number of shares of
any class S. 168 (2)
b. In writing off:
The preliminary expenses of the company;
The expenses of, or the commission paid, or discount allowed on, any
issue of shares of the company; or
In providing for the premium payable on redemption of any redeemable
share of the company.
1. Capital Gearing
It is used in describing the proportion of preference shares to ordinary shares. If
the percentage of preference shares is higher than that of ordinary shares, it is
said TO BE HIGH GEARED. If percentage is lower, it is LOW GEARED. If it
is equal, it is MEDIUM GEARED.
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2. Authorised Share Capital
The authorised share capital is the amount of capital a company proposes to be
incorporated with and the share capital of the company at every material time
the company is a going concern. The authorised share capital should not at any
time fall below the authorised minimum share capital as stipulated by S. 27(2).
4. Unissued Shares
These are the reserved shares, which have not been made available or issued to
members. It is also referred to as reserved capital. It cannot be called except in
the event of winding up or other contingencies as determined by the company
6. Unpaid Capital
This is the amount still unpaid on the issued capital and which can be called
up at any time when needed.
7. Call on Shares
This is a notice by the directors of a company, which is served on members to
pay up the amount remaining unpaid on the shares subscribed by them. The
time stipulated shall not be less than one month from the last preceding call
(S.158).
8. Lien on Shares
The company has first and paramount lien on all its issued shares which have
remained unpaid (S.164).
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iii. Be a life director (not subject to rotation) under s. 281 of CAMA 2019
provided he is removable under s. 288 (removal of a director before
the expiration of his tenure).
iv. Be the custodian of the company seal so major contracts cannot be
done without him.
v. Be the signatory to the company; and
vi. Have the lion shareholding in the company.
ii. DEBENTURES
TYPES OF DEBENTURES
1. Perpetual Debenture
Debenture created with the intention that it will not be redeemed, or it will only
be redeemed upon the happening of a remote event or contingency. On the face
of it, the concept of perpetual debenture runs contrary to the general principle of
mortgage (i.e. once a mortgage always a mortgage and there must be no clog on
the equity of redemption) (s. 196) is a statutory exception to these common law
principles, which creates a perpetually irredeemable debenture. People who
have high stakes in certain corporations e.g. Dangote (can afford to stake
everything, as long as, the company remains a going concern) since he is like
the alter ego of Dangote group of companies.
2. Convertible Debenture
This is a debenture which is issued upon the terms that in lieu of redemption or
repayment, it may be converted into shares in the company either at the option
of the holder or the company upon terms as stated in the debenture instrument
(s. 197).
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3. Secured & Unsecured Debenture
Debentures may either be secured by a charge over the company’s property or
may be unsecured by any charge. Thus, it is called a naked debenture (s. 198).
4. Redeemable Debenture
A company limited by shares may issue debentures which are or at the option of
the company are to be liable, to be redeemed (s. 199). Thus, it is repayable at a
fixed term as per terms of issues. Redeemable debentures can also be re-issued
subject to S. 200(1).
5. Bearer Debenture
This is a debenture which is repayable to holder of the instrument. Thus, a
bearer debenture is a transferable negotiable instrument and payable to holder in
due course. It is transferable by mere delivery until due time for redemption.
6. Registered Debenture
This debenture is repayable to only the Registered Holder of Instrument (i.e. the
person whose name appears in Certificate and Register. Unlike bearer
debenture, it is non-negotiable, but it is transferable in a manner prescribed by
the Debenture Instrument.
Names of the trustees, if any, for the debenture holders; together with the
deed containing the charge, or, if there is no such deed, one of the
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debentures of the series: SECTION 228 CAMA
Section 105(2) of the Act provides that every other person who agrees in
writing to become a member of a company and whose name is entered in its
Register of Members shall be a member of the company.
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In OILFIELDS SUPPLY CENTRE LTD. V. JOHNSON (1987) 2
NWLR 625, it was held that the share certificate is not the only means of
establishing shareholding and that even oral evidence, if cogent, may suffice.
Section 109 of the Act provides that a shareholder must be registered within 28
days of the conclusion of the agreement to become a member. In the case of a
subscriber to the memorandum, at the registration of the company, and if default
is made in entering the name, the court may compel the company to do so. See
Sections 109 and 115 of the Act.
As a general rule, any person may become a member of a company but infants,
personal representatives of deceased persons, companies and aliens are subject
to special rules.
1. INFANTS
Section 20(1)(a) of the Act provides that a person under the age of 18 years of
age shall not join in the formation of a company or be a subscriber to the
Memorandum of Association unless there are two other subscribers of full age
and capacity, that is, persons not disqualified under Section 20(1) of the Act.
Section 106(2) of the Act provides that where an infant becomes a member of a
company, he will not be counted in determining the legal minimum number of
members.
Note, however, that any person under the age of 18 years may still subscribe to
the memorandum or otherwise become a member, subject to the general
disability of an infant to contract under the general law. Thus, his contract to
take shares in a company is voidable at his instance any time before he attains
the age of 18 or within a reasonable time thereafter. Unless he repudiates his
liability within this period, an infant will be liable to pay any calls made on his
shares and if he decides to repudiate, his liability on future calls will cease.
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paid. See STEINBERG V. SCALA (LEEDS) LTD
2. MARRIED WOMEN
Under the Married Women’s Property Laws of the States, a woman has the
same contractual rights and is liable to the same obligations as anyone else as
regards the holding of shares.
3. PERSONAL REPRESENTATIVES
4. COMPANIES
5. ALIENS
Section 8 of the Investments and Securities Act (ISA), 1999 which empowers
the Securities and Exchange Commission (SEC) to keep and maintain Foreign
Direct Investments (FDI) and Foreign Portfolio Investments (FPI) in Nigeria;
Sections 173 and 179 of CAMA. Section 173 of the Act requires the production
of a document which is by law sufficient evidence of probate of a Will or letters
of administration of an estate. Section 179, on the other hand, deals with
transmission of shares.
i. BY SUBSCRIPTION
The subscribers are persons who sign the Memorandum of Association and
Articles of Association of a company. The first members acquire their
membership by subscription. See Sections 105(1) and 27(2)(b). On the
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registration of the company, the subscribers are deemed to have agreed to
become members and their names must be entered in the Register of Members.
Section 105(3) now enables a subscriber of the memorandum to hold shares as a
trustee for another person, but he shall disclose in the memorandum that fact
and the name of the beneficiary.
iii. BY TRANSFER
The shares or other interest of a member in a company are properties
transferable in the manner provided in the Articles of the company. See Section
175 of the Act. A person may become a member of a company by having the
shares of that company transferred to him by the holder of those shares. The
transfer from an existing member to another may be by sale, gift or some other
transaction which to all intents and purposes, must be lawful (s. 175). for the
transferee to become a member, transferee’s name must be entered in the
register of members, otherwise the transferor remains the member with all the
rights and obligations. However, a company may refuse to register a transfer of
shares on the following grounds:
a. If the shares is not fully paid up and the company does not approve the
transfer.
b. The company has a lien on the shares.
c. Non-payment of requisite fees on instrument of transfer.
d. The instrument of transfer is not accompanied by share certificate or other
evidence to show transferor’s right to make the transfer.
e. The instrument is in respect of more than one class of shares (s. 176 (3)(4))
iv. BY TRANSMISSION
The vesting of shares in the personal representatives on the death of a
shareholder is known as transmission of shares rather than transfer. This
occurs upon the death of a shareholder who may have died intestate or
willed the shares to a beneficiary (S. 179 and 180). On the death of a
member, the survivor(s), where the deceased was a joint holder or the
personal representative of
the deceased, where he was the sole holder, shall be the only persons recognised
by the company as having any title to his interest in the shares. See Section
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179(1) of the Act.
v. BY ESTOPPEL
There are two conditions a person must comply with before becoming a
member of a company as indicated above:
An exception to this general rule is in the case of death or bankruptcy, that is, by
operation of law where the shares are vested in the personal representatives of
the deceased or in trustee in bankruptcy, in the case of a bankrupt member.
Note that although the personal representative or trustee has the right to transfer
the shares and collect dividends, they cannot exercise the rights of membership
until registration takes place.
CEASING OF MEMBERSHIP
A person ceases to be a member when his name is removed from the Register of
Members. This may occur in the following ways:
The transfer, which is a voluntary process on the part of the shareholder, shall
be by instrument of transfer and shall be without restrictions. The transferor
ceases to be a member when the transferee’s name is entered in the Register of
Members.
This occurs where a member fails to pay for shares upon calls of by the
company (non-payment of calls). See section 165.
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This is a short cut to forfeiture in order to avoid the formalities required in a
situation where shares are to be forfeited.
REGISTER OF MEMBERS
Every company must keep a Register of Members in which are entered their
names, addresses and descriptions. See Sections 109, 110 to 115 of the Act.
Register of Members is one of the statutory books that must be kept by a
company.
NB-The risk of failure of the issue is borne by the company and not the issuing
house. Thus, to protect itself, the company usually arranges for the issue to be
underwritten at an agreed commission.
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difference between direct offer and offer for sale
i. In a direct offer, the Issuing house gets commission while in offer for sale,
the issuing house gets profits.
ii. In a direct offer, the company undertakes the responsibility for
underwriting the shares; whereas in an offer for sale, the issuing house
undertakes the responsibility of underwriting the shares.
However, no company can have rights issue of shares unless there is pre-
emptive rights clause in its Articles.
Every company can have a pre-emptive rights clause in its Articles of
Association (i.e. right to offer shares first to existing shareholders before
transferring to the Public). Applies to private companies
NB-a rights circular must be registered-S.54 ISA & RULE 326 ISA
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with the management of the companies may make a shareholder reluctant
to purchase new shares in the company.
f. Hybrid Offer
This consists of rights issue and offer of shares to the public
FIXED/FLOATING CHARGES
One way of raising money for a company is by given a fixed or floating charge
on its assets. Loan and debenture may be secured or unsecured (s. 203 (1)).
Where a loan or debenture is secured, it may be secured by fixed or floating
charges-s.203(2) CAMA
a. Fixed Charge
A fixed charge attaches to a particular property when the charge is created. A
fixed charge is normally legal or equitable in nature. The advantage is that the
particular asset charged is ear marked and kept available to satisfy the charge’s
claims. The company cannot dispose of the asset or create other charge ranking
in priority to the present charge. The disadvantage is that the lender is confined
to the asset charged in the fixed charge and cannot proceed against other assets
of the company.
However, it should be noted that, a fixed charge on any property shall have
priority over a floating charge affecting the same property until crystallisation
and the person in whose favour the fixed charge is made has notice of such
prohibition (s. 203)
b. Floating Charge
A floating charge means an equitable charge over the whole or a specified part
of the company’s undertakings and assets including cash and uncalled capital of
the company both present and future, but not on a particular asset. A floating
charge shall not preclude the company from dealing with such assets until when
the charge crystallises. A charge crystallises when any of the following
conditions exist:
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See section 203(1).
On the happening of any of the events stipulated above, the charge shall be
deemed to crystallise and to become a fixed equitable charge on the company’s
assets that are subject to the charge (s. 203(2))
Both floating and fixed charges are recognised securities and registrable under
s.203. Also, both floating and fixed charges must be registered within 90 days
of creation (s.203)
A floating charge does not prevent or preclude the chargor from dealing
with the charged property/asset adversely provide it is in the normal
course of business; whereas the chargor in a fixed charge is precluded
from dealing adversely with the object of a fixed charge in any situation
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The Effect of Failure to Register Debentures with the CAC
1. The loan agreement is not void ab initio and the mortgagee can recover the
loan
2. The loan amount becomes repayable immediately as the debenture is
rendered unsecured.
3. The collateral is lost, and the debt becomes a simple debt.
4. The interest of the mortgagee is then equitable, and it loses priority over the
debentures registered.
5. The Debenture becomes void against the creditors and liquidators of the
company
S. 222 of CAMA 2019 and Capital Finance Co. Ltd v. Stokes
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REMEDIES OF DEBENTURE HOLDERS FOR THE DEFAULT IN
REPAYMENT OF THE LOAN
1. Action in Court to recover the principal and interest – AMANDA V.
IKOM NIG PLC
2. Bring a Petition for winding-up of the company on the ground of its
inability to pay its debt – s.571(d) & 233(2)(b)(ii)
3. Specific performance
4. Debenture holders action – s.233(2)(a)
S. 232, 233 and 475 of CAMA
2. DIRECTORS
i. DIRECTORS - (SECTION 269 OF CAMA)
Directors are persons appointed to direct and manage the business of the
company. See Section 269 of CAMA. Directors need not be shareholders
except where there is share qualification in the Articles of Association. Every
company registered under CAMA must have a minimum of two directors. See
Section 271 of CAMA. There is no statutory maximum, but the company may
by its Articles provide for maximum number of directors.
In the case of Re: Forest of Dean Coal Mining Company, Sir Jessel M. R. stated
as follows:
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Section 269(2) of the Act provides that there shall be every rebuttable
presumption that all persons who are described by the company as directors
whether as Executive or otherwise, have been duly appointed.
Section 270(3) CAMA: For the avoidance of doubt, the fact that a person
in his professional capacity gives advice and a director acts on it shall not
be construed to make such a person under this Act a person in accordance
with whose directions or instructions the director of a company is
accustomed to act.
Where a person not duly appointed as director acts or holds himself out as
having been duly appointed without the concurrence of the company,
then:
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Director is the alter ego of a company and therefore said to be the mind
and brain behind company’s activities and constitute the policy making as
well as the executive organs of the company-YALAJUAMAYE v.
AREC
A) EXECUTIVE
B) NON-EXECUTIVE
C) MANAGING DIRECTOR
D) CHAIRMAN
E) FIRST DIRECTOR
F) CASUAL DIRECTOR
G) ALTERNATE DIRECTOR
H) SHADOW DIRECTOR
I) LIFE DIRECTOR
J) NOMINEE DIRECTOR
EXECUTIVE DIRECTORS
They are full time or salaried Directors who are appointed to take charge
of day-to-day running of company affairs.
NON-EXECUTIVE DIRECTORS
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These are directors appointed without any additional administrative role
assigned to them. They are only entitled to operate as alter ego of the
company. Unlike executive directors, they are not given any office in the
company.
Not involved in the day-to-day management and they are not
employees.
These are 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
Section 305(4) 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.
MANAGING DIRECTORS/CEO
The Managing Director is the Chief Executive Officer and takes full
responsibility for activities of the company. He sees to the day-to-day
administration of the company.
Since the MD and other Executive Directors are appointed on the basis of
their skills and hence entitled to remuneration, they possess a service
contract which spells out the terms and conditions of employment.
The Chairman of the Board is also the Chairman of the Company and
presides over the Board and General meetings of the Shareholders of the
company. - S. 265 of CAMA.
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He is appointed by the Board of Directors from among the board.-
Section 289(4). It is usually from the Non-executive directors that the
Chairman of the Board is elected, and he presides over the board
meetings and general meetings.
ALTERNATE DIRECTOR
This is the Director who is appointed to take the position of another Director
in the event of absence.
Although two directors are appointed in the one position, only one of them
can function at a time, and they are counted as one for the purpose of
counting the number of directors.
The Alternate Director ceases to hold office whenever the substantive
Director ceases to hold office
SHADOW DIRECTOR
This type of director is not formally appointed and is the only type of
director without an official record of appointment and removal.
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The shadow director is a person in accordance with whose directions and
instructions, who operates from outside the company, the board of
directors of the company are accustomed to act. - S. 270 of CAMA.
As such, a person cannot come and say that he is a shadow director just to
claim benefit accruing to the company.
22/03/22
LIFE DIRECTOR
LIFE DIRECTOR
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Sometimes, the Articles appoint a person life director. In such a case, it is not
necessary to re-elect him, and the articles usually expressly exclude him from
the operation of the clause relating to retirement by rotation. He is normally
given wide powers of management and in practice, he will probably be a major
shareholder in the company. He is, however, subject to removal under Section
288 of the Act, that is, by an Ordinary Resolution of which special notice is
given as provided under Section 281.
Upon filling returns at CAC the company files the name of the
representative of the Director Company. Such a director should be
reflected as a Representative/ Nominee of the company appointing him in
the Particulars of Director (CAC FORM 7)
FIRST DIRECTORS
S. 272 CAMA: Subject to section 246 of this Act, the number of directors
and the names of the first directors shall be determined in writing by the
subscribers of the memorandum of association or may be named in the
articles of association (not advisable).
CASUAL DIRECTOR
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to fill any such casual vacancy subject to approval by the members in
general meeting and if not approved, he shall cease to be a director -S.
274(1)&(2)
The new appointee steps into the shoes/tenure of the removed or dead or
retired director. He merely enjoys the unexpired residue of the term of
the initial director.
NUMBER OF DIRECTORS
Where the number falls below the legal minimum (less than 2
directors), that is one director is running a company more are to be
appointed WITHIN 1 MONTH and the company shall not carry on
business after the expiration of that month unless new directors are
appointed. - S.271(2) CAMA
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APPOINTMENT OF DIRECTORS
The members at the annual general meeting shall have power to re-elect
or reject directors and appoint new ones – S. 273(1).
If articles exclude rotation rule (i.e. the directors don’t retire at the
AGM), members can reject directors by removal
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Any of the personal representatives of the dead Directors and
shareholders shall apply to the Court for an order to convene a general
meeting of all the personal representatives of the shareholders entitled
to attend and vote at general meeting to appoint new directors. Where
they fail to convene the meeting; the creditors if any, shall do so S.
273(2)
A retiring director who offers himself for re-election is deemed to have been re-
elected unless:
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iii. A resolution for his re-election has been put to the meeting
and lost. See Section 285(3) of the Act.
Sometimes, the Articles appoint a person life director. In such a case, it is not
necessary to re-elect him, and the articles usually expressly exclude him from
the operation of the clause relating to retirement by rotation. He is normally
given wide powers of management and in practice, he will probably be a major
shareholder in the company. He is, however, subject to removal under Section
288 of the Act, that is, by an Ordinary Resolution of which special notice is
given as provided under Section 281.
DISQUALIFICATION OF DIRECTORS:
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i. if he ceases to be a director for failure to hold qualification shares;
iii. if he is prohibited by any order of the court made under Section 280 of
the Act by reason of his being fraudulent;
Section 284 states: The office of director shall be vacated if the director‐
OLUFOSOYE V. FAKOREDE
Check to find out if direct and simpler power of removal other than Section 288
is provided by the Articles or contract and apply it if available.
The person(s) wishing to remove the director must issue(s) notice of the
resolution to the company at least 28 days before the date of the meeting.
Section of the Act:
Where by any provision contained in this Act, special notice is
required of a resolution, the resolution shall not be effective
unless notice of the intention to move it has been given to the
company not less than twenty eight days before the meeting at
which it is to be moved and the company shall give its members
notice of any such resolution at the same time and in the same
manner as it gives notice of the meeting or if that is not
practicable, shall give them notice thereof, either by
advertisement in a newspaper having an appropriate circulation
or in any other mode allowed by the Articles, not less than
twenty one days before the meeting:
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purposes thereof.
(b) issue notice of the meeting at least 21 days before the date of the meeting.
The notice will be accompanied by any representations made by the director and
state the fact of the representations having been made.
(d) File form of particulars of directors and of any changes therein, that is,
Form CAC 7A to the CAC to reflect the removal within 14 days of remove.
(e) Enter the fact of removal in the Register of Directors and where necessary
also amend the Register of Directors’ Shareholding.
DUTIES OF DIRECTORS
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1. FIDUCIARY DUTIES
Directors owe fiduciary duties to the following persons:
A director shall act at all times in what he believes to be the best interest of
the company as a whole so as to preserve its assets, further its business, and
promote the purposes for which it was formed and in such manner as
faithful, diligent, careful, and ordinary skilful director would act in the
circumstances - S. 305 (3); ARTRA IND. NIG. LTD V. NIGERIAN
BANK FOR COMMERCE AND INDUSTRY
A director shall exercise his power for the purpose for which it is specified
and shall not do so for a collateral purpose.
However, such powers when exercised for proper purpose are VALID even
if it incidentally affected a member adversely. - S. 305(5)
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iii. DUTY NOT TO FETTER DISCRETION TO VOTE IN A
PARTICULAR WAY
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
agreed remuneration. That was the decision in BOSTON DEEP SEA
FISHING CO. V. ANSELL (1888) 39 CH. D. 339
A director must not use the company’s property to make secret profit or
achieve other unnecessary benefits.
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The personal interest of a director shall not conflict with any of his duties
as a director-S. 306 (1)
For a proposed contract, the director shall declare his interest at a Board
meeting where the contract was first considered; where not interested on that
date, the next meeting held after he became so interested S. 303(2)
NB -A director is prohibited from entering into guarantee or provision of
security with the company. S. 296(1)
Directors are not allowed, either during or after the termination of their
service with the company to use for their own benefit anything, property,
trade secret or confidential information entrusted in them by virtue of their
position.
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This duty also extends to officers who have access to such information.
The fact that a person holds multiple directorships shall not derogate
from his fiduciary duties to each company; he is not to use information
from one company to the advantage of the other company-Section 307
It does not matter that the Director acted bona fide: Regal (Hasting) Ltd v.
Gulliver
The Common Law position of a director’s duty of care and skill was considered
at length by ROMER J. in RE: CITY EQUITABLE FIRE INSURANCE
CO. LTD. (1925) CH. 407 where he held inter alia that in discharging his duty,
a director must act honestly. He was not bound to give continuous attention to
the affairs of the company but ought to attend meetings when reasonably able to
do so. Hence, only the Chairman was liable for the losses. Any negligence of
others was not “wilful” and they were excluded by the Article.”
Romer J. then laid down the following proposition after considering all the
earlier authorities on the issue.
“A director need not exhibit in the performance of his duties a greater degree of
skill than may reasonably be expected from a person of his knowledge and
experience.”
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What this means is that a director will be judged by the skill (low or high)
which he holds out about himself.
“A director is not bound to bring any special qualification to his office. He may
undertake the management of a rubber company in complete ignorance of
anything connected with the rubber without incurring responsibilities for the
mistakes which may result from such ignorance while if he is acquainted with
the rubber business, he must give the company the advantage of his knowledge
when transacting the company’s business.
The duty of care and skill expected of a director is now clearly stated in Section
308 of CAMA 2019.
Section 308(1) of the Act provides that every director of a company shall
exercise the powers and discharge the duties of his office honestly, in good faith
and in the best interests of the company and shall exercise that degree of care,
diligence and skill which a reasonably prudent director would exercise in
comparable circumstances.
If he fails to observe that degree of care and diligence, he may be liable for
negligence and breach of duty as provided in Section 308(2) of the Act. The
same standard of care is required for all directors unless there is justification for
exception. See Section 308(4) of the Act.
38
But in the case of an Executive Director, additional liability and benefit may
arise under the contract of employment (express or implied) between such
executive director and the company.
In effect, the new law under CAMA is to the effect that the standard of care
required from a director is an objective one, that is, it is a fixed standard
depending on the skill and knowledge a reasonable, prudent director of his class
would exercise if faced with similar circumstances.
INTRODUCTION
1. Petition for winding up the company on the ground that it is just and
equitable to do so. See Section 571(e) of CAMA.
2. Relief on the ground that the affairs of the company are being conducted
in an illegal and oppressive manner. See Sections 354 to 356 of CAMA.
Under Sections 357 and 358 of the Act, application may be made to the
Commission for an investigation into the affairs of the company and if satisfied
that there is good ground for this, it will direct the appointment of an inspector.
Section 318(1) of CAMA 2019 provides that every company must keep at its
registered office a Register of its Directors and Secretaries. The Register must
contain the following particulars with respect to each director, namely,
40
Section 293 of CAMA provides, inter alia, that:
“(1) The remuneration of the directors shall from time to time be determined
by the company in general meeting and such remuneration shall be deemed to
accrue from day to day.
(2) The directors may also be paid all travelling, hotel and other expenses
properly incurred by them in attending and returning from meetings of the
directors or any Committee of the directors or general meetings of the company
or in connection with the business of the company.”
Section 293 (3) of the Act provides that where the Articles fix the remuneration,
it can only be altered by a special resolution.
The company is not bound to pay remuneration to directors but where the
company agrees to pay, the directors must pay such remuneration out of the
funds of the company and such payment is apportionable. See Section 293(4)
and (7).
41
294(3): Where he performs some services without a contract, he shall be
entitled to payment on a quantum meruit.”
29/03/22
LIABILITY OF DIRECTORS
1. Liability in Contract
When a director contracts as agents on behalf of the company, like any other
agent, he is not personally liable on the contract. See Palmer’s Company Law,
paragraph 62-02 at page 922. This is an application of the general principles of
agency and under this principle, the director may be personally liable where he
contracts in such a way as to assume personal liability.
Note that where a director contracts in his own name without disclosing that he
is acting for a principal, he may be personally liable to third parties on the
contract. That was the decision in the case of ELKINGTON AND CO. V.
HURTER (1892) 2 CH. 452.
Even where he contracts as a director but without using words that bind the
company, he will be personally liable.
2. Liability in Tort
“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 based on the principle that
whoever commits a wrong is liable for it himself and nonetheless that he was
acting as an agent or servant on behalf, and for the benefit of another.” See
Palmer’s Company Law, paragraph 64-65 at page 972.
A director who has not authorised a fraud committed by his co-directors cannot
be held responsible for it.
Where there is a breach of the duty of care as explained earlier, the director will
be liable to the company for any loss sustained and action may be brought by
the company to restrain him from committing or continuing the breach. If the
breach has been committed, proceedings may be taken for damages or
compensation for restoration of the property of the company, if traceable; for
rescission of the contract in question; or for an account of any profits made. In
42
addition, the director may be dismissed summarily.
(a) where a company receives money by way of a loan for specific purposes,
or
(b) where it receives money or other property by way of advance payment for
the execution of a contract or project.
In any of these cases, if the company, with intent to defraud, fails to apply the
money or other property for the purpose for which it was received, every
director or other officer of the company who is in default is personally liable to
the party from whom the money or property was so received and not applied for
the purpose for which it was received. But this provision does not affect the
liability of the company itself, and so, it may be joined in any action against the
directors.
A director in PLC may also be personally liable where the company carries on
business without having at least 2 members as provided in Section 118 of the
Act or without having 2 directors as provided under Section 271 of the Act. If
the company carries on business for more than 6 months after the membership
has fallen below 2, THE REMAINING director or officer who knows that it so
carries on business is liable jointly and severally with the company for the debts
of the company contracted during the period.
With regard to the number of directors, Section 271(3) of the Act provides that
a director or member of a company who knows that the company carries on
business after the number of directors has fallen below 2 for more than 60 days
is liable for all liabilities and debts incurred by the company during that period.
PROCEEDINGS OF DIRECTORS
43
BOARD MEETINGS - (SECTION 289 OF CAMA 2019)
The directors may meet for the despatch of business, adjourn and otherwise
regulate their meetings, as they think fit. See Section 289 of CAMA.
The first meeting of the directors must be held not later than 6 months after the
incorporation of the company. Questions at meetings shall be decided by a
majority of votes, and the Chairman has a casting vote in case of equality of
votes.
A director may and the secretary on the requisition of a director shall, at any
time, summon a meeting of the directors s.289(3).
The directors may elect a Chairman of their meetings. This Chairman will
naturally become the Chairman of the company and determine the period for
which he is to hold office. If no Chairman is elected or if at any meeting, he is
not present within 5 minutes after the time appointed for the holding of the
meeting, the directors present may choose one of their number to be Chairman.
The maxim “delegatus non potest delegare” applies to directors in the same way
as to all agents. A person to whom a function has been delegated may not
himself delegate it further without the consent of his principal.
A Committee has power to elect its own chairman and a substitute in his place
where he is absent. This Chairman also has a casting vote. The Committee
regulates its own conduct of meeting as it thinks proper.
Unless the Articles express a contrary intention, the quorum necessary for
44
the transaction of business of directors shall be 2 where they are not more than 6
but where they are more than 6, the quorum shall be one third to the nearest
number where the number of directors is not a multiple of three.
The Board fixes the quorum of committee appointed by it and where it fails to
do so, the whole committee shall meet and act by a majority. Where the Board
cannot act because a quorum cannot be formed, the general meeting may act in
its place and the Board also acts in place of the committee where the committee
cannot form a quorum.
There are, however, situations when the Board can dispense with holding
meeting. Section 289(8) of CAMA provides that:
“A resolution in writing, signed by all the directors for the time being entitled to
receive notice of a meeting of the directors, shall be as valid and effectual as if
it had been passed at a meeting of the directors duly convened and held.”
In all the directors’ meetings, each director shall be entitled to one vote.
(1) 14 days notice in writing to all directors entitled to receive notice will be
sufficient.
3.COMPANY SECRETARIES
45
APPOINTMENT OF COMPANY SECRETARIES -
Like Section 169 of the Companies Act, 1968, Section 330 of CAMA
makes it mandatory for companies, whether private or public, to appoint
Company Secretaries but unlike the Companies Act of 1968, the Companies and
Allied Matters Act, 1990 appears to have raised the status of a Company’s
Secretary to one which is reserved for qualified professionals only. See Section
332 of CAMA.
Section 332 of the Companies and Allied Matters Act, 1990 provides it shall be
the duty of a director of a company to take all reasonable steps to ensure that the
Secretary of the company is a person who appears to him to have the requisite
knowledge and experience to discharge the functions of a Secretary of a
company.
In the case of a public company, the same Section provides that a Secretary
must have one of the specified qualifications:
d) Any person who has held the office of a Secretary of a public company
for at least 3 years of the 5 years immediately preceding his appointment;
or
46
(SECTION 335(1) OF CAMA)
The Companies and Allied Matters Act makes provision for both general and
specific duties for Company Secretaries. Section 335(1) of the Act provides
that the duties include the following:
d) The Board of Directors have Committees. When they are meeting, the
Company Secretary is the one statutorily empowered to service these
meetings.
STATUS of Secretary
Note that although Section 335 spells out the duties of a Company Secretary, he
cannot suo motu, that is, on his own volition, exercise any power expressly
vested by statute or the Articles of Association in the directors. See Section
335(2) of the Act.
Section 335(2) of CAMA provides that the Secretary cannot, without the
authority of the Board exercise any powers vested in the directors. It is
submitted that since an unauthorised act is expressly prohibited by Section
48
335(2) of the Act, such act cannot be later ratified by the Board since it is void
ab initio. That was the decision in ADEBESIN V. MAY AND BAKER
NIGERIA LTD decided before the enactment of the Act.
If after the notice, the Secretary neither resigned from office nor made any
defence, the Board of Directors may remove him from office and report to the
General Meeting at the next meeting.
49
Where the Company Secretary makes a defence, written or oral, which in the
opinion of the Board of Directors is unsatisfactory:
If the next general meeting ratifies the suspension of the Company Secretary
from office, he shall be removed from office and the effective date of removal
shall be the date the Board of Directors suspended him from office.
Note that the procedure for the removal of Company Secretaries must be strictly
complied with. See the case of ERONINI v. HABO AND ORS. (1957) 1
NSCC 17.
A) Section 330(1) of CAMA 2019 has made it mandatory for every company
in Nigeria to appoint a Company Secretary. So, the office is made
statutorily relevant by virtue of that Section.
D) Job Security.
50
initiate acts which will be binding on the company. To this extent, one
may say that CAMA has enhanced the status of Company Secretary, but
you have to be critical in appraising this point.
MEETINGS
Types of meetings of a company
1. Statutory meeting.
2. Annual General Meeting (AGM)
3. Extra – ordinary General Meeting (EGM)
4 Court – ordered meeting (some authors add this)
STATUTORY MEETING
51
BUSINESS TRANSACTED AT STATUTORY MEETING
S.235(8): The members of the company present at the statutory meeting may:
STATUTORY REPORT:
The directors shall AT LEAST 21 DAYS before the day on which the
statutory meeting is held, forward to every member of the company
statutory report – S. 235(2)
The statutory report shall be CERTIFIED BY NOT LESS THAN
TWO DIRECTORS or by a director and the Secretary of the company -
S. 235(3)
The directors shall also deliver a certified copy of the statutory report to
the CAC within 14days – S. 235 (6)
S. 235(3) CAMA:
a. The total number of shares allotted, either as fully paid up, partly paid up
or partly paid up otherwise than in cash. For shares partly paid up the
extent to which they are so paid up, or the consideration for which they
have been allotted.
b. The total amount of cash received by the company in respect of all the
shares allotted, distinguished as aforesaid.
c. The names, addresses and descriptions of the directors, auditors,
managers, if any, and secretary of the company.
d. The particulars of any pre-incorporation contract together with the
particulars of any modification or proposed modification.
e. Any underwriting contract that has not been carried out and the reasons,
therefore.
f. The arrears, if any due on calls from every director.
g. The particulars of any commission or brokerage paid or to be paid on the
issue or sale of shares or debentures to a director or manager.
52
An abstract of the receipts of the company and of the payments made from them
up to a date: S. 235(4)
The Statutory Report as it relates to shares and capital account (receipts and
payment) shall be certified by the auditors -S. 235(5)
EFFECT OF NON-COMPLIANCE
Failure to hold statutory meeting or deliver statutory Report would result to:
The Company and any officer in default shall be guilty of an offence and
liable to a fine as may be specified by CAC in a regulation for every
day during which the default continues: Section 236.
It can constitute a ground for winding up of the company by the court-S.
571(b)CAMA. Judge can in his discretion instead of winding up the
company; make an order that the statutory meeting be held.
SECTION 237:
a. It is compulsory for all companies. Every company shall in each year hold
a general meeting as its annual general meeting in addition to any other
meetings in that year
53
NB: In exams when given the exact date of incorporation. Calculate the
18 months and include the date, month and year.
d. Apart from the first AGM, CAC can extend the time of holding any
subsequent AGM by not more than 3 months. S. 237(1)(b).
i. A member can apply to the CAC urging the CAC to call or direct the
calling of a general meeting and give such ancillary directions as it thinks
appropriate which includes a direction that one member of the company
present in person or by proxy may apply to the Federal High Court for an
order to take a decision which shall bind all the members. -S. 237(2)If a
member’s application is timely and the CAC grants the order to hold the
meeting in that year, the meeting is an AGM of that same year.
ii. However, where a meeting so held is not held in the year in which the
default in holding the AGM occurred, the meeting is not to be treated
as the company’s AGM of the previous year, unless at that meeting the
company resolves that it shall be so treated. S. 237(3)
iii. If the company resolves that it should be treated as its AGM of the
previous year, a copy of the Resolution shall, WITHIN 15 DAYS AFTER
THE PASSAGE, be filed with the CAC. S. 237(4).
iv. Section 237(5): The company and every officer who is in default shall be
guilty of an offence and be liable to a fine as determined by CAC in a
regulation for non-compliance.
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iii. Election of directors in place of those retiring/fresh appointment of
directors.
iv. Appointment and Fixing of remuneration of the auditors.
v. Appointment of members of the Audit committee for Public Companies.
2. If the directors do not WITHIN 21 DAYS from the date of the deposit of
the requisition proceed duly to convene a meeting, the requisitionists, or
any one or more of them, representing more than ½ of the total voting
rights of all of them, may themselves convene a meeting. However, such
meeting must be convened within 3 months of the deposit of the
55
requisition. S. 239(4)
56
decisions/resolutions that may be passed or proposed in the meeting if
held.
4. In the event of all the directors and shareholders dying, any of the
personal representatives shall be able to apply to the court for an order
to convene a meeting of all the personal representatives of the
shareholders entitled to attend and vote at a general meeting to appoint
new directors to manage the company, and if they fail to convene a
meeting, the creditors, if any, shall be able to do so: S. 273(2)
CHAIRMAN OF A MEETING
The chairman of the AGM is also the Chairman of the Board of
Directors. If he is not present after 5 minutes of the time for the
Board meeting, another will be appointed to act as chairman – S. 289(4)
of CAMA
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B. Preservation of order
C. To ensure that all questions that arise in the course of a meeting are
properly decided
D. To preside over both the Board and company meetings
E. To act bona fide in the interest of the company
F. He has the power to adjourn meetings
G. He has a casting vote on issues if there is a vote tie by the members
VENUE OF MEETING
Company meetings that must be held in Nigeria are STATUTORY
MEETING AND ANNUAL GENERAL MEETING. -S. 240 CAMA.
Thus, EXTRA – ORDINARY GENERAL MEETING need not hold
in Nigeria.
NOTICE OF MEETING
No business may be transacted at any general meeting unless notice of it has
58
been duly given - S. 242(3).
CONTENTS OF NOTICE
S. 242(1): A valid notice of a meeting must specify
a. The Place, Date and Time of the meeting;
b. The type of meeting
c. Agenda i.e. general nature of the business to be transacted
- For AGM, it is sufficient to state in the Notice; that the
meeting is to transact “Ordinary Business” and state each
item of ordinary business that would be discussed.
- For Special Business, terms of the resolution should be set
out in the notice of meeting.
d. Provision should be made for proxy attendance and other
matters requiring notice.
e. The order by which the meeting is brought. It should be
expressed to be BY ORDER OF THE BOARD OF
DIRECTORS or REQUISITIONED BY MEMBERS, BY
ORDER OF THE COURT’
f. Signed by Company Secretary.
LENGTH OF NOTICE
Where a notice is sent by post and the letter is properly addressed and
stamped, then the addressee is deemed to RECEIVE it 7 DAYS after
the letter is posted – S. 244 (2).
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EFFECT OF FAILURE TO GIVE NOTICE OF MEETING
PROXY
Proxy is not allowed in company without share capital unless its Articles
permit e.g. LTD/GTE. Proviso to S. 254 (1)CAMA
60
How a Proxy is appointed
CORPORATE REPRESENTATION
61
A company, which is a shareholder or member of another company is
required to appoint any person by a Resolution of the Board to be its
representative in the general meetings of the company of which it is a
member-SECTION 255 CAMA
QUORUM
62
QUORUM DURING THE PROGRESS OF THE MEETING
VOTING
a. Show of hand
b. By demanding a poll
DEMAND OF POLL
Voting on a poll entails the shareholders voting according to the number of
shares they own. Although one share attracts one vote, certain classes of shares
63
are permitted to have weighted shares i.e. attracts more than one vote e.g.
preferential shares – S. 143
Proxies also vote according to the number of shares which the member they are
representing hold.
Thus a Company’s Articles can validly restrict the use of poll voting in
respect of election of the Chairman or adjournment of meeting.
SECTION 248(1) a – d:
The following persons can demand a poll
i. The Chairman, where he is a shareholder or a proxy.
ii. At least three members PRESENT IN PERSON OR BY PROXY.
iii. Any member or members present in person or by proxy and
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who represent not less than 1/10 of the total voting rights.
iv. Any member or members holding shares not less than 1/10 of the
total fully paid up shares in the capital of the company.
RESULT OF VOTE
For Poll, in computing the majority, the number of votes cast for and
against the resolution should be counted. Section 258(4)
RESOLUTIONS
ORDINARY RESOLUTION
SPECIAL RESOLUTION
65
This is a resolution passed by not less than ¾ (75%) of the votes cast by
such members being entitled to vote either in person or by proxy, OF
WHICH 21 DAYS NOTICE (or agreed shorter notice), specifying the
intention to propose the resolution as a special Resolution has been
duly given. -SECTION 258(2)
NB: Notice of LESS THAN 21 DAYS may be given where members agree
(95% of nominal value of shares or 95% total voting rights in company with no
share capital)
1. CHANGE OF NAME S. 31
2. ALTERATION OF ARTICLES S.48
3. ALTERATION OF OBJECTS S.46
4. REDUCTION OF CAPITAL S. 106
5. VOLUNTARY WINDING UP S. 457
6. COMPULSORY WINDING UP S.408
7. RE-REGISTRATION OF LTD AS PLC S. 50(1)
8. RE-REGISTRATION OF PLC AS LTD S.53
66
The procedure is …
a. The member gives Special Notice of his intention to the company
at LEAST 28 DAYS before the date of the meeting at which he
intends to move the Resolution; the Resolution is enclosed in the
Notice.
b. On receipt of the members notice, the company in turn will give the
members 21 days’ notice; the proposed Resolution should be
enclosed in the notice.
c. Where the company fails to call a meeting for a date 28 days less
after the notice has been given, this will not invalidate the
meeting.
i. Special Resolution
67
ii. Unanimous resolution on issue, which requires Special
Resolution.
iii. Unanimous Class Resolution
iv. Resolution for voluntarily winding up of a company under S.
620(a) CAMA
REQUISITION OF RESOLUTION
WRITTEN RESOLUTION
ADJOURNMENT OF MEETINGS
The Chairman may with the consent or directive from the members at the
meeting, adjourn the meeting from time to time and from place to place.
No new business is allowed at the adjourned meeting, only the
unfinished business from the original meeting shall be transacted S.
264 (1)
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- If not a requisitioned meeting, it shall stand adjourned to the
same day in the next week, at the same time and place or to such
other day, time and place as directed by chairman and in his
absence, the directors: S. 264 (3)
MINUTES OF PROCEEDINGS
Where there is default, the company and every officer in default shall be
guilty of an offence and liable to a fine of N500: Section 266 (4)
FORM OF MINUTES
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a token cost is to be paid (the company is obliged to supply the copy
WITHIN 7 DAYS of member’s request: S. 267 (1)& (2) CAMA
Also, it is part of the rule that once powers have been delegated to directors, the
majority cannot derogate from the powers of the directors for the day-to-day
management of the company. Powers of the majority rule extend to every facet
of the company’s affairs. The majority of members have power to:
The rule is that in an action to remedy any wrong done to the company or where
irregularity has been committed in the course of a company’s affairs, the
proper plaintiff is the company itself. It is the majority who determines
70
whether the company should sue for redress or not. The facts of FOSS v.
HARBOTTLE (SUPRA) are as follows:
F. and T. were shareholders in a company which was formed to buy land for use
as a pleasure park. The defendants were the other directors and shareholders of
the company. F. and T. alleged that certain of the defendants had sold land
belonging to them to the company at an exorbitant price. F. and T. now asked
the court to order that the defendants make good the losses to the company. The
Court held that since the company’s Board of Directors was still in existence,
and since it was still possible to call a general meeting of the company, there
was nothing stopping the company from obtaining redress in its corporate
character and that the action of F. and T. could not be sustained.
The rule has been held to apply not only to incorporated bodies but also to
unincorporated associations. It was accordingly applied to trade unions in
COTTER V. NATIONAL UNION OF SEAMEN (1929) 2 CH. 58 and
MBENE V. OFILI (1968) 1 ALR COMM. 235 and to Jamal-Ul-Muslim of
Lagos on the ground that it was a body possessing a Constitution or a set of
rules and regulations entitling it to sue and be sued as a legal entity.
See also the following cases: Yalaju Amaye v. Arec. The majority rule applied
in this case.
The majority rule was relaxed in Edokpolo V. Sem-Edo Wire Industries Ltd
(1984) 7 Sc.
If every individual member of the company were permitted to sue anyone who
had injured the company through a breach of duty, there could be as many
actions as there are shareholders, that is, it prevents multiplicity of suits.
Legal proceedings would never cease and there would be enormous wastage of
time and money.
The rule prevents the company from being torn into pieces by multiplicity of
actions. In the case of LA COMPAIGNIE DE MAYVILLE v. WHITLEDY
(1896) 1 CH. 788, Kay L.J. stated that:
“The proper course in the case of any matter which relates to the internal
management and trade affair of the company is to call a meeting and that is
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practically the only remedy which this court allows a director or a shareholder
of a company to take; otherwise we should have companies torn to pieces by
litigation of this kind. The court has always set itself resolutely against such
litigation.”
If an individual member could sue a person who had caused loss to the company
and the company then ratified that person’s act at a general meeting, then a legal
proceeding would be quite useless, for a court will naturally hold that the will of
the majority prevails. This is essentially based on Partnership doctrine that the
court will not interfere in matters of internal management. Courts will generally
not act in vain. This is based on one of the maxims of Equity that “Equity will
not act in vain.” In MACDOUGALL V. GARDINER (1875) 1 CH D. 13, the
court held that the plaintiff must fail as the action was asking for the
interference of the court in the internal affairs of the company.
Without prejudice to the rights of members under sections 346 to 351 and
sections 353 to 355 of this Act or any other provisions of this Act, the court, on
the application of any member, may by injunction or declaration restrain the
company from the following ‐
(c) any act or omission affecting the applicant's individual rights as a member;
(d) committing fraud on either the company or the minority shareholders where
the directors fail to take appropriate action to redress the wrong done;
72
(e) where a company meeting cannot be called in time to be of practical use in
redressing a wrong done to the company or to minority shareholders; and
(f) where the directors are likely to derive a profit or benefit or have profited or
benefited from their negligence or from their breach of duty.
There are several individual membership rights. For example, if you did not
receive your notice of meeting and you heard that your company is holding its
Annual General Meeting in a particular place, you can approach the court and
seek to restrain the company from holding that meeting because it is your
individual right. See Section 344(b) of the Act. Section 344 of the Act
provides that if the application is granted, such aggrieved member shall not be
entitled to damages but to declaration or injunction restraining the company
from doing a particular act. In PENDER V. LUSHINGTON (1877) 6 CH. 70,
an action was brought by a shareholder whose vote was rejected on behalf of
himself and all others who had voted for him for an injunction to restrain the
directors from acting on the footing of the votes being bad. The court held that
the plaintiffs were entitled to an injunction.
FORMS OF ACTION
(1) Where a member institutes a personal action to enforce a right due to him
personally, he shall not be entitled to any damages but to declaration or
injunction to restrain the company and/or the directors from doing a particular
act.
(3) Where any member institutes an action under this section, the court may
73
award costs to him personally whether or not his action succeeds.
(4) In any proceedings by a member under Section 343 of this Act, the court
may, if it thinks fit, order that the member shall give security for costs.
Section 345: For the purpose of Section 343 and 344 of this Act, “member”
includes -
1. PERSONAL ACTION
A personal action is a situation where a member sues for wrong done to him in
his capacity as a member. In other words, the individual member is bringing his
own action. This can occur under Section 344(c) of the Act.
2. DERIVATIVE ACTION
Derivative action is an action by the company for the wrong done to it but since
it will not sue as plaintiff, provisions are made for a minority to sue on its behalf
and not on behalf of the shareholders.
Section 346: (1) Subject to the provisions of subsection (2) of this section, an
applicant may apply to the court for leave to bring an action in the name or on
behalf of a company or to intervene in an action to which the company is a party
for the purpose of prosecuting, defending or discontinuing the action on behalf
of the company.
the wrongdoers are the directors who are in control and will not take
necessary action;
74
the applicant has given reasonable notice to the directors of the company
of his intention to apply to the court under subsection (1) of this section if
the directors of the company do not bring, diligently prosecute or defend
or discontinue the action;
any other person who, in the discretion of the court, is a proper person to make
an application for that purpose.
See Section 352 of the Act, the Definition Section. See also the following
cases:
With respect to derivative action as provided in Section 346 of the Act, the
court may, at any time, make any such order as it thinks fit. See Section 347(1)
of the Act.
The court may also make one or more of the following orders (Section 347(2)).
an order authorising the applicant or any other person to control the
conduct of the action;
an order giving direction for the conduct of the action;
an order directing that any amount adjudged payable by a defendant in
75
the action be paid in whole or in part, directly to former and present
security holders of the company instead of to the company;
an order requiring the company to pay reasonable legal fees incurred by
the applicant in connection with the proceedings.
Section 348 of CAMA states that an action brought under Section 343 of this
Act shall not be stayed or dismissed by reason only that it is shown that an
alleged breach of a right or a duty owed to the company has been or may be
approved by the shareholders of such company but evidence of approval by the
shareholders may be taken into account by the court in making an order under
Section 347 of this Act. Under Section 349, the court’s approval is required
before a derivative action is continued.
Where a member of a company alleges that the affairs of the company are being
conducted in an unfairly prejudicial or oppressive manner, such a member may
apply to the court for relief by petition. This is provided in Section 354 of the
Act.
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a creditor;
the Corporate Affairs Commission;
any other person who, in the discretion of the court, is the proper person
to make the application.
Note that the personal representatives of a deceased shareholder and any person
to whom shares have been transferred or transmitted by operation of law may
also apply for this relief. See the following cases:
Where the court is satisfied that there is need to intervene, the court may make
any of the following orders as the court thinks fit for giving relief in respect of
the matter complained of:
an order that the company be wound up;
an order for regulating the conduct of the affairs of the company in
future;
an order for the purchase of the shares of any member by other members
of the company;
an order for the purchase of the shares of any member of the company
and for the reduction accordingly of the company’s capital;
an order directing the company to institute, prosecute, defend or
discontinue specific proceedings so authorising a member or members or
the company to institute, prosecute, defend or discontinue specific
proceedings in the name or on behalf of the company;
an order varying or setting aside a transaction or contract to which the
company is a party and compensating the company or any party to the
transaction or contract;
an order directing an investigation to be made by the Corporate Affairs
Commission;
an order appointing a receiver or a receiver and manager of property of
the company;
an order restraining a person from engaging in specific conduct or from
doing a specific act or thing;
an order requiring a person to do a specific act or thing.
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Section 355(3) of the Act provides that where an order that a company be
wound up is made under this Section, the provisions of this Act relating to
winding up of companies shall apply, with such adaptations as are necessary, as
if the order had been made upon an application duly filed in court by the
company.
6. EXTERNAL RESTRUCTURING
a) merger;
b) takeovers; and
c) acquisition.
Distinction btw takeover and acquisition is matter of law. Acquisition means the
purchase of controlling shares (any number of shares) by a company A from
another company B with the aim of having influence and control in company B
e.g. to have more voting rights to influence decisions of the company, appoint
directors, veto decisions. Takeover is acquisition of not less than 30% in the
share capital of the company.
Before 2007 ISA, a merger can only arise from amalgamation of 2 or more
companies but from ISA 2007, a merger can arise from acquisition of shares.
Once acquisition is up to 51%, SEC will direct that the companies should
merge. Acquisition doesn’t affect the corporate identity of the acquired
company. Also, takeover doesn’t affect corporate identity of the offeree.
S117-119 ISA.
S117 definition section
SEC (Consolidated) Rules: Rule 421 – definition section.
These define merger, acquisition.
S119 ISA: defines
S131 ISA – 151 ISA: details about a takeover
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2. ACQUISITIONS: this is an acquisition by one company of sufficient or
controlling shares in another company to give the acquiring company
control over that other company.
3. TAKE-OVERS:
EXEMPTED BODIES
1. The provisions of this regulation shall not apply to: -
a. Holding companies acquiring shares solely for the purpose of investment
b. In a small merger, the merging entities shall not be required to notify the
Commission of that merger but shall be required to inform the Commission
at the conclusion of the merger.
2. An acquisition in a private/ unquoted public company with assets or turnover
below N1 billion (small merger)
ROLE OF CBN
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CBN gets involved in merger and acquisition, where banking institutions are
involved in the merger scheme.
The prior consent of the CBN Governor must be sought and obtained before any
such agreement. -S. 7 BOFIA
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7. WINDING UP AND DISSOLUTION OF
COMPANIES; BUISNESS AND NON BUISNESS
ORGANISATION
WINDING-UP OF COMPANIES
It is the process of liquidation of the assets of a company for the benefits of its
(i.e. distributed to) creditors, members and employees in accordance with
certain rules of priority.
TATE INDUSTRIES PLC V. DEVCOM M.B LTD.
APPLICABLE LAWS
a. CAMA
b. Company Winding up Rules 2001
c. Investment and Securities Act 2007
d. SEC Consolidated Rules 2013
e. NDIC Act
f. BOFIA
g. National Insurance Commission Act
h. FHCA
i. FHC Civil Procedure Rules 2019
REGULATORY AGENCIES-
a. CAC –It can present petition for winding up. It is a custodian of company
records-A company must file returns during winding up
b. FHC-court with jurisdiction to entertain winding up petition.
c. SEC
d. NSE
e. National Insurance Commission
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A company under a winding up proceedings has not died it is still alive
though sick. A company “dies” on its dissolution C. S. (NIG.) PLC V.
MBAKWE
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have been held under section 573(2)(b) of CAMA.
The court may, instead of making a winding-up order, direct that a meeting
be held or the report be delivered and make orders as to costs as it thinks fit –
section 574(3) of CAMA.
This ground is only applicable to public companies – section 235(1) & 236
CAMA
EXCEPTIONS-
S.572:
TATE V. DEVCOM
A company will not be deemed to be unable to pay its debt if:
1. The debt to a creditor is not due
2. No evidence of due demand for payment was made
3. If there is a bona fide dispute of the debt ONOCHIE V. ALAN
DICK & CO. LTD (2003); TATE INDUSTRIES PLC V
DEVCOM LTD (2004) RE LONDON&PARIS BANKING
CORP.
4. There is no evidence that the company is insolvent.
s. 572 of CAMA and
NB- demand must be made by an officer of the company-In NIGERIAN
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COMMERCIAL & INDUSTRIAL ENTERPRISES LTD. V. REGISTRAR
OF COMPANIES it was held that a demand made by the solicitor to a
company for payment of debt was not a demand by an officer of the company.
NB-the SHC has jurisdiction when the debt claimed is unascertainable or in
dispute.
NB-however the denial of debt in bad faith cannot stop petition if amount
admitted is more than 200,000:00
The Demand is a statutory document and not a mere letter of correspondence
and should be formally titled as a STATUTORY DEMAND FOR
PAYMENT, and clearly set out the amount owed and a request to pay within
three weeks and a Notice that upon expiration, the creditor would take steps to
wind up the company.
27/04/2022
WINDING UP ON JUST & EQUITABLE GROUNDS UNDER S. 571 (e)
CAMA
The grounds upon which the court MAY ORDER winding up under just and
equitable grounds are:
a. The substratum of the company has disappeared, such as the inability of
the company to achieve its object clause or the company is deeply indebted: RE
YENIDIJE TOBACCO LTD
b. The company is formed for fraudulent purpose.
c. The company is a “bubble” as it has no business or asset or never
intended to carry on business in a proper manner.
d. Unfairly prejudicial or discriminatory act against the minority or other
members, culminating in lack of confidence in the management of the
company’s affairs by those in control of the company. IBRAHIMI V.
WESTBOURNE GALLERIES LTD.
e. If the company is small, grounds that would justify dissolution of
partnership on just and equitable ground is enough, such as deadlock. THE
MATTER OF THE STEVEDORING (NIG.) CO. LTD.
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of the petitioner is irrelevant – OBASI V. PUREWAY
CORPORATION (NIG.) LTD. (1878) 4 FRCR 214.
NOTE-
The petitioner is not entitled to a winding-up order on the just and equitable
ground if his object is not a company purpose but the pursuit of a selfish
advantage in a question between himself and other shareholders –
ANGLO AMERICAN BRUSH CORPORATION LTD. V.
SCOTTISH BRUSH CO. LTD.
APPOINTMENT OF LIQUIDATOR
The court may appoint a liquidator for the purpose of conducting the
proceedings in winding-up a company – section 585(1) of CAMA.
On the making of a winding-up order, if no liquidator is appointed, the official
receiver shall by virtue of his office become the liquidator – section 585(3)(b)
of CAMA.
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POWERS OF A LIQUIDATOR IN WINDING UP BY THE COURT
The liquidator, in a winding-up by court, exercises some powers, but the powers
must be sanctioned by the court or the committee of inspection – section 588(1)
of CAMA. These powers include –
a) The power to bring or defend any action in the name and on behalf of the
company; AGBAOYE V. CHIEF FEDERAL LAND OFFICER
b) The power to carry on the business of the company as may be necessary
for the purpose of the beneficial winding-up;
c) The power to appoint relevant professionals or legal practitioner to assist
him in the performance of his duties;
d) The power to pay all classes of creditors in full;
e) The power to make any compromise or arrangement with creditors or
persons claiming to be creditors; and
f) The power to compromise all calls, debts and liabilities capable of
resulting in debts.
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iii. WINDING-UP SUBJECT TO THE SUPERVISION OF THE COURT
This is provided for under sections 649, 651 and 653 of CAMA
This usually occurs when a company passes a special Resolution for winding-up
backed by a Petition filed to the Court to wind up the company subject to its
supervision.
The Court is the one to appoint the liquidator. section 652(1) of CAMA.
A winding-up subject to the supervision of the court is deemed to be a
winding-up by the court for the purposes of sections 576 and 577– section
651 of CAMA.
Where an order is made for a winding up subject to supervision, the court may
by the same or any subsequent order appoint an additional liquidator– section
652(1) of CAMA.
Liquidator
Official Receiver
Provisional Liquidator
Receiver/Receiver Manager
Special Manager
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LIQUIDATOR
A liquidator is a person appointed by the company or court to wind up the
affairs of the company and to distribute its assets among the creditors and
contributories in accordance with the articles.
A liquidator represents the interest of the creditors, especially the
unsecured creditors. Thus, upon appointment all powers of director’s
cease.
The LIQUIDATOR MUST, WITHIN FOURTEEN (14) DAYS
AFTER HIS APPOINTMENT PUBLISH IN THE GAZETTE AND
IN TWO (2) DAILY NEWSPAPERS and deliver to the commission for
registration a notice of his appointment –
SECTION 654 OF CAMA.
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OFFICIAL RECEIVER-S. 582 CAMA
An official receiver is the Deputy Chief Registrar to the Federal High
Court or any other officer designated for that purpose by the Chief Judge
of the Federal High Court.
He is to receive the statement of Affairs of the company and to collate
information about the company in winding up.
Official Receiver is just a nomenclature given to the Deputy CR of FHC.
PROVISIONAL LIQUIDATOR
He is appointed by the Court before the making of a winding up Order and the
formal appointment of a liquidator. S-S. 585(3) (a) of CAMA
An official receiver may be a PROVISIONAL LIQUIDATOR when the
winding up order is made in a compulsory winding up until the appointment of
a liquidator. He continues to be so act wherever there is vacancy in the office of
a liquidator. S. 585 (3)(b)
RECEIVER
A receiver is appointed by the secured creditors under the power contained in
the debenture instrument, executed by the company and the creditors.
A receiver need not get involved in the management of the company. He only
has an eye in the income and expenditure of the company in order to realise
assets and pay off the debt due to the creditors: s. 552 CAMA
RECEIVER MANAGER
A Receiver Manager is not only concerned to realise the assets of the company
but takes over the management of the affairs of the company, to stabilise it to
make profit and pay off the creditors and then handover the company to the
members. He stands in a fiduciary relationship to the company and observe
utmost good faith towards it in any transaction with it or on its behalf: s. 553
CAMA
SPECIAL MANAGER
He is an officer appointed by the Chief Judge of the Federal High Court to assist
the Deputy Chief Registrar (i.e. Official Receiver) in the winding up of a
company by the order of the court: s. 599 CAMA
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2. Power to use the company’s seal
3. Power to appoint other professionals to assist him
4. Power to sell and dispose of the property
5. Power to establish subsidiaries of the company
6. Power to raise or borrow money and grant security due over the property of a
company.
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APPOINTMENT OF INSPECTORS
Sections 357 to 363 of CAMA provide for the circumstances under which
inspectors may be appointed, their powers, the procedure for such appointment
and report. The investigation also includes the membership of companies.
Section 357(1) of the Act provides that the CAC may appoint one or
more competent inspectors to investigate the affairs of a company and to
report on them in such manner as it may direct. No specific qualification is
required for appointment provided the appointee is generally competent. There
are three situations where inspectors can be appointed to investigate the affairs
of a company.
on the application of the company or its members;
on the declaration of the court that a company be investigated; and
on CAC’s own motion.
In the case of a company having a share capital, Section 357(2)(a) of the Act
provides that the application may be made by members holding not less than ¼
of the class of shares issued.
With respect to a company not having a share capital, Section 357(2)(b) of the
Act provides that the application may be made by not less than ¼ in number of
the persons on the company’s Register of Members.
Section 357(2)(c) of the Act provides that in any other case, the application may
be made by the company where, for example, there has been a lot of
concealment, under-declaration of profit and other illegality. See SPECTRA
NIGERIA LIMITED V. STABILINI VISIONINI NIGERIA LTD (1996) 6
NWLR (PT. 44) 239.
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In OTONG V. MOGAL NIGERIA LTD (1978) FRCR 80, it was alleged that
the company had not filed any annual returns, had not had annual general
meetings and kept no minutes of any meetings and no books of account. The
court had no hesitation in directing the Registrar to appoint inspectors for a
thorough investigation of the affairs of the company.
Section 358(2) of CAMA provides that the CAC may appoint an inspector to
investigate the affairs of a company if it appears to it that there are
circumstances suggesting any of the following:
that the company’s affairs are being or have been conducted with
intent to defraud its creditors in such a manner which is unfairly
prejudicial to some of its members; or
that the company was formed for any fraudulent or unlawful purpose;
or
that the company’s members have not been given all the information
with respect to its affairs which they might reasonably expect.
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company if the court is of the opinion that it is just and equitable that the
company should wind up. This provision is to protect the minority further in
cases of oppression by the majority. It should be noted that the court’s power
under this paragraph is discretionary.
5. The registrars:
(a) Dispatch the scheme documents to all share holders
(b) Establish court ordered meetings voting model.
(c) Establish court ordered meeting voting procedure.
(d) Prepare and dispatch new certificates to shareholders at conclusion of the
mergers.
6. Stock Brokers:
(a) They prepare the application for filing with the Nigerian Stock Exchange.
(b) Facilitate the quotations committee meeting
(c) Engage in sensitising and obtaining shareholder support and consent at the
court ordered meeting.
(d) Obtain Nigerian Stock Exchange approval for scheme of arrangement.
DISSOLUTION OF A COMPANY
The procedure is:
1. Winding up must have been completed.
2. The application is made to court by the liquidator for a dissolution Order
3. Notice of the Order of dissolution made is to be given to the CAC
WITHIN 14 DAYS of the Order-S.617(1) CAMA
4. CAC shall record the dissolution of the company in its books – section
617(2) of CAMA.
NOTE-The liquidator or any other interested person may apply to the court to
make an order deferring the date of the dissolution. By virtue of S. 691 even
where the company is deemed to be dissolved, the court may on application by
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the liquidator or any other interested person, within 2 years of the dissolution
void the dissolution. That person must deliver the order to CAC within 7 days
after making the order.
DISSOLUTION OF PARTNERSHIP
This can be caused by any of the partners in the following ways –
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3. By order of Court, in which a partner can apply that the partnership be
dissolved based on:
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2. The partners shall file a Notice to CAC WITHIN 3 MONTHS of the
cessation of the business, stating that the firm/ individual has ceased to do
business under a business name with evidence attached.
a. A copy of the court order or evidence of consent of the partners must be
annexed to the notice.
b. The original particulars of the business registration should be
surrendered for cancellation (certificate of registration and other
particulars)
c. Pay the prescribed fees for filing the Notice.
3. Upon delivery of the notice to the Registrar of Business Name, the
Registrar may remove the firm, company or individual from the register.
4. If the Registrar has reasonable cause to believe that the firm, company or
individual is not carrying on business, the Registrar may send a notice to
the firm, company or individual enquiring whether or not the business is
being carried on.
5. Where there is no response WITHIN TWO (2) MONTHS, or the answer
to this is that there is no business being carried on, the Registrar may
remove the business name from the Register
Section 819(3) and (4) of CAMA.
Sometimes partnership business, even though registered under Part B is
governed by the partnership deed (even though this deed is not registered with
CAC).
There are several ways of bringing partnership to an end. However, recourse is
first had to the partnership deed. Where the partnership deed is silent: then,
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