Apr 15, 2016

Can a Director of a private company be appointed by a Will? by Teingo Inko-Tariah




Mr Arrowhead, a very prominent Nigerian suffered a stroke and was flown abroad where he received medical attention for several months. Unfortunately, he died abroad and his body was flown back to the country for burial which was celebrated in grand style. Although Mr Arrowhead left a will, there was serious contention among family members over the content of the will especially as some of the family members felt disappointed over what was bequeathed to them. Typical of a polygamous family, the will was contested in court. However, that is not the main thrust of this paper. It was discovered that in the will, the testator purportedly appointed his wife as a director of one of his companies. This is a real life situation and raises the question which this paper seeks to address. Can a director of a company be appointed by a will?

Who is a director?
S 244(1) Companies and Allied Matters Act (CAMA) 2004 defines directors as “persons duly appointed by the company to direct and manage the business of the company”. s. 567 CAMA further describes the term director to “include any person occupying the position of director by whatever name he may be called and includes any person in accordance with whose directions or instructions the directors of the company are accustomed to act”. Directors are officers of a company who are appointed to operate the business for the benefit of the shareholders. According to s. 567 CAMA, ‘officer’ in relation to a corporate body includes a director, manager or secretary. There are two broad categories of directors in modern corporate practice and governance. They are executive directors and non-executive directors. Executive directors are those directly engaged in the day to day management of the business on a full time basis while non-executive directors are external board members who act as a check on the executive management. They are usually appointed on part time basis and they have become more prominent with the development of corporate governance. There are various types of directors: shadow, alternate, independent, and life director.
Appointment of directors
The authority to act as a director of a company comes from due appointment. Thus a person who acts without such appointment commits an offence under s. 244(3) & 250 CAMA and he would be personally liable for his actions. Where the company holds out a person not duly appointed as a director to carry out responsibilities in that capacity, the company will also be liable to a fine s. 244(4) CAMA. However, although a director may not have been duly appointed in accordance with the law, his actions in that capacity may still bind the company as if he were a de jure director (i.e. one who was duly appointed) if it is the company that holds him out as a director. Therefore appointment is a fundamental criterion which validates the position and authority of a director of a company.
In Nigeria, the law provides for the manner in which the director of a company may be appointed: who can appoint and how to appoint a director. For the first directors, the law provides that they should be appointed by the subscribers to the memorandum of association of the company, a majority of them or they may be named in the articles of association of the proposed company. For subsequent appointments generally, it is the shareholders in a general meeting who are empowered by law to appoint directors by ordinary resolution. The board of directors of a company could also appoint other directors subject to the approval of the shareholders at the next annual general meeting where a vacancy arises from death, resignation, removal of a director. This is referred to as filling a casual vacancy and where the newly appointed director is not approved by the shareholders in a general meeting, he would cease to be a director. Where all shareholders and directors of a company die, any of the personal representatives may apply to court to convene a meeting of all personal representatives of the shareholders entitled to attend and vote at a general meeting to appoint new directors to manage the company. Where the personal representatives of the deceased shareholders fail to do so, the creditors of the company, if any, shall be able to appoint a director.
What role does the Articles of Association play in appointment prescriptions? Life director, share qualification.
The AOA is the document that makes provision for the internal management of a company. It is a part of the constitution of the company which sets out the rules for running the company. Typically, the article of association should contain provisions relating to share capital, classes of shares, rights and restriction to each class of shares, allotment, transfer and transmission of shares, meetings, resolutions, directors, auditors, company secretary, the seal, winding up. With regards to directors, the articles of association prescribes the appointment, removal, disqualification, remuneration, tenure of office, rotation, filling of casual vacancy of directors and also provides for life director where the company so wishes. Usually, in corporate practice, where the law is silent on an issue, it is the articles of association that would provide direction on such issue thus, for instance, in Nigeria; the CAMA, 2004 is silent on the issue of alternate directors although the practice is recognised in the corporate sector. Therefore, companies that wish to have alternate directors would make such provision in the articles of association as the basis for adopting the practice. Another instance is meetings via conference calls.
What is a will and what kind of bequest can be made by a will?
A will is a voluntary expression of the intention or wishes of a person of sound mind wherein the person states or gives directives of how his property should be disposed of in event of his death. Property given by a person in a will is referred to as legacy and could either be chattels i.e. movable items such as wrist-watch or car; realty i.e. immovable items such as land or buildings; or pecuniary i.e. money.
Conclusion
Directorship in a company is not a type of property and does not fall under the types of properties that can be bequeathed by a will. A person who dies automatically ceases to be a Director of the Company and so loses the power to bind the company which is a separate entity from the owners & Directors. Any subsequent director can only be validly appointed by due procedures laid down by statute. Thus, any purported appointment by a will goes to no issue as it cannot be recognised except due process has been followed. At best, it can serve as an expression of intention of the deceased director as to who he wishes to be on the Board of the company. This intention can only be executed by the living Directors, if any and until so executed, it is invalid.

Photo Credits - rayhansobhan.com

Share:

3 comments:

  1. Very insightful! Thanks Teingo for sharing. Perhaps someday you will share with us on what the law says as regarding transfer of shares. Once again, thanks!

    ReplyDelete
  2. Thanks a lot for your comment Maple. I will definitely share something on that soonest. Please be on the lookout. Cheers

    ReplyDelete
  3. Very insightful article. Well done. It is of note that you identified 3 major ways by which directors are appointed i.e. by subscribers to the M & A of Association, by members at general meeting and by the board of directors (casual vacancy) subject of course to subsequent approval by members at general meeting. However, may I avert your attention to the provision of section 41(3) of CAMA which is to the effect that a person (member or not) may be imbued with the unilateral power to appoint or remove directors if so empowered by the Articles. Since this provision is not qualified and does not prescribe any express procedure for the exercise of this power, it can be argued that in theory, a person may appoint a director however he desires, so long an intention to appoint is discernible. In effect, if he decides to appoint using the instrument of a will, the said appointment may take effect when the will has been validly executed. As aforesaid however, this argument is purely theoretical and academic. In reality, the CAC will not ratify the appointment of a director in the absence of a resolution evidencing such appointment.

    As a remote addendum, may I also add that directors of sector specific corporations can also be appointed and removed by regulatory bodies of the industries in which the companies operate e.g. the regulatory power granted to the CBN in respect of bank directors in Section 35 BOFIA.

    ReplyDelete

Blog Archive

AELEX Annual Lecture

AELEX Annual Lecture
AELEX Annual Lecture

ORDER NOW

The Nigerian blawg

Disclaimer:- Posts and comments by the publishers of this blog do not constitute legal advice or create an attorney-client relationship.

Follow by Email

Advertise your property

Property Listings

  • SALE-4bedroom duplex With 3 living rooms. Located at Opic Harmony Estate. Asking 80m Title Global C of O/ consent in progress. 08055424566
  • FOR SALE 8bedroom duplex 2 living rooms With 2 rooms BQ N150m Located off CMD Road Magodo Registered Title Contact 08055424566
  • Property for Rent – New Building, 4 unit luxury 2 bedroom flat available at Rafiu Ipaye Street, Ijesha, Surulere. Ground floor back flat- 700k per anum, First floor back flat – 750k per anum, 2nd floor back flat – 750k, 2nd floor front flat – 800k. Service charge - 75k per anum. Refundable caution – 70k. Call 08055424566 for details.
  • Property For Sale!!! A fenced and gated uncompleted 3 bedroom site on a full plot of land is available for sale at Igbetu via Awoyaya, behind Mayfair Gardepn Estate, Ibeju-Lekki, Lagos for sale. Price is N20million and Title Documents include, Family Receipt,  Deed of Assignment and Global C of O. Contact 08055424566 for more information
  • PROPERTY FOR SALE!!!!!!!!  A 5 Bedroom Duplex with 2 room BQ formerly used for a Nursery & Primary school is available for sale in Iyana Ipaja, Lagos  Building contains 9 CLASSROOMS, 2 OFFICE SPACES, 1 LARGE RECEPTION, 8 TOILETS, 5 BATHROOMS, KITCHEN,PLAY AREA. The seller's title is a certificate of Occupancy and the asking price is 35 million Naira.  Contact 08055424566 for more details 
  • List your property for rent or sale here

CONTACT US

Name

Email *

Message *

Powered by Blogger.