The Appointment, Disqualification and Removal of Directors- Implications for

Corporate Governance

By

KUNLE AINA Ph.D

Senior Lecturer, Faculty of Law, University of Ibadan

Being paper presented at the Twelfth International Conference on Advances in

Science, Management and the Arts held on May 9-10, 2017 at Salle Audio Visuelle,
University of Abomey Calavi, Cotonu, Republic of Benin.

ABSTRACT
The director is responsible for the management of the Company. The law ascribes statutory,
fiduciary and duty of care and skill to directors. They are also responsible for the companys’
compliance with the provisions of the Companies Act. The directors shoulders the onerous and
substantial provisions of the law, specifically their corporate governance duties. These expectations
are unfortunately not supported by the law on the appointment, disqualification and removal of
directors. This paper examined critically the provisions of the Companies and Allied Matters Act
2004 in Nigeria and the Companies Act 2006 in United Kingdom from a comparative perspective.
The law on the appointment of directors are almost identical in the two jurisdictions. The law is
silent on the qualifications expected of directors and this position of the law leaves room for the
appointment of incompetent directors. However, the laws differ in terms of disqualification of
directors. The age limitations and other disqualifying parameters required are different in the two
jurisdictions. The mode and procedure for disqualification in Nigeria is vague and not properly spelt
out and it is suggested that Nigeria may adopt the procedure in United Kingdom. The paper further
analysed the procedure for removal of directors by the company. The law in the two jurisdictions are
similar but the interpretation of the procedure in Nigeria is yet to be properly understood as revealed
in recent cases on the matter. The paper finally, examined the circumstances when the director will
be entitled to compensation after removal from office and recommended a substantial review of the
law in Nigeria.

Introduction

The Nigerian Code of Corporate Governance for Public Companies 1provides that ‘the principal
objective of the board is to ensure that the company is properly managed’ 2 It further explains that
the Board should ensure that the company carries on its business in accordance with its articles and
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Memorandum of Association and in conformity with the laws of the country ensuring the highest
ethical standards and on an environmentally sustainable basis. 3 The Board is the engine room of the
company, the management power and the directing mind of every company. The success or failure
of a company rests squarely on the shoulders of its directors. Invariably, the level of competence and
application of excellent managerial capability of the directors will determine the level of success of
the company. Company law had for a long time realised the importance of the directors in the
management of the companies by making adequate rules to protect them in their duties to the
company. They are also entrusted with not only the prudent management of the company 4 but also
the long term success of the company. 5 In the 1992, the Cadbury committee explains that, ‘[T]he
responsibilities of the Board include setting the company’s strategic aims, providing the leadership
to put them into effect, supervising the management of the business and reporting to the shareholders
on their leadership.’6 There is an ample statutory recognition of the duties of care and skill 7 and also
fiduciary duties8 which are the legislative extension of the common law duties owed by directors to
their companies, apart from these there are also extensive statutory duties imposed on directors 9
which only buttress their importance in the governance of the company. However, it is amazing that
in spite of the enormous responsibilities entrusted on directors, the statutory provisions guiding the
appointment, disqualification and removal of directors gives considerable room for appointment of
incompetent, fraudulent persons who are only after their own personal interest and not the interest
of the company they were appointed to serve. There has been a lot of company failures in the recent
past that invariably are traced to the appointment of obviously fraudulent persons which is
encouraged because of the very difficult rules on their removal.

This paper critically analyse the statutory provision on the appointment disqualification and renewal
of company directors in Nigeria and the United Kingdom and make recommendations for reforms.

Who is a Director

The question who is a director has no precise and definite answer. This is largely due to the
extensive roles they play in the company. In the case of Re forest of Dean Company, Jessel M.R.
describes the director thus. “it does not matter what you call them (directors) so long as you
understand what their true position is, which is that they are merely commercial men managing a
trading concern for the benefit of themselves and all other shareholders in it”.10

The statutory definition of directors merely recognised the appointment and their statutory function
when the Companies and Allied Matters Act 2004 (hereinafter called CAMA) provides that
‘directors of a company registered under the Act are persons duly appointed by the company to
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direct and manage the business of the company’ 11. The CAMA further defines a director to ‘include
any person occupying the position of director by whatever name called and includes any person in
accordance with whose instructions the directors of the company are accustomed to act’ 12. This
definition is obviously confusing. If the director is anybody occupying the position of director by
whatever name called, we are yet to identify the real director. The Section 244(1) recognises the
appointment into the office of a director for the purpose of directing and managing the business of
the company. Anybody occupying the position without duly appointed a director is in fact guilty of
an offence and on conviction liable to imprisonment for 2 years and fine. 13 While the second part of
the definition is the definition of a shadow director as provided in Section 245 CAMA. Nevertheless,
we must note that the provision is restricted for the purpose of Sections 253, 275 and 281 of the act
and cannot be generalised as the working definition of directors. In the case of Olufosoye v
Fakorede.14 a director was described as a person appointed or elected according to law, authorised to
manage and direct the affairs of a corporation or company. This definition also begs the question
because not all directors are appointed or elected according to law”, some are not elected at all but
the law still presumes their role as directors 15. The CAMA however provides that there shall be
rebuttable presumption that all persons who are described by the company as directors, whether as
executive or otherwise, have been duly appointed. 16 Thus, where a registered company holds out or
describes a person as director, there is rebuttable presumption in favour of any person dealing with
the company that such person has been duly appointed as such. If a director acts or holds himself out
as such, he is guilty of an offence. Where however, it is the company that holds out a director, when
the person has not been duly appointed the company is liable to a fine and can be restrained by any
member for doing so unless and until he is duly appointed.17

Appointment of Directors

In Nigeria every registered company is required to appoint at least two directors 18 and in the event
that the number of directors fall below two, the directors or members must ensure that a new director
is appointed within one month19 failure of which they shall be liable for the liabilities and debts
incurred by the company during the period when the company was carrying on business with less
than the statutory minimum.20 In England, the number of directors required to be appointed for a
private company is one21 while a public company is required to appoint minimum of two 22 directors,
however, every company must have at least one natural person as its director.

The subscribers to the memorandum of association or the majority of them, appointments the first
directors of a company or the directors may be named in the articles of association. 23. Subsequently,

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the members in general meeting are empowered to re-elect or reject directors and appoint new
ones.24 In the event of a causal vacancy occasioned by death, disqualification or resignation, the
Board of directors may appoint a director to fill the vacancy which must however be approved by the
general meeting during its next meeting. Unlike the old law in England 25 and Nigeria26, the law
allows persons over the age of 70 to be appointed as directors of public companies. However in
Nigeria, such person must disclose this fact to the general meeting 27, except that the law does not
specify how this may be done. Section 256 CAMA, further provides that in the event that a person
who is 70 years and above is proposed for appointment as director of a public company, special
notice of the meeting where the resolution appointing or approving the appointment of such a
director is to be held. The purpose for this special notice is not clear. If the majority are desirous of
appointing a person above the age of 70, whether you give a special notice or not will not affect the
decision. In England, no special approval of the members is required.

In England the minimum age for a director is sixteen 28, and any appointment in contravention of the
section is void29. Section 158 of the Companies Act 2006(UK) gives the Secretary of State power to
make regulation for cases in which a person who has not attained the age of 16 years may be
appointed a director of a company. The position in Nigeria is different, as any person who is an
infant (that is person below the age of 18 years) is prohibited from being appointed a director, and
this is without any exception30

In the absence of any provision, to the contrary in the articles of association, the general meeting has
inherent power to appoint directors by ordinary resolution. 31 In some cases the articles may give
power of appointment of directors to specific persons or group e.g, the board of directors, or
creditors, in which case the power of appointment of directors by the general meeting is displaced
though the power to remove the directors or change the articles of association is still inherent in the
general meeting. In exercising the power of appointment by the general meeting , the power must be
exercised for the benefit of the company as a whole and not to secure some ulterior advantage to
some part of the general meeting.32

The appointment of managing director or executive director is not provided for in the statutes. It is
left for the board to make such appointments and approved by the general meeting. The appointee
must first be a director properly appointed under the statute and the articles of association and
should generally not be under any disability. It follows that if the person is removed as a director he
automatically loses his management or executive position as well, unless otherwise provided in the
articles, whatever name called, he is liable to be removed as any other director.

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No appointment is valid unless the person appointed has consented to the appointment in writing.
Section 35 (2) (c) CAMA provides as follows-:

There shall be delivered to the commission; (c) a statement in the prescribed form
containing the list and particulars together with the consent of the persons who are to
be the first directors of the company.

This will entail filing the particulars of directors form. The appointee must disclose his full names,
address, age and sign against his name consenting to the appointment. The particulars required to be
filed is more extensive in the UK. The appointee director must disclose his names or any country or
state (or state of the United Kingdom) in which he is usually resident) nationality, business
occupation (of any) date of birth33. The company is required to keep a register of directors 34 which
must be kept at the companies registered office and which must be open for inspection to members
of the company free of charge or to others at a prescribed fee. A register of the directors residential
addresses must also be kept at the head office of the company 35 but there is no requirement to allow
the public or members access to the register.

Defective Appointments

Generally, acts undertaken by persons who are acting as directors are valid even if the appointment
is later found to be defective. The advantage is that third parties dealing with the company are
protected and transactions between the directors with defective appointment and third parties on
behalf of the company will be valid 36. In Nigeria, it is a criminal offence for anyone not duly
appointed as a director to hold himself out as one, and where the company holds any one out as a
director when in fact he is not the company is liable to a fine and any member may restrain the
company from holding such person out as its director37

The law recognised the position of ‘shadow directors’ 38 who are in fact not appointed at all but are
presumption of law. In such circumstances, reference to due appointment may be an anomaly.
However, section 200 of CAMA provides that, ‘where a person not duly appointed as a director or
acts as such on behalf of the company, his act shall not bind the company and he shall be personally
liable for such action; provided that where it is the company which holds him out as director, the
company shall be bound by his acts’.

Appointment of director as noted above is a matter of law and the constitution of the company.
Where the defect in appointment is due to procedural irregularity on the part of the company and not
the fault of the appointee, and who has acted on behalf of the company, will he be held liable
5
personally? Where the act on behalf of the company is beneficial to the company, for instance,
where the ‘appointee’ was instrumental in bringing a lucrative business and has executed the
contracts on behalf of the company, can it be said that the act is not binding on the company and he
will be personally liable for such action except it can be interpreted to mean that it was the
company that held him out as a director in which case the company will be bound by his actions.

Since, the CAMA refers to due appointment it follows that anyone not appointed at all will not be
covered by this section, in fact by virtue of section 244 (3) CAMA, such a person may only be
treated under the general law of impersonation. The Nigerian law fails to specify the effect on third
parties and the transaction neither are third parties protected. The English provision 39 specifically
provided that acts of persons acting as director are valid notwithstanding that it is afterword
discovered-:

(a) that there was a defect in his appointment

(b) that he was disqualified from holding office

(c) that he had ceased to hold office,

(d) that he was not entitled to vote on the matter in question.

This section applies even where his appointment was valid under section 160 of the English Act. The
[point should be emphasised that both in England and Nigeria there must have been a purported
appointment of the person to the office of director which is later found to be defective or even
void ,in the words of Lord Simmonds in the case of Morris v Kansen40,

There is, as it appears to me, a vital distinction between (a) an appointment in which there is
a defect or, in other words, a defective appointment and (b) no appointment at all. In the first
case it is implied that since act is done which purports to be an appointment but is by reason
of some defect inadequate for the purpose, in the second case, there is not a defect, there is
no act at all. The section does not say that the acts of a person acting as director shall be valid
notwithstanding that it is afterward discovered that he was not appointed a director.

Disqualification of Directors

Mainly for the protection of the public and stakeholders, the law disqualifies and out rightly
prohibits certain persons from being appointed directors of companies in Nigeria and UK. In
Nigeria, section 257 CAMA disqualifies the following from being appointed directors,

6
(a) an infant, that is a person under the age of 18 years;

(b) a person disqualified under Section 253 and 258 of the Act

(c) a corporation other than its representative to the board for a given term.

(a) Infant

In Nigeria an infant is defined as a person under the age of 18 years 41. The infant is disqualified
from being appointed director of a company. In fact, Section 20 of CAMA prohibits an infant from
incorporating a company unless joined by two other adults. The rational for the disqualification is
not clear. It may be because the infant will not be bound by contracts other than for necessities and
this may jeopardise the position of third parties dealing with the company. On the other hand, it may
be the general fear that infants were not mature enough to manage companies and may not be
capable of understanding the effect of their decisions. No matter the argument may be it is submitted
that it is invalid. In so far as the members of a company who hold the majority shares have agreed to
appoint the infant as their director, they should be taken to be consciously and deliberately
exercising their free will in making their choice of a director. The English Companies Act 2006
fixed the minimum age for a director at 16 years 42 with powers given to the Secretary of State to
make provision for regulations for cases in which a person who has not attained the age of 16 may
be appointed director of a company. The Nigerian position needs urgent review either reduce the age
with options to grant exceptions or to remove the age limitation entirely as it will serve no useful
purpose.

(b) Lunatic or person of unsound mind.

A lunatic or person of unsound mind is also disqualified from being appointed a director of a
company in Nigeria. It is submitted here, that this disqualification may be impossible to enforce. In
the first instance, the CAMA does not define a lunatic or person of unsound mind. It is doubtful that
members of a company will elect a person who is a lunatic or a person who they knew is suffering
from any kind of mental health problem. A lunatic is simply a mad person and circumstances where
this could occur is not clear. The section did not also specify or define the gravity of unsoundness of
mind. In section 20 (v) (b), the CAMA prohibits a person of unsound mind who has been so found
by a court in Nigeria or elsewhere form joining in the formation of company. In that instance, the
court of law must have made such declaration, which may then be acted upon. But in the case of
appointment as a director, the law did not so specify, and therefore leaves room for speculation and
mischief. I submit that no one should be disqualified under this section unless there is a properly
7
certified documentation from a medical institution attesting to the fact. It is also submitted that this
section serves no useful purpose but an opening for mischief makers to thwart the will of the
majority with unfounded and unsubstantiated allegation.

© Person disqualified under Section 253 and 258 of CAMA.

Section 253 CAMA provides as follows:- “If any person, being an insolvent person acts as director
of or directly or indirectly takes part in or is concerned in the management of any company he shall
be guilty of an offence.” While section 258 CAMA lists circumstances when a director shall vacate
his office as a director. These will be when the director;

(a) ceases to be a director by virtue of section 251;or

(b) becomes bankrupt or makes any arrangement or composition with his creditors generally; or

(c) becomes prohibited from being a director by reason of any order made under section 264 of the
CAMA or

(d) becomes of unsound mind, or,

(e) resigns his office by notice in writing to the company.

Generally, bankrupts are not allowed to take part in forming or managing any business, holding any
office or practising in some professions. 43 However, the problem with this section is that the
bankruptcy proceedings in Nigeria is not developed or practised. Hardly could you find any one
declared bankrupt by the court. Even when this is done there is no record anywhere that the
Corporate Affairs Commission (CAC) may refer to disqualify such person from joining in the
formation of a company or to the disqualify such persons. Until there is a synergy between the
Federal High Courts which is the court exercising jurisdiction in matters of bankruptcy proceedings
and the CAC, this aspect of the law will remain dead letter law.

Disqualification under Section 254 CAMA.

Section 254 CAMA empowers the court to disqualify and restrain any person

(a) who has been convicted by a High Court of any office in connection with the promotion,
formation or management of a company,. or

(b) in the course of winding up a company it appears that a person-

8
 (i) has been guilty of an offence for which he is liable (whether he has been convicted or not)
under section 51344 of the Act; or

(ii) has otherwise been guilty, while an officer of the company, of any fraud in relation to the
company or if any breach of his duty to the company. The court shall direct that such person
shall not be a director of or in any way, whether directly or indirectly, be concerned or take
part in the management of a company for a specified period not exceeding 10 years.

In the case of a person who had already been convicted for a offence by the High Court 45 for an
offence in connection with promotion, formation or management of a company, the applicant will
only need to produce such judgment before the court, and having received the judgment in evidence,
can the court proceed to give judgment restraining the person already convicted and who probably
have served his sentence to another punishment. The rule against double jeopardy 46 will not allow
such second punishment, and it will be unconstitutional for any court to look into the matter. The
best course would have been for the court that convicted the person to make the pronouncement
under the section. Section 254 (b) (ii) will seem do have saved the problem as it allows the court
which convicts to also give the order restraining the person from being appointed a director of a
company for a period not exceeding 10 years. This provision will seem to seek to raise the standard
of honesty and due diligence by giving consequences for mismanagement or fraudulent practices by
directors. Unfortunately, it fell far short of achieving this purpose. The class of persons who may
launch this proceeding are so restricted and narrow that it may not be
launched at all. In fact, there no recorded proceeding of this nature in Nigeria.
The liquidator, or receiver or member do not have any interest in preventing
any body from becoming a director for a period of 10years where they are not
likely through such proceedings to recover any pecuniary benefit for themselves
or their company already ruined. Such powers would have been better
exercised by the regulator, the CAC, or other Government parastatal,
established for this purpose.

Directors Disqualification in UK

In England there is a specific legislation fashioned to disqualify directors in this

regard, known as Company Directors Disqualification Act 1986 (CDDA). Under
this Act, the court may make an order against a person who has:

9
(a) been convicted for an indictable offence in connection with the formation
or management of a company,47
(b) been in consistent breach of his obligations under the Companies Act
requiring any returns, account or other document to be filed or delivered
to the registrar of companies.48
(c) been guilty of an offence for which he is liable whether convicted or not
revealed in the winding up.49
(d) been a director of a company which has at any time become insolvent
(whether, while he was a director or subsequently) and his conduct as a
director of that company makes him unfit to be concerned in the
management of a company.50
(e) been found unfit after a statutory investigation into the office of the
company.51
(f) been guilty of fraudulent or wrongful trading as defined in Insolvency Act
1986, sections 213 – 214.52

The schedule 1 Part 1 of the CDDA elaborates on the concept of unfitness. Sealy
and Worthington are of the view that “these provisions amplify the directors’
traditional common law duties of care and skill; indeed, this is a growth area’ in
which new standards of conduct are being set and a greater awareness of the
responsibilities is being fastened.’’ 53 The Insolvency service is responsible for
enforcing the law. Every insolvency practitioner is required to write a report on
the activities of every director of any company that goes into receivership,
administration or insolvent liquidation to the Secretary of State for Business,
Innovation and skills. A disqualification order may prohibit the person found
guilty or unfit in the management of a company for a period not exceeding
15years and up 5years for the less severe offences.

The court had the opportunity not only to interpret the Act but also give
guidelines on how and when to exercise jurisdiction on the CDDA. A pertinent
question is when may it be declared that a person is “unfit to be concerned in
the management of a company” that will lead to the disqualification order. In
the case of Re Co-Line Electric Motor Ltd 54 Sir Nicolas Browne – Wilkinson VC
explained;

10
 Ordinary commercial judgement is in itself not sufficient
to justify disqualification, in the normal case, the
conduct explained of must display a lack of commercial
probity, although I have no doubt in an extreme case of
gross negligence or total incompetence disqualification
could be appropriate.

Normally, it is the Secretary of State that should bring the action under the
CDDA 1986 for the Business, Innovation and Skills or the Official receiver
against individuals who are or have been company directors. In the case of Re
Asegai Consultants Ltd55 a liquidator successfully brought the action for
disqualification. Newey J held that the liquidator had standing; he did not need
a financial interest in a disqualification order being made since applications are
essentially for the protection of the public and not for private advantages,
moreover there was no suspicion that the liquidator had an improper ulterior
motive and the application was fully supported by the company’s only
legitimate creditor and the Secretary of State. 56 Etherton J explained the
process of determining unfitness under section 6 and 8 of the CDDA , in this
way;

The determination of unfitness under section 6 is a two-

stage process. First, the SoS must establish as facts, to
the requisite standard of proof, the matters on which
the allegation of unfitness is based. Second, the court
must be satisfied that the conduct alleged is sufficiently
serious to warrant disqualification.57

The CDDA 1986 is a formidable statutory check on the excesses and

mismanagement tendencies of directors. While the Nigerian law do not specify
the procedure for the disqualification of directors, the class of persons who may
file the action are not those sufficiently interested in the proceedings and are
likely to show disinterest in such proceedings. As we mentioned above, it should
be the duty of CAC and other regulators that many be formed for the purpose to
proceed against a director under the section.

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Removal of Directors

The Companies Acts makes provisions for the removal of directors whenever
the company is dissatisfied with his performance or he is found wanting in some
specific circumstance. The articles of association of the companies also makes
such provision but should be supplementary and not in conflict with the Acts.
Section 262 CAMA provides;

A company may by ordinary resolution remove a

director before the expiration of his period of office,
notwithstanding anything in its articles or in any
agreement between it and him.58

In effect the shareholders are given the ultimate power to control the activities
of the directors. The law recognised the power of the directors to manage the
company without interference from the shareholders. 59 In cases where the
directors had taken certain decisions which the shareholders resist, the
directors can always, ignore their resistance and go ahead with their decision. 60
However, this may trigger the use of the shareholders power to remove the
directors by ordinary resolution and replace those directors that refuse to listen
to their views.61

In order to give the director a right to defend himself and generally ensure that
no one is removed from his office through the backdoor, the law provides that
before a resolution is passed to remove a director from office he must be given
notice of the intention to do so and the notice must be by special notice. 62
Failure to serve the director intended to be removed a notice or service of a
notice that is contrary to the law (eg. less than special notice) will render the
entire process a nullify.63 This was the point that came up for determination in
the case of Longe v First Bank of Nigeria Plc64.

Longe v First Bank of Nigeria Plc

In this case Mr. Bernard Longe (Plaintiff) in the Federal High Court and
(Appellant) in th Court of Appeal and Supreme Court was appointed as the
defendant’s managing Director at the meeting of the Board of Directors of the

12
defendant on the 24th February, 2000. The position he held until the 13 th day of
June, 2002 when the Board allegedly removed him as Managing Director of the
defendants. He filed an action in the Federal High Court to declare his removal
from office as illegal, null and void. The plaintiff was initially suspended from
office as a Managing Director on the allegation that he granted a loan
negligently and recklessly in an unauthorised manner, and he was in the letter
of suspension asked to go and seek means of recovering the loan. He was
thereafter removed from office without serving him any notice of his removal
under section 266(3) and section 266 of CAMA. The plaintiff filed the action in
the Federal High Court claiming that the meeting where he was removed be
declared a nullify amongst other reliefs. The trial Judge after a fairly long
review of the facts dismissed the case for the plaintiff. At the Court of Appeal,
the court erroneously and with respect in our view displayed a total lack of
understanding of the company law issues involved in this appeal by firstly
declaring that the CAMA do not cover the position of executive directors and
since the appellant was an executive director before he was appointed into the
office of a Managing Director he was not a director that the entire CAMA
applies, secondly, having been suspended, he was not entitled to any notice
and therefore dismissed his claims . At the Supreme Court, Oguntade JSC who
read the lead judgement, eloquently explained the position of the law and
overruled the wrong position taken by Salami JCA of the Court of Appeal, when
the Court decided as follows;

(i) That it was wrong for the Court of Appeal to have held that the
suspension of the appellant robbed him of his status as a director of the
defendant.
(ii) The reasoning of the Court of Appeal that an executive director is not the
same as a non-executive director and CAMA is ‘untenable’.
(iii) The appellant being a director of the company is entitled to be served
with notice under Section 266 (1) of (3) of CAMA and failure to serve him
the noticed under the law renders the enquire proceeding a nullity.

Academicians have applauded the Supreme Court of Nigeria for this decision. 65
Moreso, the Supreme Court of Appeal was able to overrule the Court of Appeal

13
in the most errorneous pronouncement in company law which if not appealed
would leave remained a calamitous precedent in Nigerian law. Unfortunately,
the Supreme court ONLY RELIED ON Section 266 of CAMA that deals with
directors entitlement to be served with notice of meetings unless disqualified
from attending the meeting. The court was of the view that only those
disqualified under the section were the only ones disqualified under section
266. This cannot be so; disqualification of directors for meetings is different
from disqualification under the law. A director may be qualified under section
257 CAMA but disqualified as a director for the purpose of functioning in the
office or capable of attending meetings and are removable or liable to be
removed under the law. For instance, under section 258 CAMA. disqualification
from being a director is different from vacation of office, I submit that section
257 is only applicable before the appointment and section 258 becomes
operative to render the tenure of the director invalid, and disqualifies him from
further enjoyment of the office and position.

The Supreme Court was right by not making comments on the reliance by the
Court of Appeal on section 41 (3) of CAMA to support their point when the court
states that

It seems to me that the power to appoint person or

persons of proven integrity as executive or managing
director as well as the power to remove such an
appointment conferred by Article 105 is now repeated in
the Act. So the power given to directors to appoint and
remove executive and managing directors transcends
by virtue of section 41(3) of Companies and Allied
Matters Act.

There is a serious misunderstanding of the law here. Section 41 CAMA provides

for the effect of articles of association on the members and the company, it is
also for the first time in Nigerian law introduced the enforcement of the articles
of association by outsiders. It further permits outsiders who might have been
given power of appointment of directors to enforce such powers given in the
articles notwithstanding, that they are outsiders and ‘officers’. Section 41 (1)
14
allows officers to enforce the articles of association, while in section 41 (3) even
those who are not officers are allowed to enforce the power of appointment and
removal of director. We must note that the power to appoint or remove a
directors under the articles is subject to the procedure under section 246, 247
and 248 on appointment of directors and section 262 on the removal of
directors.

Procedure for removing a director

In Nigeria, as stated above, the director can be removed by ordinary

resolution.66 The notice of the meeting where the resolution is to be approved
must be served on the director proposed to be removed. Such notice must not
be less than 28 days.67 The director is entitled to be heard. He may therefore
make representations in writing to the company (not exceeding a reasonable
length).68 What the law meant by reasonable length is not certain, and who is
expected to determine the reasonableness of the length of the defence is not
also stated. The company must ensure that all members who receive notice of
the meeting receive the representations if forwarded on time before the
meeting. Where anyone is aggrieved about the representation, such person is
entitled to file an application in court to retrain the reading or circulation of the
representation.

The Legal requirement for a meeting is mandatory, where all the members
agree to remove the director is not enough to dispense with complying with the
statutory provision.69 The meeting was designed to protect the directors and
can only be waived by them. 70 We must emphasise that all other protections
and procedure under the article of association must be observed strictly and
failure to comply with these procedures will render the removal a nullity. 71

Right of directors on termination of Appointment

Directors have no entitlement to remuneration and generally no claim to any

kind of tenure unless specifically provided by the contract. Where the articles of
association make provisions for the compensation of the director removed
contrary to the terms of the articles of association, under English law. the
director do not have any right to enforce the articles of association. Though it
15
may be possible for the director to sue for the enforcement of the articles of
association not as an outsider but as a member enforcing articles of
association.72 However, Nigerian law by virtue of section 41 (1) CAMA now
allows the director73 to enforce the provisions of the articles of association
without necessarily suing as a member, where he is not a member, he can still
enforce the articles when it contains provisions which favour the payment of
compensation in cases where the director is removed before the expiration of
his term of office. Section 262 (6) of CAMA provides as follows: - Nothing in this
section shall be taken as depriving a person removed under it of compensation
or damages payable to him in respect of the termination of his appointment as
a director or of any appointment terminating with that as director or as
derogating from any power to remove a director which may exist apart from
this section.

It is very important for a director to insist on executing a separate contract

between him and the company, if the director relies only on the provisions of
the articles of association as a contractual document guaranteeing his tenor of
office and compensation for removal by the company before the expiration of
the term will have no enforceable right. This is because, the company has
enfettered rights to alter its articles at any time, except that the alteration
cannot have retrospective effect. In the case of Swabery v Port Darwin Gold
Mining Co74 Lord Esher M.R held in a case where the articles fixed £200 per
annum for a directors’ remuneration. The article was thereafter amended
reducing the remuneration to £5. The director resigned and claimed arrears of
three months; that, though the articles do not themselves form a contract. “The
company has power to alter the articles, but the directors would be entitled to
their salary at the rate originally stated in the articles up to the time the articles
were altered”. In the case of Read v Astoria Garage (Stratham) Ltd 75 where a
director relies solely on the provisions of the articles of association for his
appointment. He was later dismissed by the board with approval of the general
meeting. The Court of Appeal in England held that he was not entitled to any
damages because there was no record of the terms of his appointment and
therefore his dismissal was properly done. 76

16
In cases where there is a fixed term of office contained in a separate contract
of employment between a company and the director, if the director is removed
before the expiration of his term as guaranteed under the contract, he will be
entitled to damages. The damages may be large depending on the terms of the
contract of employment. This is the reason why there is provision for members’
approval of the terms of directors contracts of service.

Conclusion

Davies and Worthington77 are of the view that, ‘accountability of the directors to
the shareholders is obviously enhanced if shareholders can influence directly
the choice of those who sit on the board. Unfortunately, company law does little
to enhance shareholders’ control over the appointment process, which is
regulated predominantly by the company’s articles of association . Though
appointment of directors is regulated by the Companies Acts, there is no guide
as to the qualification of the directors. The Nigerian law disqualifies the infant
from being appointed a director of a company without any exception, while
English law limits the disqualification age to 16, with opportunity to make
exceptions. Nigerian law must take a cue from this laudable position.
Disqualification of directors under Nigerian law must be amended to widen the
scope and include the regulator as the proper party to institute actions to
disqualify unfit persons from being appointed directors. The process and
procedure for disqualifying the director is, given the current position of the law,
impossible to enforce.

17
1
Code of corporate Governance for Public Companies in Nigeria by the Securities and Exchange Commission (SEC)
available at www.secgov.ng/files/CODE OF CORPORATE. (hereinafter referred to as SEC code)
2
Section 2.2 of SEC code.
3
Section 2.3 SEC code.
4
Code of Corporate Governance Uk 2016.
5
Paragraph 2.5 Code of Corporate Governance 1992 based on Cadbury Committee Report.
6
Section 279 (3) CAMA.
7
Section 279(1) CAMA.
8
Se See Section 275 CAMA.
9
(1878) 10 ch.D.450 at 46 1-2.
10
Ibid.
11
Section 244(1) CAMA.
12
Section 650 CAMA.
13
Section 1 244(3) CAMA.
14
(1993) 1 NWLR (pt 272) 947.
15
See Section 245 and 244 (2) CAMA.
16
Section 244 (2) CAMA.
17
Section 244 (4) CAMA.
18
Section 246 CAMA.
19
Section 246 (2) CAMA.
20
Section 246 (3) CAMA.
21
Section 154 (1) Companies Act 2006 (UK).
22
Section 154 (2) Companies Act 2006 (UK).
23
Section 246 CAMA.
24
Section 248 (1) CAMA.
25
Companies Act 1985 (UK).
26
Companies Act 1968.
27
Section 252 (1) CAMA.
28
Section 157 Companies Act 2006 (UK).
29
Section 157 (4) Companies Act 2006 (UK).
30
This prohibition of persons under the age of 18 years will be further discussed in this paper.
31
Wocester Consedry Ltd v Witting (1936) Ch. 640
32
Re HR Harmer Ltd (1959) 1 WLR 62; Scottish Co-operative Wholesale Society Ltd v Meyer (1959) AC 324.
33
Section 163 Companies Act 2006 (UK).
34
Section 162 Companies Act 2006 (UK.)
35
Section 244 (2) CAMA.
36
Section 244 (4) CAMA.
37
Section 245 (2) CAMA.
38
Section 161 Companies Act 2006 (UK).
39
Section 161 Companies Act 2006 (UK).
40
Section 157 Companies Act 2006 (UK)
41
Section 277 Child Rights Act. Cap.C50 LFN. 2004.
42
(1946) AC 459.
43
Sections 126-128 Bankruptcy Act 1979 (as amended in 1992).
44
Section 157 Companies Act 2006 (UK).
45
Section 251 CAMA provides for where the articles of association of the company provides for qualification shares, any
director appointed subject to acquisition of the qualification shares is expected to acquire the shares within 2 months or
must vacate the office if he is unable to do so.
46
See section 126-128 of bankruptcy Act 1979 (as amended in 1992)
47
Section 2, CDDA.
48
Section 3, CDDA.
49
Section 4, CDDA.
50
Section 6, CDDA.
51
Section 8, CDDA.
52
Section 10, CDDA.
53
Sealy, L and Worthington S. 2010. Cases and materials in Company Law. 10th ed. Oxford: Oxford University Press. P. 295.
54
(1988) Ch. 477.
55
(2012) EWHC 189.
56
Serly L. and Worthington S. . 2010. Cases and materials in Company Law. 10th ed. Oxford: Oxford University Press. P. 295.

57
Secretary of State for Trade and Industry v Swan (2005) EWHR 603. See also, Re Dawson Print Group Ltd (1987) BCLC 601
per Hoffman J.
58
See also Section 168 – 169 Companies Act 2006 (UK).
59
Shaw Ltd V Shaw (1935) UK.
60
Automatic Self-Cleansing Filter Syndicate Co. Ltd V Cuninghame (1906) 2 Ch. 34.
61
Davies P and Worthington S. 2012. Gower and Davies Principles of Modern Company Law. 9th Ed. Oxford; Sweet and
Maxwell, 411.
62
A special notice is notice of a meeting of not less than 28 days. See Section 236 CAMA.
63
Awoyemi V Solomon (1976) F.R.C.R. 165
64
(2010) 3 SC 1.
65
Oniemola P. 2017. Legal issues from the removal of directors of Companies in Nigeria:implications for corporate
governance. Journal of Corporate Governance. Vol. 8. No.2. p.1733.
66
See also section 168 – 169 Companies Act 2006 (UK) for the same position.
67
Special notice.
68
Section 262 (3) CAMA.
69
Re New Codes Engineering Co. Ltd (1994) IBCLC 797.
70
Wright V Atlas (Europe) Ltd (1999) 2 BCLC 310 at 314 – 315.
71
George Hutchful v Hamilton kweku Biney, N. Biney & Co. (Nig) Ltd (1971) All N.L.R. 268; Awoyemi v Solomon (1976) 2
F.R.C.R. 165. Nwizu v Uwuchukwu (unrep).FCA/E/36/84; Ali E-Khadna v International Metal Industries Ltd (1973) 2 F.R.C.R.
84; Prince Adebayo Ayodele v Foam Nig. Ltd (1973-74) 1 F.R.C.R. 175; Obikoya v Ezenwa (1968) 2 All N.R.R. 133.
72
Being an officer of the Company.
73
(1889) 1 Meg 385.
74
(1952) Ch. 637.
75
See also, Nelson v James & Sons Ltd (1914) 2 KB 70; Board Textile Holdings Ltd v Marks & Speneer Plc (2001) EWCA Civ.
274; Shindler v Northern Raincoat Co. Ltd (1960) 1 WLT 1038.
76
See section 228 – 229 and Section 188 Companies Act 2006 (UK).
77
Davies L and Worthington S. 2012. Gower and Davies Principles of modern Company Law. 9th ed.London;Sweet and
Maxwell. P. 397