Topic: Company directors and other officers

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  • 10 Marks

BCL – Apr 2022 – L1 – Q5b – Company directors and other officers

Analyze the validity of promoters' defense in a pre-incorporation contract case and discuss the lawfulness of for-profit companies limited by guarantee.

b) The promoters of Adzeku Company, made a contract on its behalf with Ansah Oko before the company came into existence. The company once formed, purported to ratify the contract, but then went into liquidation, and the promoters themselves were sued on the contract. The promoters argued that they had been contracted as agents, and that the liability on the contract had passed to the company by ratification.

Required:

i) From the facts of the scenario above, explain if the defence set-up by the promoters is valid. Advise the promoters. (8 marks)

ii) State briefly, if it is lawful for a company limited by guarantee to be incorporated with the object of carrying on business for the purpose of making profits. (2 marks)

i) The question has to do with pre-incorporation contract or other transaction. Any contract or other transaction purported to be entered into prior to its formation, or by any person on behalf of the company before its formation may be ratified by the company after its foundation, whereupon the company shall assume rights and liabilities under the contract or transaction as if it had been in existence at the date of such contract or transaction, and had been a party to it. (2 marks) Before the ratification, the promoter(s) or other persons purporting to act on behalf of the company remains personally liable in the absence of any express agreement to the contract and is entitled to any benefit accruing under the contract or transaction. (1 mark) It may be added that the reason for the promoter’s inability to be regarded as an agent in respect of the pre-incorporation contracts or transaction derives from general legal principle that a person cannot derive the powers and authority of an agent from non-existent principal. (1 mark) In the circumstance of this, the promoters of Adzeku Company contracted with one Ansah Oko prior to the formation of the company. From the facts, the company upon coming into existence ratified the contract the Adzaku Company entered into with Ansah Oko, but immediately went into liquidation. (1 mark) It must be stated that the ratification of the transaction with Ansah Oko took place after the formation of Adzenku Company. It is clear that the promoters after contracting with Oko Ansah had the contract ratified by the company when it finally came into existence, and can, therefore, not be personally liable. The ratification of the contract after the formation exonerated the promoters of any personal liability upon the liquidation of the Adzaku Company Ltd. (3 marks)

ii) A Company limited by guarantee is a non-profit making legal entity. A company limited by guarantee shall not be incorporated with the object of carrying on business for the purpose of making profit other than making profit for the furtherance of its objects. Section 10 of the Companies Act makes it unlawful for a company limited by guarantee to be incorporated with the object of carrying on business for the purpose of making profits. Where a company limited by guarantee engages in or carries a business for the purpose of making profit, Section 10 (2) of the Companies Act provides as follows: (a) “all officers and members of the Company who are aware of the fact that the company is so carrying on a business shall be jointly and severally liable for the payment and discharge of all the debts and liability incurred by the company as a result of carrying on such business. (b) every such officer and members shall be liable to a fine …..” It is, therefore, unlawful for a company limited by guarantee to be incorporated with the object of carrying on business for the purpose of making profits. (2 marks)

  • 12 Marks

BCL – Apr 2022 – L1 – Q4a – Company directors and other officers

Outline qualification requirements for company secretaries and disqualifying offenses for company directors under the Companies Act, 2019 (Act 992).

a) One of the key officers of a company who keeps the books and records, is the company secretary. The Companies Act, 2019 (Act 992) compels the appointment of a company secretary on certain qualifications.

Required:

i) State THREE (3) qualification requirement for the appointment of company secretary as stipulated in the Companies Act, 2019 (Act 992). (6 marks)

ii) List THREE (3) offences and related legal wrongs that automatically disqualifies a fraudulent person from appointment as a director of a company. (6 marks)

i) Section 211(3) Companies Act, 2019 Act 992 provides that directors shall appoint a person as a Company Secretary who possesses the following qualifications: Has obtained a professional qualification or tertiary level qualification (with an offering in company law practice and administration) that enables that person to have the requisite knowledge and experience to perform the functions of a Company Secretary. Has held office, before the appointment, as a Company Secretary trainee or has been articled under the supervision of a qualified Company Secretary for a period of at least three years. Is a member in good standing of; o The Institute of Chartered Secretaries and Administrators or o Institute of Chartered Accountants, Ghana Having been enrolled to practice, is in good standing as a barrister or solicitor in the Republic or By virtue of an academic qualification, or as a member of a professional body, appears to the directors as capable of performing the functions of a secretary of the company. (3 points @ 2 marks each = 6 marks)

ii) Under section 177 Companies Act, 2019 Act 992 a fraudulent person is restrained from appointment as a director of a company where: A person is convicted, whether in the Republic or elsewhere of an offence involving fraud or dishonesty an offence in connection with the promotion, formation or management of a body corporate, an offence involving insider dealing or any other criminal offence which is not a misdemeanor A person is adjudged bankrupt whether in the Republic or elsewhere A person has been culpable of a criminal offence, whether convicted or not, in relation to a body corporate or of fraud or breach of duty in relation to a body corporate It appears a person is debarred by a competent authority from being a member of a recognized professional body as a result of a disciplinary inquiry; or There is an ongoing investigation by a criminal investigation body or by the Registrar of Companies or the equivalent in a foreign jurisdiction regarding (above) A person is automatically disqualified of a period of 5 years if that person; Has been convicted within the last five years of an offence involving fraud or dishonesty or relating to the promotion, formation or running of a company Has been a director or senior executive of a company that has become insolvent within the last five years on account of or partly as a result of culpable activities of that director or Has been disqualified to act as company secretary, receiver, manager or liquidator of a company. (Any 3 points @ 2 marks each = 6 marks)

  • 10 Marks

BCL – Nov 2020 – L1 – Q5b – Company Directors and Other Officers

Identify the conditions that apply when the regulations of a company require share qualification for directors.

What TWO (2) conditions apply where the regulations of a company require share qualification? (10 marks)

  • Where the Regulations require share qualification, every director must obtain the specified share qualification within two (2) months after his appointment or within such shorter period as may be fixed by the Regulation. If he fails to do so or after the expiration of that period, he ceases to hold his qualification. (5 marks)
  • If a company at any time amends its Regulations so as to introduce or increase the requirement of a share qualification, every director holding at the date of such alteration shall have two (2) months thereafter to obtain his qualification and shall not vacate his office unless he fails to do so. (5 marks)
  • 5 Marks

BCL – Nov 2020 – L1 – Q5a – Company Directors and Other Officers

Explain whether share qualification is a necessary prerequisite for the appointment as a director in a company.

Explain briefly whether a share qualification is part of the necessary prerequisites for the appointment as director in a company. (5 marks)

Reference is to be made to Section 183(1) of Act 179. The said section states that unless the company’s Regulations otherwise provide, it is not necessary for a director to be a member of a company or to hold shares therein as a qualification for his appointment. (5 marks)

  • 10 Marks

BCL – Nov 2020 – L1 – Q3d – Company Directors and Other Officers

Assess the validity of a director’s appointment and identify possible remedies.

Asamoah is a board member of Darling Company Ltd, a limited liability company with 5% shareholding by the Ghana Government. Asamoah was appointed to the board three years ago by the Founder/Executive Chairman.
Kofi Mintah, the Founder/Executive Chairman, and majority shareholder of the company, in accordance with the regulations, shall appoint five of the nine-member board. Two of the board members represent workers groups and the other two come from other shareholders including the government. Asamoah consented in writing to his appointment but the Minister of Information just announced the revocation of Asamoah’s appointment to the board. Kofi Mintah called Asamoah to inform him that the government’s announcement was null and void and should be ignored.

Required:
i) Explain whether the Minister of Information was justified in nullifying the appointment of Asamoah. (6 marks)
ii) What TWO (2) remedies, if any, are available to Asamoah in the circumstance of the case? (4 marks)

i) Validity of the Minister’s Action:

  • The Regulations of a company may provide for the appointment of a director or directors by a class of shareholders, debenture holders, creditors, employees, or any other person.
  • The regulations registered are a contract under seal and bind all members, officers, and the company until amended. (Cf. Sec 21 of Act 179)
  • As far as Darling Company regulations give Kofi Mintah the right to appoint five directors, including Asamoah, Asamoah’s directorship cannot be revoked by the government.
  • The government has no sole authority under the regulations to dissolve the Board of Directors or appoint or remove any board member except those whose nominations were made by the government.
  • The government’s right over the appointment or removal of directors can only be exercised with other shareholders regarding the two slots allocated to them by the regulations.
  • A person shall not be appointed a director of a company unless that person has, prior to the appointment, consented in writing to be appointed.
  • By giving a written acceptance of his appointment, Asamoah’s appointment complied with both Section 181 of Act 179 and Darling’s regulations.
  • Section 185 provides for the removal of directors, which excludes an announcement by the government.
  • In accordance with Section 185, a company may by ordinary resolution at a general meeting remove from office all or any of the directors despite anything in its Regulations or in an agreement with the director. A resolution to remove a director shall not be moved at a general meeting unless notice of the intention to move it has been given to the company not less than thirty-five days before the meeting at which it is to be moved.
  • Asamoah can resign, be removed, or vacate his position if he becomes incompetent in any way under the Act (e.g., insane) or under the regulations (e.g., director’s share qualification, if required).
  • Asamoah and Kofi Mintah can enforce their rights if the government persists.
  • Section 324 of Act 179 provides that if legal proceedings are instituted by a person, that person shall sue in a representative capacity on behalf of that person and any other members of a class.
  • Asamoah should believe Kofi Mintah, as the government announcement is null and void and should be ignored.

(4 points for 1.5 marks each = 6 marks)

ii) Remedies Available to Asamoah:

  • Asamoah can resign, be removed, or vacate his position if he becomes incompetent in any way under the Act (e.g., insane) or under the regulations (e.g., director’s share qualification, if required). Since his competence is not being challenged, Asamoah and Kofi Mintah can enforce their rights if the government persists.
  • Asamoah should believe Kofi Mintah, as the government announcement is null and void and cannot be effective since procedurally his appointment has not been terminated as a director. The directive should therefore be ignored.
  • Section 324 of Act 179 provides that if legal proceedings are instituted by a person, that person shall sue in a representative capacity and on behalf of any other members of that class. A court action for Prohibitio can also be sought by Kofi Mintah to stop the government from further attempts to unilaterally remove Asamoah as a Director.
  • Asamoah remains a director and can seek redress in court to nullify the government’s announcement.

(2 points for 2 marks each = 4 marks)

  • 15 Marks

BCL – May 2021 – L1 – Q3a – Company Directors and Other Officers

Explanation of the limitations on directors' powers and ways a director's appointment can be terminated.

In accordance with the Companies Act, 2019 (Act 992), the directors shall not, without the approval of an ordinary resolution of the company, exceed the powers conferred on them.

Required:
i) State THREE (3) limitations on the powers of directors. (9 marks)

ii) Explain THREE (3) ways in which a director’s appointment can be terminated. (6 marks)

i) The limitations on the powers of directors include:

  • Directors are not to sell, lease, or otherwise dispose of the whole or substantially the whole of a company’s undertaking or assets.
  • Directors are not to issue any new shares or unused shares, other than treasury shares in the company, unless the same was first offered on the same terms and conditions to all existing shareholders.
  • The Act would debar the issue by the directors of new and unissued shares or treasury shares to any director or past director or a nominee of such director of the company unless the same was first offered on the same terms and conditions to all existing shareholders or to members of the public where applicable.
  • Directors are not to make voluntary contributions to any charitable or other funds other than pension funds for the benefit of employees of the company or any associated company of the amounts the aggregate of which will, in a financial year of the company, exceed a prescribed amount or two percent (2%) of the income surplus of the company at the end of the immediately preceding financial year.
  • A director with shares in the company cannot, in the absence of express authority in the company’s constitution, exercise the company’s power of borrowing money or of charging any of its assets except with the approval of an ordinary resolution of the company.
    (Any three points @ 3 marks each = 9 marks)

ii) Companies Act, 2019 (Act 992) provides that:

  • A director will have to vacate his office if he becomes incompetent under section 173 of Act 992.
  • Where he/she ceases to hold office by failure to meet a share qualification as required by section 174 of Act 992.
  • If he resigns without any reasons by notice in writing to the company.
  • By order of the court in case of a person found guilty of fraud or dishonesty, or any offence in connection with companies.
  • If the director is properly removed under Section 176 of the Act.
    (Any three points @ 2 marks each = 6 marks)
  • 10 Marks

BCL – Mar 2024 – L1 – Q1d – Governance and Ethical Issues Relating to Business, Company Directors and Other Officers

Discuss the concept of Good Corporate Governance and identify principles breached in the provided scenario.

The Managing Director of Dakubo Ltd, a company which engages in the business of iron rods production, on his own, contracted a loan of GH¢1,000,000 from Dilidom Bank. The loan is repayable in twelve months’ time. The Managing Director disclosed the contents of the agreement to his wife who is neither a Director nor a member of the company. In further disregard for the regulations of the company, the Managing Director squandered the loan contracted from the bank.

Required:

i) Explain the concept of Good Corporate Governance.

(5 marks)

ii) From the scenario above, state FIVE (5) principles of Good Corporate Governance that may have been breached by the Managing Director of Dakubo Ltd. (5 marks)

i) The concept of Good Corporate Governance:

The concept of good corporate governance is a function of a company/corporation. The concept of good corporate governance is to promote fairness, openness, and transparency in its responsibilities to stakeholders. Good corporate governance practices facilitate economic efficiency by focusing on value-enhancing activities and aid efficient allocation of scarce resources. This is achieved when companies/firms efficiently employ their assets, attract low-cost capital, meet societal expectations, and improve overall performance.

The concept of corporate governance incorporates the question of accountability, ethics, and social responsibility to society and stakeholders and concerns the structures and procedures associated with the direction in which an organization plans to chart. Whatever its definition, good corporate governance relates to the fundamental processes whereby ultimate corporate authority and responsibility are shared and exercised by shareholders, directors, and management to ensure that corporate assets provided by investors are being put to appropriate and profitable use.

(5 marks)

ii) Principles of Good Corporate Governance breached:

From the scenario, the following principles of good corporate governance were breached by the Managing Director of Dakubo Ltd:

  • Ethics
  • Fairness
  • Transparency
  • Accountability
  • Responsibility
  • Efficiency
  • Confidentiality
  • Candour
  • Honesty

(Any 5 points @ 1 mark each = 5 marks)

  • 5 Marks

BCL – Nov 2023 – L1 – Q1c – Company Directors and Other Officers

Explain Kwayo Mansa’s conduct within the rules of natural justice.

Kwayo Mansa is the Managing Director of Tikitaka Plc. He was linked to a private company called Daakye Ltd of which he had been a major shareholder. Tikitaka Plc decided to undertake procurement for the supply of ICT goods. Daakye Ltd bid for the supply of the goods among other bidders. Kwayo Mansa sat in the evaluation of the bids as the entity head. Kwayo Mansa ensured that the contract for the supply of the ICT goods was awarded to Daakye Ltd.

Required: Explain the conduct of Kwayo Mansa within the maxims/rules of natural justice.               (5 marks)

 

The applicable rule in the context of the maxims of natural justice is the rule that Nemo judex in causa sua, namely that no man shall be a judge in a matter of which he has an interest. Kwayo Mansa was an entity head of his employer who presided over the bid and ensured that the contract went to his company. His conduct within the rule of Nemo judex in causa amounted to a conflict of interest. He, therefore, presided over a matter of which he had a bias. No wonder he did nothing otherwise than influence the award of the contract to Daakye Ltd. He could have excused himself on that particular award. (5 marks)

  • 20 Marks

BCL – Nov 2019 – L1 – Q5 – Company directors and other officers

Analysis of whether a company can deny the authority of an individual acting as a director who was not formally appointed.

Prime Company Ltd, traders in frozen fish, entered into an oral agreement for the supply and sale on credit basis, of all its frozen fish to Addae Company Ltd. The affairs and the business of Prime Company Ltd were undertaken by its Managing Director and one Maxwell Mensah. Maxwell Mensah was never appointed by the Company as a director, but he transacted business on behalf of Prime Company Ltd with Addae Company Ltd, as if he were a director and the Chief Executive Officer of the Company. Maxwell Mensah acted on behalf of the Company by signing the applications for the Company to be registered as an importer, apart from financially assisting the Company to start business. The name of Maxwell Mensah also appeared on the Company’s letter-head as one of its directors.

Prime Company Ltd allowed Maxwell Mensah to share in its profits by allocating to him fifty percent (50%) of the last consignment of fish. Maxwell Mensah entrusted the sale of the consignment allocated to him for his benefit to Addae Company Ltd and directed that the proceeds of the sale should be paid by Addae Company Ltd into the account of his private firm, Asanko Ventures Ltd. In the course of the transaction, Addae Company Ltd paid various sums of money being proceeds of the sale of fish supplied to Prime Company Ltd to both the Managing Director of Prime Company Ltd and Maxwell Mensah. No valid receipts were given for those payments. At the close of business, the trading account of Prime Company Ltd showed a debit balance of over GH¢ 16,000.00 against Addae Company Ltd. Prime Company Ltd subsequently demanded that this amount be paid. Addae Company Ltd resisted settlement on the grounds that it had already accounted fully for the cost of the fish sold to it on credit.

Required:

In the light of the above facts, explain whether Prime Company Ltd would be justified in denying Maxwell Mensah as an Officer of the Company.    (20 marks)

Analysis:

  • Estoppel: The issue to be determined is whether Prime Company Ltd. is estopped from denying that Maxwell Mensah held himself out as a director of the Company, even though he was not appointed a director. (3 marks)
  • Authority Implied by Company Actions: The Company allowed Maxwell Mensah to transact the fish business with Addae Company Ltd. and third parties, on its behalf, and also received payments. This indicates that the Company necessarily conferred an implied authority on Maxwell. (3 marks)
  • Profit Sharing: The Company allowed Maxwell Mensah to share in its profits, further demonstrating the kind and nature of the authority exercisable by Maxwell as a director held out by the Company. (3 marks)
  • Legal Requirements under the Companies Act: Section 198(1) of the Companies Act, 1963, (Act 179) provides that every company shall, in all trade circulars and business letters on or in which the company’s name appears, state in legible characters with respect to every director. Prime Company Ltd printed the names of its directors on all its letterheads, and among the directors was Maxwell Mensah, even though he was never formally appointed. (3 marks)
  • Binding Acts: As between outsiders such as Addae Company Ltd. and Prime Company Ltd., the Company was bound by all the acts done by Maxwell Mensah in relation to Addae Co. Ltd., including receiving payments on behalf of Prime Company Ltd, so far as the transaction is within the scope of his office as director. (3 marks)
  • Case Law: The Rule in Royal British Bank Vrs Turquand (1856) 6 E 1& BI. 327 supports the notion that a person who enters into a contract with a company and deals in good faith with that company has the right to assume that acts within the Constitution and powers of the company have been duly and properly performed. (2 marks)
  • Conclusion: In the circumstances of this case, the acts of Maxwell Mensah, though an improper director, were binding on Prime Company Ltd. because no steps were taken by the company to remove him or prevent him from acting as a director. Therefore, Prime Company Ltd would not be justified in denying Maxwell Mensah as a director of the Company, as the Company itself held him out as such. (3 marks)

Professional Presentation: (2 marks)

(Total: 20 marks)

  • 10 Marks

BCL – Nov 2019 – L1 – Q2d – Company directors and other officers

Options available to a minority shareholder and potential court reliefs in a company merger scenario.

Kwame Akoto holds 15% share in Sikem Investment Ltd, a brokerage firm, which by the regulations of the company, entitled him to appoint a director. To avoid the strict and high standards of banking, the Regulations of Sikem Investment prohibits banking and savings and loan schemes. Kwame Akoto received a letter from Mr. Pinkrah, Managing Director and 55% shareholder, that the company has merged with Sikaman Group owned 100% by Mr. Pinkrah. The merged company will upgrade into a full bank within the next three months. The shares of Kwame Akoto and all minority shareholders with Sikem Investment Ltd will be converted into a loan at 10% per annum interest with principal repayment schedule over the next five years. Mr. Pinkrah took all decisions alone without consulting the seven members on the board. All attempts to hold a board meeting to discuss the issues have been thwarted by Mr. Pinkrah.

Required:

i) State THREE (3) options open to Kwame Akoto in the circumstance of this case. (6 marks)

ii) State FOUR (4) likely reliefs the court may grant. (4 marks)

i) Options available to Kwame Akoto:

  • Court Order: Kwame Akoto can seek a court order as a member, or through his appointed director.
  • Petition to the Registrar: He can file a petition to the Registrar to hold an Annual General Meeting (AGM). With 15% shareholding, he can request an Extraordinary General Meeting (EGM) under Section 271 of Act 179.
  • Challenge of Ultra Vires Actions: Kwame Akoto can challenge the actions of the Managing Director (MD) as ultra vires, depending on the allocation of powers among members at general meetings. The MD cannot decide on mergers, class rights, share conversions, business objects, etc., without the Board of Directors (BOD) or members at general meetings.

(3 points @ 2 marks each = 6 marks)

ii) Likely reliefs the court may grant:

  • Lift the corporate veil: The court may lift the veil to hold Mr. Pinkrah liable for any fraud.
  • Civil and criminal liabilities: Imposing civil and criminal liabilities for any breach of fiduciary duties.
  • Injunction: The court may secure an injunction against illegal or irregular activities under Sections 217 and 218.
  • Cancel or vary the merger: The court may cancel or vary the merger and other transactions or resolutions.
  • Protect shareholder rights: The court may maintain the rights of Kwame Akoto and other affected members.
  • Purchase of shares: The court may provide for the purchase of the shares of affected members.
  • Appointment of an inspector: The court may appoint an inspector or order the Registrar to investigate the operations/affairs of the company.

(4 points @ 1 mark each = 4 marks)

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