COMPANY MANAGEMENT DIRECTORS In Ferguson vs. Wilson (1866) LR 2 ch. 77 Carris LJ observed “the company itself cannot act in its own person for it has no person, it can only act through directors, and the case is as regards those directors merely the ordinary case of principal and agent”. In Aberdeen Rly company vs. Blaike Bros (1854) Lord Cranworth LC said, “The directors are a body to whom is delegated the duty of managing the general affairs of the company”. A corporate body can act by agents and it is of course the duty of those agents to act as best to promote the interests of the corporation whose affairs they are conducting. Directors are thus persons in charge of the management of the affairs of a company and are collectively called board of directors. Jurisdiction of the board of directors CAP 486 and articles give the power to manage the company to the board of directors. In Isle of Wight Railway Co. vs. Tahourdin (1884) Collins M.R said “directors have great powers and the court generally refuses to interfere with their management of the company affairs if they keep within those powers”. Shareholders may complain about conduct of the directors but while the directors keep within those powers conferred upon them by the company constitution to manage the company, the courts cannot allow the members to interfere with the jurisdiction of the directors to manage the company. All that the court can say to the members is “if you want to interfere in the management of the company affairs, convene a general meeting and alter the company’s constitution by passing a resolution obliging the directors to act the way you want”. Members however have a right to intervene and take a way such management in the following circumstances: a) Where directors are improperly using the name of the company. b) Where the board of directors is unable to function due to some reason. c) Where the directors have acted ultra vires the powers granted to them or to the company itself.
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Meaning of director A director is any person occupying the position of director. One is a director because of the position of the office and its duties. In Re. Forest of Dean Mining Co. (1878) Jessel M.R. Said “it does not much matter what you call them so long as you understand what their real position is, which is that they are really commercial men managing a trading concern for the benefit of themselves and shareholders in it”. In R vs. Camps (1962) Judge of the court of appeal of Eastern Africa, Sinclare P, affirmed that a person occupying the position of a director though not duly appointed is still held a director. Appointment of directors There are several stages of appointment of the directors: a) The first directors of a company – are appointed by the promoter of the company, where promoters have not appointed the directors subscribers to the memorandum will become and are regarded the first directors. b) Subsequent appointment – are appointed when the company already exists. The company will make these appointments in the following circumstances: a) To replace directors who have retired on rotation or otherwise. b) To replace directors who have been removed from office. c) To replace retired directors. d) To replace deceased directors. Casual vacancies These are vacancies occurring in the ranks of directors any time before the next annual general meeting by death or registration of a director. Casual vacancies are filled by appointment made by the existing directors. Alternative directors These are directors appointed temporarily to represent the director during his absence or inability in the board of director. 2
Managing director Guidelines for appointment of the managing director are given in the articles of association. Qualification of directors The Act does not require a director to hold shares, thus one can be a director unless articles provide otherwise. Article 77 table A provides that the share qualification for directors may be fixed by the company in a general meeting and unless fixed no qualification shares shall be required. If the articles of a company contain a provision that the qualification of a director shall be holding a specified number of shares, section 183 provides that; (i) Each director must acquire and retain such qualification shares within two months after appointment. (ii) Share warrant to bearer may not count as qualification shares. (iii) If shares are not acquired within two months one ceases to be director. (iv) One cannot be re-appointed unless he has obtained his qualification shares. (v) A fine of one hundred per day will accrue for the period in office without qualification shares. Age of directors Every director must retire on or shortly after the seventieth birthday, but he can continue if allowed at a general meeting and after a special notice has been given. The minimum age for appointment is twenty-one years. The limits do not apply to private companies unless they are subsidiaries of public companies. Bankruptcy Bankruptcy disqualifies one from holding the office of a director. Effects of disqualification
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The acts of a director or manager shall be valid not withstanding any defect that may afterwards, be discovered in his appointment or qualification. Acts done after disclosure by the company will not be binding on the company. Disqualification of directors The following are grounds for disqualification of a director: 1. Failure to take up prescribed share within two months section 183. 2. When one becomes bankrupt or makes any arrangement or composition with his creditors generally (sec.188). 3. If one is prohibited from being a director for any reason under section 189. 4. If one becomes of unsound mind. 5. Resigning by notice in writing to the company. 6.
Absence without permission for more than six months from meetings of
directors. Vacation or removal of a director A director can leave office either by (a) Vacation This arises when a director voluntarily quits office by whatever reason. A director is liable for all acts committed while in office but not thereafter. (b) Removal from office These are situations when one is forced to quit the position of a director. A director can be forced to quite by: a) Operation of law Instances where a director is removed by operation of law. (i)
Breach of statutory qualifications.
(ii)
Liquidation of the company.
b) The company The company may remove a director by an ordinary resolution after special notice is given. A removed director may claim compensation for the loss of office. Position of directors 4
Position of directors may be considered or described from different perspectives as follows:(i) Directors as agents A company acts through directors who are representatives of directors, in the eyes of law they are agents for the companies they act for. However directors are at times not just agents as they have independent powers in certain matters. Directors not personally liable as agents: Directors are not personally liable for acts done on behalf of the company provided they act within the scope of their authority and contracts are not in their own names. Directors are however personally liable where: 1. They contract in their own names. 2. They use the name of the company incorrectly. 3. The contract is signed in such a way that it is not clear, whether it is the principal or agent who signed. 4. They exceed powers given to them by the memorandum or articles. Directors as trust employees Directors are not employees or servants of the company but there is nothing preventing a director from being an employee of the company under a special contract of service, which he may enter into with the company. Directors as trustees Directors are treated as trustees: 1. Of the company’s money and property. 2. Of the powers entrusted to them. Directors are trustees of the company’s money and property because they must account for all the company’s money and property and to refund to the company any of its money or property, which they have improperly paid away or transferred. The director is a fiduciary position as regards to the protection of the company properly. The duties of directors involve; (i) A fiduciary duty not to profit himself personally from the property of the company. 5
(ii) As fiduciary to be honest to account for the profit of the company. Directors however are not trustees in the real sense as they not vested with ownership of the company’s property. They are quasi trustees because: a) They are not vested with the ownership of the company property. b) Their functions are not the same as those of trustees. c) Their duties of care are not as onerous as those of trustees. Directors’ remuneration In Re George Newman and co (1895) 1 ch. 674 Lindley LS observed “directors have no right to be paid for their services and cannot pay themselves or each other or make presents to themselves out of the company’s assets unless authorized to do so by the instrument which regulates the company (articles) or by the shareholders at properly convened meeting”. Directors can be paid expenses incurred while conducting the business of the company. In the absence of a provision a salaried director is not entitled to expenses incurred as they are usually covered by his remuneration. Compensation for loss of office The powers of directors are spelt out in the articles. There is usually a clause delegating to the directors the powers to manage the company. Some of the functions directors included:(i)
Entering into contracts on behalf of the company.
(ii)
Engaging and dismissing employees.
The powers of directors may also be restricted by the articles. Disclosure of interest If a director has an interest in a contract which is being considered by the company he must declare his interest when the contract is being discussed. A director who fails to declare his interest is liable to a fine of up to two thousand shillings. According to Lord Cairn one declares his interest not when he states that he has an interest but when he states what his interests are. 6
The disclosure should be made at the time the contract in question comes before the board of directors for discussion, section 200(1). Legal effect of non-disclosure of interest by directors. There are two categories of consequences. a) Statutory consequences Section 200 (4) such directors shall be liable to a fine not exceeding two thousand shillings. b) Common law consequences At common law the contract itself becomes voidable at the instance of the company. The director in question who also made secret profits on the contract must refund the same to the company. Duties of directors The following are some of the duties of directors: 1. To exercise their powers honestly for the benefit of the company as a whole. 2.
Not to place themselves in position in which there is a conflict between their
duties to the company and their personal interests. 3. To carry out their duties with reasonable care and exercise such degree of skill and diligence as is reasonably expected of persons of their knowledge and status. 4. To attend board meetings. 5.
Not to delegate his functions except to the extent authorized by the Act or
constitution of the company. 6. To disclose his interest. SECRETARY Introduction - Every Company must have a secretary but a sole director cannot also be a secretary Appointment – it is usual for the secretary to be appointed by the directors on such terms as they think fit. The directors may also remove the secretary.
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Qualifications – the directors must take all reasonable steps to ensure that the secretary is a person who appears to them to have the requisite knowledge and experience. He must be one who: (i)
Already hold office as secretary, assistant secretary or deputy
secretary of the company or, (ii)
For at least three out of five years immediately proceding his
appointment held office as a secretary of a public company, or (iii)
Is a barrister, advocate or solicitor, or
(iv)
Is a member of any of the following bodies; ICA, ACCA, ICSA,
CIMA, CPA, or CIPFA, CPS, e.t.c. (v)
Is a person who by virtue of having held any position or being a
member of any other body, appears to the directors to be capable of discharging the functions of secretary. Powers The secretary is the chief administrative officer of the company and on matters of administration he has ostensible authority to make contracts on behalf of the company. Such contracts include: a) Hiring office staff b) Contracts for the purchase of office equipment c) Hiring cars for business purposes. IN PANORAMA DEVELOPMENTS V.FIDELIS FURNISHING FABLICS 1971 the secretary of the defendant company entered into a number of contracts for the hire of cars.The cars were ostensibly to be used to collect important customers from Hearthrow Airport, but infact the secretary used them for his own private purposes. The court of appeal held that the defendant company was liable. Lord Dinning M.R. Said; ‘a company with extensive duties and responsibilities’. He is certainly entitled to sign contracts connected with the administrative side of the company’s affairs, such as employing staff, ordering cars and so forth. (vi) Although a secretary has ‘extensive duties and responsibilities’ there are a number of decisions where it has been held that he does not have authority for particular acts. Thus he may not: 8
Bind the company on a trading contract
Borrow money on behalf of the company
Issue a writ or lodge a defence in the company’s name
Register a transfer of shares
Strike a name of the register of members.
Summon a general meeting on his own authority.
DUTIES The secretary duties include: a) Ensuring that the company’s documentation is in order, that the requisite returns are made to the companies registry, and that the company’s register are maintained, b) Taking minutes of meetings, c) Sending notices to members and, d) Counter signing documents.
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