UNIVERSITE DE DSCHANG
UNIVERSITY OF DSCHANG
FACULTE DES SCIENCES JURIDIQUES ET
FACULTY OF LAW AND POLITICAL
POLITIQUES
SCIENCE
THE DISTRIBUTION OF POWER IN A CORPORATE ENTITY: A COMPARATIVE STUDY OF THE COMMON LAW INSPIRED COMPANIES ORDINANCE AND THE OHADA UNIFORM ACT ON COMMERCIAL COMPANIES AND ECONOMIC INTEREST GROUPS
Thesis submitted in partial fulfillment of the requirements for the award of a Masters Degree in Law. Option: Droit Communautaire et Comparé CEMAC
By:
NAH Anthony TETINWE
Post- Graduate Diploma (Maîtrise) in Common Law University of Dschang Under the Supervision of:
Dr. Simon TABE TABE Senior Lecturer in Law Vice Dean in-charge of Research and Cooperation Faculty of Law and Political Science University of Dschang October 2010
DEDICATION
Goes to all the members of my family
i
ABSTRACT
The zeal today in the world is for countries to form regional and sub regional institutions geared towards achieving economic integration, which is very important for the economic growth of the member States. This desire for regional integration in Africa was expressed through the signing of the OHADA Treaty on the 17th of October 1993 aimed at harmonizing Business Law through the drafting and adoption of common rules (U.A) that are simple and adapted to the realities of the economies of contracting States. The adoption of these U.A has influenced the various legal systems of almost all of the member States. The influence on the legal system of Cameroon is very clear especially in the Common Law jurisdiction of the country. This research highlights the similarities and differences in the distribution of power in a corporate entity between the new OHADA Law on the one hand, and the Common Law inspired Companies Ordinance, Chapter 37, of the Laws of the Federation of Nigeria 1958, which were applicable in the English – speaking part of Cameroon before OHADA Law, on the other hand. This research aims to compare and measure the suitability of the Laws under both systems in matters of distribution of power in a corporate entity. In analysing this, the research brings out the innovations of the OHADA Uniform Act on Commercial Companies and Economic Interest Groups vis- ά- vis the Common Law inspired Companies Ordinance and vice versa as regard the distribution of power in a corporate entity.
ii
RESUME
L’enjeu majeur aujourd’hui pour les Etats est la création d’institutions régionales et sous-régionales afin d’atteindre une intégration économique très importante pour leur développement des Etats membres. Cette volonté d’une intégration s’est exprimée en Afrique par la signature le 17 Octobre 1993 du Traité OHADA ayant pour but l’harmonisation du Droit des affaires à travers l’élaboration et l’adoption des règles communes (A.U) simples et adaptées aux réalités économiques des états contractants. L’adoption de ces Actes Uniformes a impacté les différents systèmes juridiques présents dans les Etats. Au Cameroun, cette influence est manquante devant les juridictions qui appliquent les Common Law. Cette étude relève des similitudes et différences quant à la répartition de pouvoir dans les sociétés commerciales soumises au droit OHADA d’une part et les sociétés soumises à la Common Law Inspired Companies Ordinance, Chapitre 37, des lois de la Fédération du Nigéria de 1958, qui étaient applicables dans la partie Anglophone du Cameroun avant l’avènement du traité OHADA d’autre part. Cette étude vise à comparer et mesurer la convenance des lois en sur la question de la répartition de pouvoir dans les sociétés commerciales des deux systèmes. Il ressort des analyses les innovations de l’Acte Uniforme sur le Droit des Sociétés Commerciales et des Groupements d’Intérêt Economique vis-à-vis du Common Law Inspired Companies Ordinance et vice versa au regard de la répartition de pouvoir dans les sociétés commerciales.
iii
ACKNOWLEDGEMENTS
The preparation and completion of this work has not been without the assistance of some persons who have been very instrumental and I remain highly indebted to them. My first appreciation goes to my supervisor, Dr. Simon Tabe Tabe who in spite of his charged program took off time and exercised a lot of patience to see that this research work is done, completed and presented in accordance with the prescribed norms. I am equally grateful for the documentation which he put at my disposal. I also placed on record my gratitude to Professor Anoukaha François, Dean of the Faculty of Law and Political Science, for instituting the Masters Program in the Faculty. My sincere thanks equally goes to Professor Kalieu Yvette, vice Dean in charge of students affairs and the coordinator of Masters II Droit Communautaire et Comparé CEMAC for the tremendous effort she has deplored to ensure a quick and smooth completion of the Masters program which I am proud to have been part of the team. I also owe a debt of gratitude to some Lecturers of the Faculty of Law and Political Science, University of Dschang, in the persons of Dr. Tantoh Azuh, Mr. Mbifi Richard, Mr. Djeufack Roland, Mr. Mbetiji Mbetiji Michel, Mr. Kelese George and Mr. Moho Fopa Eric Aristide, for their constant encouragement and interesting conversations on this topic. To my parents Mr. and Mrs. Nah, I am too indebted to them than words can’t express for their parental love ever since I saw the light of day. I am also very thankful to my brothers Nah Thomas Faushi and Nah Patrick Mveghonyi for their moral and financial support. Thanks to them, I am part of the academic world and they have always stood firm by me in all my difficulties. They are a blessing to me. Special thanks are also owed to Mrs. Nah Jemea, for her encouragement and assistance accorded to me. I also owe special thanks to Mr. Mbinkar Lazarius, Geologist and visiting Lecturer at ENS Annex Bambili and Mr. Tikanjoh Stephen, the Mayor of Babessi Council for their immense aid towards the realisation of this work. My appreciation also goes to Mr. Asunia Akandeh Isaac, for his timely assistance especially during the most difficult moment in my life. I also appreciate the corporation and warmth I had from some of my classmates such as Tankeu Maurice, Kamla Foka Fabius Corneille, Kenson Tsakem Marguy Carole, iv
Theophilus Tayi Tatsi, Zena Ngoune Hugues, Tchoumgoi Koum Gregoire, and Ndjongui Ekouato Josie. I also owe special thanks to my classmate Timothy Keng, for his discussions and corporation in the realisation of this work. Special thanks are also owed to Palouki Hezouwé Péheirama, Ngwome Gideon, Nji Wuning Acha, and Vugah Munang, for their constant encouragement. This list as presented is not exhaustive of those who contributed to the preparation and completion of this work. To those whose names have not been mentioned, I say thank you for your contributions. I remain highly indebted to you. Above all, my gratitude goes to almighty God for giving me the strength and courage to accomplish this task. To him be Glory and Honour in Jesus mighty name. Amen. I am entirely responsible for any errors, omissions and shortcomings that may be contained in this work.
v
TABLE OF CONTENTS
DEDICATION………………………………………………………...………...i ABSTRACT…………………………………………….…………………........ii RESUME………………………………………………………………………iii ACKNOWLEDGMENTS……………………………………………..……...iv TABLE OF CONTENTS………...……………………………..………..……vi TABLE OF CASES. ………………………………………………..………...xi TABLE OF STATUTES………………………………………………...…...xiii LIST OF ABBREVIATIONS………………………………………...…..….xiv GENERAL INTRODUCTION…………………………………..…………..1 A.
Brief History of Corporate Law in Cameroon………………………………...……...6
B.
Some Perspective issues on OHADA Law…………………………………...………8
C.
Statement of the problem……………………………………………………………11
D. Hypothesis………………………………………………………………………...…..11 E. Objective of Research…………………………………………………………...……11 F. Scope of Work…………………………………………………………………...……12 G. Research Methodology…………………………………………………………….…12 H. Organisational Layout…………………………………………………………...……13
PART ONE: COMPANY ORGANS AND THE DISTRIBUTION OF CORPORATE MANAGERIAL POWERS…………………………………14 CHAPTER ONE: MANAGEMENT ORGANS OF PUBLIC LIMITED COMPANIES (SA)……………………………………...…………………………………………………....17 1.1.1
Management of Public Limited Company (SA) by a Board of Directors………...…..18
1.1.2
The Board of Directors……………………………………………………………..…19
1.1.2.1 Composition……………………………………………………………………...….19 1.1.2.2 The Powers of the board of directors…………………………………………..……22 1.1.2.3 Remuneration of directors………………………………………………………...…25 1.1.3
The President of the Board of Directors………………………………………………27
1.1.3.1 Duties of the President of the Board of Directors………………………………...…28 1.1.3.2 Remuneration of the Board President……………………………………...…………29 vi
1.1.4
Corporate administrators in Public Limited Companies (SA)…………………..……30
1.1.4.1 The Chairman and Managing Director………………………………………..………30 1.1.4.2 The General Manager…………………………………………………………………33 1.2.1 The administration and management of a public limited company by a sole managing director (administrateur général)…………………………………………..……...34 1.2.1.1 Powers of the Managing Director…………………………………………..……….36 1.2.1.2 Constraints on the power of managing director…………………………………..…37 1.3.1
Duties of Directors…………………………………………………………..………..38
1.3.1.1
Fiduciary duties of directors…………………………………………………..…….39
1.3.1.2
General Equitable Principle…………………………………………………...……39
1.3.1.2.1
Acting in good faith………………………………………………………...……..40
1.3.1.2.2
Proper Purpose…………………………………………………………...……….42
1.3.1.2.3
Unfettered discretion………………………………………………………..…….43
1.3.1.2.4
Conflict of Duty and Interest…………………………………………………….44
1.3.1.2.4.1 Transactions with the Company…………………………………………………44 1.3.1.2.4.2 Use of Corporate Property Opportunity or Information…………………………45 1.3.1.2.4.3 Competing with the Company…………………………………………….……..46 1.3.2 Common Law Duty to Exercise Reasonable Cares, Skill, and Diligence………….….46 1.3.2.1 Skill………………………………………………………………………………….47 1.3.2.2 Diligence…………………………………………………………………………….47 1.3.2.3 Liability with Regards to Others…………………………………………………….48 1.3.3 Directors duties under the Companies Ordinance……………………………………..48 1.3.4
Director’s Duties under the Uniform Act………………………………………..……49
1.3.5 Breach of duty…………………………………………………………………………52 1.3.5.1. Remedies for Breach of Duty……………………………………………………….52 1.3.5.1.1 Damages or Compensation………………………………………………….……....53 1.3.5.1.2 Accounting for Profits……………………………………………………………...53 1.3.5.1.3
Summary Dismissal………………………………………………………………54
1.3.5.1.4
Injunction or Declaration………………………………………………………...55
CHAPTER TWO: THE CORPORATE DELIBERATIVE ORGAN…………………....57 2.1 Shareholders rights and obligations……………..………………………………..………58 2.1.1 Political Rights……………………………………………...…………………..………59 2.1.1.1The Right to Participate in Decision Making…………………………………….……59 vii
2.1.1.2
The Right to Attend Meetings………………………………………………………61
2.1.1.3 The Right to Vote……………………………………………………………….…….62 2.1.1.4
The Right to Transfer or Withdraw from the Company……………………………63
2.1.1.5
The Right to a Share Certificate……………………………………………………64
2.1.1.6 The Right to Information…………………………………………..………….......…65 2.1.2
Financial Rights……………………………………………………………..…….....67
2.1.2.1
Right to Dividends when Declared………………………………………..……......67
2.1.2.2
Financial Right during Capital Increase and Dissolution of the Company……........69
2.2
The General Meeting and Company Powers……………………………………..…....70
2.2.1
The Constituent General Meeting………………………………………………….....71
2.2.2 The Ordinary General Meeting………………………………………………………..73 2.2.3
Extra-Ordinary General Meeting……………………………………………...….…..75
2.2.4
Special Meeting…………………………………………………………………….…76
2.3
The Powers of Company Meetings………………………………………………..……77
2.3.1
Appointment and Dismissal………………………………………………………..…77
2.3.2
Approval of Directors’ Report……………………………………………………..…78
2.3.3
Appointment, Dismissal and Approval of Auditors and Auditor’s Report…………...78
2.3.4
Other Powers Exercise by Shareholders at Annual General Meetings………….……79
2.4
Majority Rule and Minority Protection……………………………………………..…79
2.4.1
The Principle of Majority Rule……………………………………………………….80
2.4.2
Minority Protection at Common Law Inspired Companies Ordinance and OHADA Law……………………………………………………………………………………82
PART
TWO:
LIMITS
AND
LIABILITIES
OF
CORPORATE
ADMINISTRATORS…………………………………………...………….…87 CHAPTER
THREE:
LIMITS
TO
THE
POWERS
OF
CORPORATE
ADMINISTRATORS………………...………...……………………………………..…..…89 3.1
Obligation to inform shareholders………………………………………………………90
3.1.2
Alert procedure by the shareholders………………………………………………….90
3.1.3
Management Evaluation………………………………………………………………90
3.2
Accounting obligation………………………………………………………………..…92
3.2.1
The position of statutory auditors…………………………………………………..…92
3.2.1.1 Nomination of Auditors…………………………………………………………..…92 3.2.1.2
Duration of their functions………………………………………………………….93 viii
3.2.1.3
Remuneration of Auditors………………………………………………………..…94
3.2.1.4
The role of statutory auditors……………………………………………………….95
3.2.1.4.1
Control of accounts…………………………………………………………...…..95
3.2.1.4.2
Information obligation…………………………………………………………….97
3.2.1.4.3
Alert procedure by the auditors…………………………………………………...97
CHAPTER FOUR: LIABILITIES OF COMPANY ADMINISTRATORS……….…..100 4.1
Civil liabilities of company administrators……………………………………………101
4.1.1 Liabilities during Formation……………………………………………………...……102 4.1.1.1 Liability for Gross-over-valuation of Contribution in Kind……………………...…104 4.1.1.2 Liability for torts or Omission of a mandatory detail in the Articles of Association and acts of nullity…………………………………………………………………………...........105 4.1.2. Liabilities during the Operational Phase of the Company…………….…………..….107 4.1.2.1 Management Liability………………………………………………………….……107 4.1.2.2 Liability to the Company…………………………………………………………....108 4.1.2.3
Extension of the Liability of Company administrators under Common Law……..110
4.1.2.3.1
Extension by Courts or Case Law……………………………………………….110
4.1.2.3.2
Extension by Statutes……………………………………………………………111
4.1.3.
Liabilities of Company Administrators in case of Insolvency of the Company……112
4.1.3.1 The Cessation/Failure of Payments in the Company………………………..…...…112 4.1.3.2
The Aggravation of civil Liabilities of Company Administrators……………...…113
4.1.3.2.1
Inaccessibility of responsible managers on their Stocks or Share Capital………113
4.1.3.2.2
Extension of Liability to the Liquidation of the Property of the Company Directors…………………………………………………………..……………..114
4.1.3.2.2.1
Legal redress and the liquidation of the assets as a result of abusive action…..114
4.1.3.2.2.2
Legal redress and liquidation of assets as a consequence of passive action....115
4.1.3.3
Personal Bankruptcy………………………………………………………………116
4.2
Criminal liability of company administrators……………………………………….118
4.2.1
Basis of criminal liability at Common Law…………………………………………121
4.2.2
Criminal liability of Company administrators during the formation of a company…123
4.2.2.1
Offences directly related to the formation of the Company………………………124
4.2.2.1.1
False declaration of the notary………………………………………………..…124
4.2.2.1.2
The Tender of false list of Shareholders or subscription bulletins……………....126
4.2.2.1.3
Simulation of Subscription and deposit of funds………………………………..127
4.2.2.1.4
Publication of false Facts……………………………………………………..…127 ix
4.2.2.1.5 4.2.2.2
Fraudulent increase in the value of contribution in kind………………………...128 Offences indirectly related to the formation of the company…………………...…129
4.2.2.2.1
Offences related to the issue of shares………………………………………..…129
4.2.2.2.2
Offences linked to the negotiation of Shares……………………………………130
4.2.3
Criminal liability of company administrators during the functioning of the
company……………………………………………………………………………………..131 4.2.3.1
Offences relating to company management……………………………………….131
4.2.3.1.1
The Distribution of fictitious dividends…………………………………………131
4.2.3.1.2
The publication and presentation of Summary Financial Statements………...…132
4.2.3.1.3
The abusive use of the assets or credits of the Company……………………..…134
4.2.3.1.4
Offences relating to the wrongful modification of the company’s capital………136
4.2.3.2
Offences relating to the General Meetings of Companies………………………...138
4.2.3.3
Offences relating to the Control of Companies……………………………………139
4.2.3.1
Offences likely to be committed by the company Executives………………….…139
4.2.3.1.1 Failure to appoint or convene auditors…………………………………………...140 4.2.3.1.2
Obstacle to control by the auditors…………………………………………........140
4.2.4 Criminal liability during Companies difficulties…………………………………….141 4.2.4.1
Offences linked to the dissolution of the company………………………………..141
4.2.4.2
Criminal Bankruptcy as an offence………………………………………………..142
4.2.4.2.1
Offences related to simple Bankruptcy………………………………………….143
4.2.4.2.2
Offences related to fraudulent Bankruptcy……………………………………...144
4.3 Enforcement of liabilities…………………………………………………………........144 4.3.1 Individual action……………………………………………………………………...145 4.3.2
Actions on behalf of the Company………………………………………………......145
GENERAL CONLUSION………………….……………………………….148 SELECTED BIBLIOGRAPHY…………….………………………………151
x
TABLE OF CASES.
-
Amity Bank Cameroon PLC v. Lawrence Tasha, Suit No HCF/ 92 /2000, (unreported) Abbbey Glen Property corp v.Stumbory [1978]85. D.L.R. Aberdean Rly v.Blaitre (1854) 1 Macq. H.L.461. H.L.S.C. Aero Service v.O’ Mulley [1973] 40 B.L.R. (3d) 371 at 381. Alexander ward and Co Ltd v. Samyang Navigation Co.Ltd [1975] 1. W.L.R. 673 at 679. Anderson v. James Sutherland (Peterhead) Ltd 1941. 203. Ayodele James v.Midmotors (Nig) Ltd [1978], 11&12 SC.31. Bamford V. Bamford [1970]. Bries v.Wolley [1954] A.C. 333.H.L. Cartemell’s case (1874) L.R. 9Ch. App.691. Charter bridge corps v.Lloyds Bank [1970] Ch. 62. Clements v.Clements Ltd [1976] 2 .ALL. E.R. 268. Curbra Estate PLC v.Fulham Football club [1994] B.CL.C. 363. Daimler Co.Ltd v. Continental Tyre (GB) Ltd [1916] 2AC.307. Director of Public Prosecution v.Kent & Sussex Contrqctors Ltd [1944] K.B. 146. Edwards v.Haliwel [1950] 2A.E.R, p.1064. Ferguson v.Wilson (1866) L.R. 2Ch.77 at 89. Forest of Dean Coal mining Co. (1878) 10 Ch.D. 450 at 451-452. Gibson v.Barton (1875) L. 10 QB.329. Gilfordmotors Co.Ltd v.Horne [1933] ALL.ER.109. Guiness v.Saunder [1920] 2AC 663 HL [1990] 1AER. 653. Halg v.Ardrene Cinema [1951] Ch. 28. CA. P. 291. Hickman v.Kent [1915] Ch.881. Hogg v.Crumphorn [1967] Ch. 254. Holdswroth v.Caddies [1955] 1W.L.R. 352. H.E. Hutton v.West Cork Rly Co (1883) 23 Ch.D654.CA. Imperial Mercantil credit Association v. Coleman [1973] L.R. H.LL. 189. Industrial Development Consultants Ltd v.Cooley [1972] 1W.L.R. 443. John Crowther group PLC v.carpets International [990] B.CL.C. 460. Lingren v.L&P. Estates Ltd [1963] Ch.572.C.A. London and Mashonnaland Exploration Co. v. New Mashondon and Exploration Co. Macaura v. Northern Assurance Co.Ltd [1928] AC.619 at 629. Mariaty v. Regents Garage Co. Ltd [1921] PKB.432 at 466. Marx v. Estate and general Investments Ltd [1976] 1W.L.R. 380 Mills v. Mills [1938] 60. C.L.R. 150. Omisade v. Akande [1987] 2 NWLR (P+55) 158 at 159. Parke v.Daily News Ltd [1962] Ch.927. Pavlides v.Jenson [1956] Ch.656. Pender v.Lushington (1877), 6 Ch.D.P. 70. Percival v.Wright [1902] 2.Ch.121. Prundential Assurance Co.Ltd. v. Newman Industries Ltd [1982] Ch. 204. Re Ambrose Lake Tinco (1880) 11. Ch.D. 390. CA. Re Brazilian Rubber Plantations and Estate Ltd [1911] H.425. Re city Equitable Fire insurance Co.Ltd [1925] Ch. 40 at p.428. Re DKG Contractors Ltd [1990] BCC.903. xi
-
Re Exchange Banking Co.Flicroft’s case (1882) 21 Ch.D519. Re express engineering work Ltd [1920] Ch.466. C.A. Re George Newman and Co (1895) 1Ch. 674 at p.686. Re Newspaper Proprietory Syndicate Ltd [1900] 2Ch. 349. Re Smith and Fawcett [1942] Ch.304. Re Smith and Fawcett Ltd [1932] Ch.304. CA.P. 129. Re Stanley [1906] 1Ch.131. Regal (Hastings) Ltd v. Gulliver [1942] 1.All.ER.378. Rw v.M. Reith Ltd [1976] 1.W.L.R. 432. Salomon v.Salomon and coLtd (1892) 2.ALL. ER. Scottish Co-opwholesale Society Ltd v. Meyer [1959] A.C.324. HL. Shaw and Sons (Salford) Ltd v.Shaw [1908] BCLC.p.2009. Shonowo v.Adebayo [1969] 2 A.L.R.Comm. 419 [1969] ALL. N.L.R.170. Tesco Supermarket Ltd v.Nattrass [1971] 2ALL. ER.127. (H.L). Thorby v.Goldberg [1964] 112.C.L.R. Aust. H.L. Weston’s Case (1868) L.R. 4Ch.App. 20.
xii
TABLE OF STATUTES
1. 2. 3. 4. 5. 6. 7. 8. 9.
British Companies Act, 1948. British Companies Act, 1985. British Companies Act, 1989. British Companies Act, 2006. Cameroonian Penal code. Canadian Business Corporation Act, 1975. Code Civil, Litec, 1998-1999. Companies Director Disqualification Act, 1986. Companies Ordinance. Cap 37 of the 1958 Revised Laws of the Federation of Nigeria. 10.English Insolvency Act, 1986. 11.Ghanaian Companies Act, 1963. 12.Law No 2003/008 of 10 July 2003 on Criminal offences in the OHADA Uniform Acts. 13.Senegalese Law No 98/22 of 26 March 1998 on Criminal offences in the Uniform Act on Commercial Companies and Economic Interest Groups. 14.The American Model Business Corporation Act, 1984. 15.The Companies and Allied Matters Act of the Laws of the Federation of Nigeria 1990. 16. The Treaty of Port Louis of 17th October 1993 as revised in 2008. 17. Uniform Act on Commercial Companies and Economic Interest Groups, 1 st January 1998. 18. Uniform Act on General Commercial Law, 1st January 1998. 19. Uniform Act organising Collective Proceedings for Clearing –off Debts, 1 st January 1998.
xiii
LIST OF ABBREVIATIONS
AC
Appeal Cases.
AGM ALL ER ALL NLR AOA Art BCLC CA CAMA CAMUP Cap CEPER Cf Ch Ch.D Co DEA e.g. Ed. EGM ENS Et al Et Seq FSJP GM HCF i.e Ibid J KB LJ L.R. LC LGDJ LITEC Ltd MBCA MR Nº NWLR OHADA OHBLA Op. Cit. P PCA
Annual General Meeting. All England Law Reports. All Nigerian Law Reports. Article of Association. Article. British Commonwealth Cases. Companies Act. Companies and Allied Matter Act. Cameroon University Press. Chapter Publishing and Production Centre for Teaching and Research. Cited From. Chancery. Chancery Division. Company Diplôme d’Etudes Approfondies. For example. Edition. Extraordinary General Meeting. Ecole Normale Supérieur And others. And Following. Faculté des Sciences Juridiques et Politiques. General Meeting. High Court Fako. That is. (Ibidem) in the same place, book or source. Justice King’s Bench. Lord Justice. Law Review Lord Chancellor Librairie Générale de Droit et de Jurisprudence. Librairie Techniques. Limited. Model Business Corporation Act. Master of the Rolls. Number. Nigeria Weekly Law Report. Organisation pour l’Harmonisation en Afrique du Droit des Affaires. Organisation for the Harmonisation of Business Law in Africa Opere Citato (in the book referred to previously). Page. Président du Conseil d’Administration. xiv
PDG PLC PP PUA PUF QB QBD S SA SARL SCS TPPCR UA UACPCW Vol.
Président Directeur Général. Public Limited Company. Pages. Presses Universitaires d’Afrique. Presses Universitaires de France. Queen Bench. Queen Bench Division. Section. Société Anonyme (Public Limited Company). Société á Responsabilité Limitée (Private Limited Company). Société en Commandite Simple (Limited Partnership). Trade and Personal Property Credit Register. Uniform Act. Uniform Act Organising Collective Proceedings for Clearing –off Volume.
xv
GENERAL INTRODUCTION
Life in any community requires some principle of organization which enable human beings to corporate according to the norms of that given community 1. But when the community needs change, these norms become outdated and so need to be changed in order to suit with the community. As a result of globalization today, the world has become a global village since borders of many countries have been opened up and thus making international trade more facilitating. Many states have also discovered today that they cannot live in isolation and the only way in which they can foster trade and attract giant investors is by forming regional groupings. The success of this would depend on the type of law that is been put in place. This is because law plays a fundamental role in the sustainable development of any society since it seduced investors who today have proven to be so vital for the take up of economic activities in any economy. So any state that is bound to develop economically must put up good laws. The reason for this is that private sector demands an adequate legal framework that is sufficiently clear, modern, predictable and transparent in order to permit them invest with a sense of security without any fear 2. Due to this, undeveloped nations have understood that investments and trade which lead to economic growth can only be archived by putting in place good laws which will attract and secure the private sector investment. We may agree, finally with Professor Yves Guyon that “it is not secret that if the law is not a sufficient condition for development, it is a necessary condition”3. Conscious of this fact, African continent decided to take the option of regional integration. These arrangements have flourished through out her continent4. Despite this attempt, harmonization of member states laws has been very limited and the desires to “catch the train of globalisation” have been burning so high in these recent years 5.Impatiently waiting to enjoy the several advantages6, they finally after a long consultations materialized 1
PALAYRET (G.), La Société ; le droit et l’Etat moderne, 15 édition, ellipses, Paris, 1998, P.7. MOORE Dickerson (C.), (ed.), Unified Business Law in Africa: Common Law Perspective on OHADA GMB Publishing Ltd, London, 2009, P. 69. 3 GUYON (Y.), « Conclusion », in petites Affichés nº 205 du 13 Octobre 2004, PP. 59-63. 2
4
Economic Community of West African States (ECOWAS), Union Economique et Monétaire de l’Ouest Africain (UEMOA), Southern Africa Development Community (SADC), Common Market for Eastern and Southern Africa (COMESSA), just to name a few. 5 FORNERIS (X.) «Harmonising Commercial Law in Africa: The OHADA», in Juridis Périodique n o 47, Octobre-Novembre-Decembre, 2000, P. 1. 6 It promotes economic integration, which together are the way to achieve the African Union; the elimination of conflicts of laws in the area legally harmonized; encouraging the relocation of large companies in Africa;
1
their dream through the signing of the treaty of Port-Louis (Mauritius) on the 17 th of October 1993 which lead to the creation of OHADA7. The major aim of the treaty is to harmonize business law through drafting and adoption of common rules that are simple and adapted to the realities of the economies of the contracting states. Also, arbitration as a means of setting contractual disputes shall be encouraged through the instrumentality of the organisation8. It is generally accepted today that good governance is a basic requirement for economic development which can easily be facilitated through the creation of companies 9. Commercial companies therefore help to attract investment which is the primordial interest of the African legislator10. The economic activity of every country can only be measured through the number of companies found in her territory 11. This might be the reason why OHADA Law took a keen interest on the law relating to company law as one of its preoccupation. So the regrouping of activities and the concentration of capital is done most often than not through an institution which is known as a company. Defining a company has become not that so easy, the word company has no strictly legal meaning12but it is taken to mean a specific form of entity created under the laws of relevant jurisdiction. The English Companies Act 1985 defines a company thus; “Any two or more persons associated for a lawful purpose may, by subscribing their names to a memorandum of association and otherwise complying with the requirements of this Act in respect of registration, form an incorporated company with or without limited liability’’ 13. The Companies Ordinance Cap. 37 of the Revised Laws of the Federation of Nigeria in it Section 2 dedicated to definitions, defines a company to mean “a company formed and registered under this Ordinance”. It is regrettable that this piece of legislation never provided for a clear definition of a company. In France, just like in other Common Law jurisdictions, the definition of a company has often posed a problem. The situation became complicated, since the consecration by the strengthening African Unity etc. 7 OHADA is commonly known by its French Acronym as «Organisation pour l’Harmonisation en Afrique du Droit des Affaires». This is closely translated in English as Organisation for the Harmonisation of Business law in Africa (OHBLA). Today it has a total of 17 member states. 8 See generally the preamble and Article 1 of the OHADA Treaty. 9 EKOME (E.), «Public issues of shares under the Companies Ordinance and the Uniform Act of the OHADA Treaty», in Juridis Périodique no 50, Avril-Mai-Juin, 2002, P. 107. 10 POUGOUÉ (P-G.), «L’Impact de l’Acte Uniforme de l’OHADA Relatif au Droit des Sociétés Commerciales et du GIE Sur le Contrôle et le Développement des Entreprises locales», in Juridis Périodique Nº 66, Avril- Mai -Juin, 2006, P. 107. 11 ANOUKAHA (F.) et al, OHADA, Sociétés Commerciales et GIE, Bruylant, Bruxelles, 2002, P.1, see also HERAND (A.) Droit des sociétés: Manuel et Applications, 10eme Edition, Dunod, Paris, 2003, P. 1. 12 Per Buckley J. In Re Standley [1906] 1 Ch.131. 13 See Section 1(1) of this Act.
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Law of 11 July 1985 of a commercial company that functions with a single shareholder 14. The French Civil Code defines a company as a contract wherein two or more persons agree to put something in common with the view to share the benefit that will accrue 15. A company following the definition of the Civil Code therefore requires the plurality of persons, the putting in common of contribution and the sharing of benefits 16. Some legal dictionaries have however made an attempt at defining a company. In this light Black’s Law Dictionary 17 sees a company as a “corporation or, less commonly, an association, partnership, or union that carries on a commercial or industrial enterprise…” The definition which is going to be retained for the purpose of this work is that provided by the African legislator. The Uniform Act on Commercial Companies and Economic Interest Groups defines a company as a contract between two or more persons who agree to make cash or other contribution to an activity for the purpose of sharing the resulting profits or savings and to contribute towards losses18. Under the UA we have six different types of companies 19. The Companies Ordinance20and Common law21on the other hand, both recognise these grouping of companies that can be registered and those that cannot be registered 22. A company is said to be formed from the day the Articles of Association is signed under the UA and Memorandum of Association under Common Law. The most attractive phase of company formation is when the company is been registered in the Trade and Personal Property Credit Register. This is because upon registration the company is attributed the principle of corporate personality. So any company that is unregistered will be deprived of this legal protection and its members can
14
KAMNO (J-M.), « La Transparence dans la Gestion des Sociétés Commerciales en Droit OHADA», Mémoire de DEA, Université de Dschang, Avril 2007, P. 4. 15 Article 1832 of the Code Civil. 16 NGOMO (A-F.), Guide Pratique de droit des sociétés commerciales au Cameroun, 1 ere édition, PUA, Yaoundé, P. 9. 17 GARNER (B.A.), Black’s Law Dictionary, 7th Edition, St Paul, Minn, West Publishing Co, 1999, P. 274. 18 See Article 4 of the Uniform Act on Commercial Companies and Economic Interest Groups, hereinafter referred to as the UA. 19 Société en nom collectif (SNC), Société en Commandite Simple, Société à responsabilité Limitée, Société Anonyme, Société en participation and société crée du fait. It is wrothy to note that the last two cannot be registered, four of which can be registered. 20 Cap.37 of the 1958 Revised Laws of the Federation of Nigeria and Lagos. 21 The Common Law in this sense is the body of law derived from judicial decision rather than from statutes or constitution. But Common Law in this dissertation at times some statute shall be taken to mean Common Law since they are Common Law inspired legislations. It is worthy to recall our memory that Common Law holds its origin from Great Britain and as a result of colonial history it is practice by Anglophone countries like Ghana, Nigeria, United States of America, United Kingdom and Anglophone Cameroon. But Common Law only applies in Anglophone Cameroon in areas of the law that has not yet undergone harmonisation. 22 TABE TABE (S.), « Company Formation under the OHADA Uniform Act on Commercial Companies and Economic Interest Groups: Changes in the law hitherto applicable in former West Cameroon », Ph.D Thesis, University of Yaoundé II SOA, July 2009, P. 42.
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hardly be separated form the company23. Three types of company are at the center of recognition in English Law24, namely the statutory company25, the chartered company26and the registered company27it is however worthy to make mention of the fact that the English Law just like OHADA Law attaches much importance to this last type of company since it is the most common form of business organization today. Registered companies is further classified into companies limited by shares, guarantee or unlimited. The second classification is that of public or private companies28. Gone are those days when it was impossible for a single individual to own and run some companies like the SA and SARL. Even if such individual have the required capital, he must move around and search for other partners. But today with the coming inforce
of the
UA all these problems have been solved since this Act has made it possible in its Article 5, the possibility for a single individual to own and run these types of companies. This means that in these types of corporations the distribution of powers is widely affected or influenced by these giant shareholders because he almost owned all the shares alone. This type of management organ of a company is a landmark innovation by the OHADA Law, since a single member company was not foreseen by the Companies Ordinance. Many Common Law Countries did not recognize the issue of a single man company, until 1963 when Ghana took a bold step ahead29. In general, whether one-man or plurality of members, registered or unregistered type of company, the essential is that they should work to catch-up with their goal. Their creation needs some formalities amongst which are the Articles of Associations; which is considered as the grand norm of the company. The Articles of Association must be pointed out clearly as the main instrument that governs the distribution of powers in a corporate entity. But when the Articles are silent on some provisions reference must be made to the UA. This is because the
23
TABE TABE (S.), «Corporate personality at Common Law and under the OHADA Uniform Act relating to commercial companies and economic interest groups: A comparative study», in Annales de FSJP, Dschang, Tome 12, PUA, Yaoundé, 2008, P.8. 24 See Section 716 of the 1989 Companies Act. English law shall be used in this dissertation to either refer to the Companies Ordinance and Common Law. 25 These are Companies formed with special types of object to perform public functions, like the building of street lights. 26 These are Companies formed with special authorization from the crown. 27 See generally DAVIES, P.L., Gower’s Principle of Modern Company Law, 6 th Edition, Sweet and Maxwell, London, 1997, PP. 5-7. 28 See Section 4 and 128 of the Companies Ordinance. 29 See the 1963 Ghanaian Company Code, before the recommendation of Gower to harmonise its company law, it was provided that a company must have at least one member.
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Article must be constructed in line with the provisions of the UA as was decided in the case of Amity Bank Cameroon PLC V. Lawrence Tasha30. Company administration has never been so easy due to the nature of their structure. A glaring example here is the case of public limited companies that is made up of complex structures of management. Company powers in this type of companies are usually distributed between two primary organs31. These organs are the members in general meetings and the Board of Directors32. Some authors33 have held that these organs are the brain behind the realization of the company objectives. Because of the complicated nature of these types of companies, some investors can decide to carry business activity with a company without these classic organs. These are the cases with Société en participation (joint venture) and Société de fait (De facto companies). These types of companies could be a solution to problems and therefore a valuable tool in the hands of those who chose to use them 34. Despite these advantages, public limited companies remained the choice of company to many investors. If the powers held by the Board of Directors and the General Meetings are not controlled, it might be over exercised. It is in this light that beside these two primary organs is the control organs which Acts as a check on the enormous powers of the Board of Directors. The control is usually exercised by the statutory auditors and shareholders. Thanks to the innovative means of alert procedure this control can be better affected today. So, the administration of a company is analysed through the realization of some activities like planification, organization and execution on the one hand and on the other hand, control of these activities in order to attain their objectives. Since the company can only act through its organs, it does not only mean the putting and determining the powers of these organs, but also to ensure that those exercising powers under these organs do it according to the laws laid down without abusing it. Power is “strength, ability, or capacity to influence or to put decision into action” 35. When power is concentrated in the hands of one man or one organ, that man or organ is always tempted to abuse such powers. So, power should be separated between organs of the
30
Suit No HCF/59/92-2000 (unreported). See also Cour de Justice de la CEMAC, Arrêt n° 003/CJ/CEMAC/CJ/03 du 03 juillet 2003, Affaire Tasha Loweh Lawrence c/ Décision Cobac D-2000/22 et Amity Bank Cameroon PLC, Sanda Oumarou, Anomah Ngu Victor, commenté par NEMEDEU Robert, in Juridis Périodique n° 69, Janvier-Février-Mars 2007, p. 58-64. 31 DAVIES (P.), Gower’s Principles of Modern Company Law, op. cit., P. 17. 32 Ibid. 33 POUGOUE (P-G.) et al, Droit des sociétés commerciales et du groupement d’intérêt économique OHADA, PUA Yaoundé, 1998, P. 202. 34 NAH FUASHI (T.), «Corporate advantages without incorporation? - The case of Société en participation and Société de fait within the OHADA Zone», in Annales de la FSJP, Tome 13, Maryland Printers Bamenda, 2009, P. 83. 35 COLLIN (P.H.), Dictionary of Law, 3rd Edition, Peter Collin Publishing, London, 2000, P. 279.
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government36. So that each organ or arm acts as a check on the other, this had earlier been affirmed by Montesquieu when he said “Power check power”, so as to ensure balance37. Montesquieu’s proposition for the called of separation of power has been greatly felt in Company Law especially as regards the distribution of power in the administration of a company. This can be seen from the separation of administrative power between the various organs of the company. Each of the organs in charge of company administration have peculiar powers of theirs and in any situation of the breach of these powers or duties, they are going to be liable for their wrongful acts. The bi-jurial nature of the Cameroon legal system was reflected in the various legal domains with the distribution of power in the administration of corporate entity inclusive. So a brief history of the Cameroonian corporate law will help us to better understand why OHADA had drastically reshaped the investment climate in Africa as compared to the laws inherited from those who colonised them. D.
Brief History of Corporate Law in Cameroon From a critical analysis of the legal history of many countries, one realizes that Africa
does not hold the monopoly of “receiving foreign laws”38. Looking at the history of corporate law in Cameroon, we are going to limit ourselves to the period before 1993 and the period after 1993. That is the period before the coming of the OHADA law and the period after its birth and existence. It is worthy to note that company law is one of those areas of law in Cameroon which has just been unified. Cameroon however, today, has Uniform laws, in the areas of criminal law, Labour law, Land law, some areas of family law, a Uniform judicial system, business law, through the OHADA Uniform Acts and recently the harmonised Criminal Procedure Code. At the end of the first world war in Cameroon, while the Eastern part of the country past under French colonial administration, the west occupied by the British troops passed under British Cameroon39. The outcome of this colonial administration is that, while French laws applied East of Mungo, British laws applied in the West 40. Colonial administration of
36
Executive, the legislative and the Judiciary. CF. Montesquieu, De l’esprit des lois, IGE Flammarion P. 293. 38 ARTHUR Max (T.V), Organisation of the Judiciary in Cameroon, 1884-2004, Edition Max Njika, Dschang, 2005, P. I. 39 ANYANGWE (C.), The Cameroonian Judicial system, CEPER, Yaoundé, 1987, P. 45. 40 MANKA (R.), « Measures of Execution of Judgments under Common Law and OHADA», A comparative study, DEA dissertation , University of Dschang ,October 2008, P. 1. 37
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Cameroon therefore gave birth to the bi-jurial system we have today 41while the civil law applied in the East Cameroon, the Common Law applied in the west42. As far as corporate legislation was concerned, there existed prior to 1993 in the former British Cameroon and French Cameroon two separate laws governing company matters. Before 1993, the corporate law applicable in the then Southern Cameroon43was the Companies Ordinance Cap. 37 of the 1958 Revised Laws of the Federation of Nigeria, even though that piece of legislation has since been modified and replaced in that country by the Companies and Allied Matter Acts, 199044. Relying on Article 9 of the mandate agreement which provided that, “The mandatory shall have full power of administration and legislation in the area subject to the mandate. The area shall be administered with the laws of the mandatory as an integral part of his territory… The mandatory shall therefore be at liberty to apply his laws to the territory under the mandate subject to the modification required by local condition…”. This article coupled with the foreign Jurisdiction Act 1890, Britain had the authority to implement her laws over seas. Britain enacted the British Cameroon Order in Council No 1621 of June 26, 1923, according to which laws enacted in Nigeria were to be applicable in British Cameroon. This is the reason why the Nigerian Companies Ordinance, Cap. 37 of the Laws of Nigeria 1958 were applicable in former West Cameroon before the coming into force of the OHADA Uniform Act relating to commercial companies and economic interest groups45. In addition, there was also the Southern Cameroons High Court Law 1955 (SCHCL) providing the quantum of English Laws to be applicable hence forth in the territory. Section II of this law stipulates that: Subject to the provisions of any written law and in particular of this section and section 10, 15 and 22 of this law, a) The Common Law; b) The Doctrines of equity, and
41
EKOME (E.), “Landmark Developments in commercial practices in Anglophone Cameroon: Conflicts Beyond belief”, in Juridis Périodique no 32, Octobre -Novembre -Décembre, 2002, P. 81. 42 PENDA MATIPÉ (J.A.), «The history of the harmonization of laws in Africa», in Moore Dickerson (C.), (ed.); Unified Business law in Africa: common law perspective on OHADA, London, GMB Publishing Ltd, 2009, P.13. 43 This is part of British Cameroon which after the plebiscite became known as West Cameroon. It is worthy to note that the plebiscite took place in 1961. 44 NZALIE EBI (J.), « Reflecting on OHADA Law reform mission: Its impact on certain aspects of Company law in Anglophone Cameroon », in Annales de FSJP, Dschang, PUA Tome 6, N o special, OHADA-CIMA, P. 105. 45 See TABE TABE (S.), «Company Formation», op. cit., P. 3.
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c) The statutes of General Application which were in force in England on 1st January 190046. Shall in so far they relate to any matter with respect to which the legislation of southern Cameroons is for the time being competent to make laws shall be in force within the jurisdiction of the court. So far as Company law was concerned, the law to be applied thus comprised common law, the doctrines of equity and statutes of general application which were inforced in England by the cut-off date of 1st January 1900. Therefore, the origin of company law in Cameroon west of the Mungo before the coming into force of the OHADA Uniform Acts was to be found in numerous cases decided by the English courts, the English Companies Act, 1862, and the Nigerian Companies Ordinance. Meanwhile in former East Cameroon, the mass of legislation governing company law were of French origin and comprised of the following: -
The Law of March 1925 on private limited companies (Société a responsabilité limitée)47 rendered applicable in Cameroon by a decree of 14 September 1930.
-
The law of 24th July 1867 governing public limited companies (société anonyme) and limited partnership (société en commandité par Action) rendered applicable in Cameroon following the law of 30th December 1868 and equally the provision of articles 29 and 30 of the “code de commerce”.
-
The French code de commerce of 1807 rendered applicable in Cameroon by a Law of 7th December 1950.
In October 1961, both parts of Cameroon, that is French speaking and English speaking unified to form the Federal Republic of Cameroon and the laws virtually did not change48. E.
Some Perspective issues on OHADA Law
The colonial masters had then to move out, but their legacies were to remain and each part of Cameroon applied the corporate laws inherited from their colonial masters until the much awaited date of 1st January 1998 when OHADA UA on corporate law became applicable49. 46
1900 is the cut-off date of the application of English statutes in Cameroon by virtue of this Section which prohibits the application of post 1900 English statutes in Cameroon. 47 CHARTIER (Y.), Droit des Affaires, Tome 2, PUF, Paris, 1987, P. 38. 48 See article 38 of the 1972 constitution of Cameroon and Article 68 of the 1996 revised constitution. Because of this constitutional change, the French and English part of Cameroon became East and West Cameroon respectively. 49 DJEUFACK (R.), «The nature of agency relationship under the Uniform Act on general commercial law and common law: A Comparative Study», DEA Dissertation, University of Dschang, November 2004, P. 2.
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This ideal to harmonized business laws in Africa was initiated by the finance ministers of the franc zone50 at a meeting in Ouagadougou and Paris in 1991 where they made it known that, the situation as it existed at the time was one of legal and judicial uncertainty that was hardly conducive to investment and economic growth within the region 51. This was later consolidated by the same body in 1992 in Yaoundé and Paris and finally approved by the Heads of States and Delegations in Libreville in the month of October 1992 52. After studies effected by the justice and finance minister in Libreville and Abidjan in July and September 1993 respectively making the way as aforementioned to the OHADA treaty of 1993 which started with fourteen countries who were ready to see the investment climate change in their respective countries in particular and Africa in general. These countries were Benin, Burkina Faso, Cameroon, Central African Republic, Chad, Comoros, Congo, Cote d’Ivoire, Gabon, Equatorial Guinea, Mali, Niger, Senegal and Togo. Guinea Conakry and Guinea Bissau joined in bringing the total to sixteen (16) members 53. It is however worthy to note that the OHADA treaty came into force on 19 September 1995, in those countries that ratified it. The ratification by Congo Brazzaville of the OHADA treaty 54 on the 14th of January 2009, adding the total number to seventeen (17) is a laudable effort geared at attracting investment in their economy in particular and in Africa as a whole. The scope of the treaty as defined by Article 2 shall cover the harmonization of business laws relating to corporations, the legal status of persons or entities engaged in commerce, the recovery of debts, securities, means of enforcement, administration and courtordered liquidation, arbitration, employment accounting, transport and sales. The list is not exhaustive, given the fact that the council of ministers may unanimously decide to include within the field of business law, in accordance with the object and purpose of the treaty 55. This treaty was ratified in Cameroon by presidential decree No 96/177 of 5th September 1996 after the authorization of the national assembly given through law N o 94/4 of 4th August 199456. 50
The franc zone is made up of the former French colonies, but Equatorial Guinea and Guinea Bissau which are not former French colonies are also members. What brings them together is monetary co-operation between France and the members of the CFA franc zone themselves. 51 GATSI (J.) L’effectivité du Droit OHADA, collection droit Uniforme, PUA, Yaoundé, 2006, P. 15. 52 POUGOUÉ (P- G.), Présentation Générale et procédure en OHADA, PUA, Yaoundé 1998, P.5. 53 ANOUKAHA (F.), «L’OHADA en marche » in Annales de la Faculté des Sciences Juridiques et politiques, Université de Dschang, Tome 6, 2002, P. 7. 54 This treaty had been revised since 2008 and this revision has solved many major problems that scared Anglophone countries to ratify it. Today we hope language will no longer posed a problem with the introduction of English, Spanish and Portuguese as the working languages of the OHADA. See in this light Article 42 (new) of the revised treaty. 55 TUMNDE (M-S.), «The applicability of the OHADA treaty in Cameroon: Problems and prospective» in annals of the Faculty of Law and Political sciences, University of Dschang, Tome 6, PUA Yaoundé p. 24. 56 MBETIJI MBETIJI (M.), «The problems of application of the OHADA Uniform Acts in Anglophone Cameroon », DEA dissertation, University of Dschang, 2002, P. 4.
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This decision taken by the Cameroon government to subscribe to the treaty is grand. The outcome of this treaty has been among others the enactment of a number of Uniform Acts 57 including the Uniform Act on Commercial Companies and Economic Interest Groups which is one of the main piece of law to be use in this dissertation. The UA was the first to be proposed for harmonization58. Currently under review at various stages of completion are draft Uniform Acts on contracts, consumer sales, employment and evidence; adoption of a new Uniform Act on cooperatives is also inclusive59. In Cameroon, the objective was that when the OHADA treaty becomes applicable in the country, it would replace the laws applicable in common law and civil law jurisdictions of the country. This implies that there would be unified commercial and business laws applicable in the entire country. This also was the intention of the signatories to the OHADA treaty. So far as corporate law is concern, the main piece of legislation now is the Uniform Act on Commercial Companies and Economic Interest Groups. Therefore, all companies formed as from 1st January 1998, the date when this Act came into force, as aforementioned shall be under the umbrella of the Uniform Act. The African legislator taking into consideration the difficulties which the existing companies may face in applying the Act gave them a two years period of grace to comply with the provisions of the Act. This means that any company already existing or formed after the Act without respecting the provisions of it shall be liable for some offences. Company administrators who are administering the company against the provisions of this Act shall also be liable.
F.
Statement of the problem
57
The following Uniform Acts have already been adopted by the council of ministers; General commercial law, Corporate law and rules relating to different types of joint ventures, Law on the simplify recovery of debt Bankruptcy law Arbitration law Accounting law Securities law Law regulating contracts for the Carriage of Goods by Roads. 58 KEBA-MBAYE, « l’Histoire et les objectives de l’OHADA », in Petites affichés no 205, 13octobre 2004, P. 6. 59 TUMNDE (M-S.), «Cameroon offers a contextual Approach to understanding the OHADA Treaty and Uniform Acts», in Moore Dickerson (C.), (ed.), Unified Business laws for Africa: Common Law perspective on OHADA, London, GMB Publishing Ltd, 2009, P. 53.
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The worry in this dissertation is to see if there is a balance of power among the organs in charge of company administration or management: Has the African legislator been able to institute equal powers among these company organs? This dissertation therefore seeks to examine the similarities and differences in the distribution of power in a company under the OHADA Uniform Act on Commercial Companies and Economic Interest Groups, on the one hand, and the Companies Ordinance which is Common Law inspired legislation. E. Hypothesis In order to make this topic tasteful, we assume that the Companies Ordinance 60which was the main law on company administration in Anglophone Cameroon or in Cameroon West of the Mungo before the advent of OHADA law cannot stand the taste of time and therefore is outdated. The Nigerian Companies Ordinance was drafted on the English companies Act 1948, which has itself undergone several company law reforms61. This piece of legislation was revised in 1985, and then modified by the Companies Act 1989 62. Today in England, the 2006 Companies Act is the current legislation on Companies Matters 63. Even Nigerians have changed its laws on company matters. It is the Companies and Allied matters Act 1990 that is applicable. It is regrettable that, the Companies Ordinance ever since its enactment has never been reviewed. This does not hold true in England and Nigeria where their laws on corporate law has been changed. This research therefore reveals that, the Uniform Act has brought in new innovations and rules that can enhance the democratic distribution of power in a modern corporate business entity and therefore it is of great importance for us to examine the said innovations in a critical and comparative method. F. Objective of Research The objective of this work is to examine and evaluate the powers that are obtained within the corporate entity as was the case with the Companies Ordinance of 1958 that governed company matters in former West Cameroon, and to compare same with the situation under the OHADA Uniform Act on Commercial Companies and Economic Interest Groups. We shall also bring out the similarities and differences on the powers that are obtained within the corporate entity under the two legal systems under study. These powers are exercised by 60
Laws of the Federation of Nigeria and Lagos 1958, Chapter 37, Companies. See TABE TABE (S.), Company Formation, op, cit, P. 25. 62 Ibid. 63 Available at www.tsoshop.co.uk. 61
11
the company organs and these organs include the General Meeting, the Board of Directors, the managing directors, the minority shareholders and the auditor’s. It further seek to highlight the positive reforms that have been introduced by the new OHADA law in order to ensure check and balance in the administration of companies and at the end of the day encourage investment in Cameroon in particular and Africa as a whole. This dissertation will also show which organ within the company administrative structure is more powerful. There is no doubt saying that the Common law inspired Companies Ordinance and the OHADA Uniform Act would be used to appraise the subject being tackled in this work. G. Scope of Work The scope of this dissertation will be circumscribed by its objectives. Not all aspects of company law are intended to be treated in the systems under study. This dissertation shall focus mostly on public limited company (SA). This is because this type of company has been largely modified by the UA64. But however, other types of company could be use to compare a particular situation as the case may be. This dissertation is also limited to a comparative study of the distribution of power in a corporate entity under the law which was applicable in former west Cameroon as far as company law was concerned, and the Uniform Act on Commercial Companies and Economic Interest Groups. Aware of the fact that any aspect of a legal system can be profitably studied by looking into other systems, we have in this dissertation, not only compared the distribution of power in a corporate entity under Common Law inspired Companies Ordinance and the OHADA UA, but we have also quiet often referred to other foreign legal systems especially that of France, England, Canada, America and Nigeria. H. Research Methodology. Numerous research methodologies will be employed in the preoccupation of this dissertation. They include the generalized approach, the known topic approach, the words and phrase approach, the descriptive word approach and above all the comparative approach. Doctrinal researches65carried out in the library were not left out. Major text books on the topic and other relevant resource materials as well as academic journals, articles and decided cases were consulted. 64
ANOUKAHA (F.), et al, OHADA, Sociétés Commerciales et GIE., op.cit, P. 404. ABOKI (Y.), Introduction to legal Research methodology, A guide for writing long essays, theses, dissertation and articles, 2nd Edition, Tamaza Publishing Limited, Kaduna, 2004, P. 3. 65
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I. Organisational Layout. In dealing with the topic “The Distribution of Power in a Corporate Entity: A Comparative Study of the Common Law inspired Companies Ordinance and the OHADA Uniform Act on Commercial Companies and Economic Interest Groups”, the work is shared into two parts each of which is further shared into chapters, all of them numbered in sequence from one to four. The first part of this dissertation talks of the organs of the company and the distribution of corporate managerial powers. Part two examines the limits to the powers of corporate administrators and their liabilities. The general introduction focuses on the brief history of corporate law in Cameroon and some high lights on the OHADA treaty as well as Uniform Act on commercial companies and economic interest groups are not left out. Other matters like the problem statement, hypothesis, and objective of research, scope of work, research methodology and organisational layout are all dealt with in the general introduction. The conclusion attempt to briefly summarise the work, bring out the organ that has much power in the company administration, bring out some innovations of the OHADA law and also make some vital proposals and or recommendations. Chapter one deals with the management organs of public limited companies under both systems of Laws. Chapter two on its part, looks at the corporate deliberative organs under the two legal systems under study. Chapter three has not hesitated to examine the control organ under OHADA law and the Common Law inspired Companies Ordinance. Chapter Four dwells on the liabilities of corporate administrators both under the OHADA Uniform Act on Commercial Companies and Economic Interest Groups and the Common Law inspired Companies Ordinance.
13
PART ONE COMPANY ORGANS AND THE DISTRIBUTION OF CORPORATE MANAGERIAL POWERS
14
The notion of separate legal personality can be traced as far back as the 19 th century when the House of Lords in the famous case of Salomon v. Salomon and co ltd 66 ruled from that time until today that a company is a separate legal personality from its members and management team, with distinct powers, obligations and duties. Since a company after incorporation assumes a separate personality, independent from that of its members, it therefore means that its policies can be formulated and decided upon only by individual human being and can be put into effect and carried out only by human agencies 67. The company itself can not act in its own person, for it has no person, it can only act through directors. It has been decided that the legal relationship between the company and its directors is that akin to agency, but there is none between the company and the members or between the members inter se68. Therefore, agency relationship applies to company administration in which the company is the principal and could appoint other persons to represent it as agents. As pointed out by one author “management is a discrete economic service or function and the selection of individuals to perform that function, whether undertaken at the outset or during the later life of a company, is a part of the entrepreneurial job. Centralizing managements serves simply to specialise these various economic functions, and allow the system to operate more efficiently”69. From the above, it therefore means that in order for any company to function properly, it must elect some agents to work on its behalf. The manner in which these agents are designated and how they function is of great concern to us. The organization and functioning of corporations will obviously call into play the determination and the putting into place of different management organs. These organs generally play a great role in ensuring checks and balances in the company administration and it usually differs according to the type of company70. English corporate law just like the OHADA Uniform Act provide for two primary organs of management. We have the deliberative organ that is the members in general meeting which is considered being the supreme legislative authority of the company 71and the administrative organ which may be a Board of Directors 72or a sole director depending on the
66
[1892]2, ALL ER. See DAVIES (P.), Gower’s Principles of Modern Company Law, op.cit. P.178. 68 See Per Cairns L.J., in Ferguson V. Wilson [1866], L.R. 2ch. 77 at 89. 69 FARRAR (J.H.) et al, Farrar’s company law, third edition, Butterworths, London, 1991, P. 317. 70 POUGOUE (P-G.), et al, op. cit. PP. 64 - 72. 71 OLAKUNLE OROJO (J.), Company Law and Practice in Nigeria, 3 rd Edition, Lagos, Nigeria, Mbeyi and Associates, (NIG) Ltd op.cit, P.315 72 FARRAR (J.H.) et al, FARRAR’S Company Law, op. cit, P. 315. 67
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method of administration that the company may chose 73. The board of directors manages the company and makes business policy decisions and the general meetings of the shareholders as a body elects the board and decides on organic changes. Theoretically, the control of a company is divided between the board of directors and the shareholders in general meetings. In some private companies, the directors and the shareholders will normally be the same people and thus there is no real division of authority as comparable to large companies. Lord Green L.J. in the case of shaw and sons (salford) ltd V. Shaw74 threw more light on this controversy. Lord Green holds firm to the fact that, the control of the company is jointly shared between the shareholders in general meetings and the directors. But it seems that the exercise of control by the two bodies is defined, clear and smooth. In practice as in the case of individuals, companies do encounter problems and one of them is the conflict of power between the directors and the shareholders in a general meetings 75. This conflict is often referred to as the agent/principal problem76. Most shareholders generally believe that the ultimate power of control over the company be vested in them, since without them-via their capital, the company would not have existed. That is, their status as shareholders give them dominance and authority. Some successes of shareholders activist and ability of shareholders to dominate or even disrupt annual meeting, has created the belief that the ultimate control of the company is carried out by the shareholders in general meetings. This is an illusion since practically real power still rest in the hands of executives. Infact, for practical reasons, most teaching authorities in the field of Company law argue that, if shareholders are given greater control, it may lead to mismanagement and absolutism. This work as aforementioned shall focus on the distribution of power mostly in public limited company (S.A). Chapter one shall focus on management organs of public limited companies (S.A) and chapter two shall consider the deliberative organ.
73
Art. 415, UA, state the various options to be used by a Public Limited Company with regard to management. [1908]BCLC, P. 2009 75 DOUALA-EKOKO (D.A.), «Company Meetings as an Aggregate for Members to Exercise Company Powers», DEA dissertation, University of Yaoundé 11-Soa, 2006-2007, P.2 76 Ibid 74
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CHAPTER ONE MANAGEMENT ORGANS OF PUBLIC LIMITED COMPANIES (SA) Public limited company (PLC) as called in England refers to Société Anonyme in France. It can be loosely translated into English as the joint stock company. S.A are companies where the liabilities of each shareholder for the debt of the company are limited to the amount of shares he takes and his rights are represented by the shares 77. The minimum authorized capital is ten million and is divided into shares of equal face value of not less than 10.000F.CFA78. The S.A before the coming into force of the OHADA Uniform Act was governed by the French Law of 24 July 1867 as read alongside the colonial law of 4th March 194379. The number of shareholders under Article 23 of the 1867 law was to be at least seven. So following the provision of this law there was to be no maximum of shareholders in the S.A. The UA has brought a major innovation in the domain of the société anonyme. Today it may have any number of shareholders, and it may be wholly owned by a single shareholder80. This implies that any body wishing to carry on a business activity can just go ahead without searching for other partners as was the case under the 1867 French Law and the Companies Act 1985. The S.A is characterized by the hierarchy of organs and the separation of powers 81. If for the constitutionalist, the separation of power is a principle geared towards providing individual liberty and cutting away depostisme82 we can say by analogy that the separation of organs in S.A is a method or technique of organization of the company aimed at assuring the protection of savings and even the competiveness of the company83. Three types of organs partake in the functioning of the public limited companies, the management organs, the deliberation organs and the control organs84. As concerns the management method of public limited companies, the Uniform Act has brought forth an innovation. There are principally two ways by which an S.A or public limited companies can be administered. These methods are quiet different from the French 77
Art. 385 (i) UA. Art 387 UA. 79 ANOUKAHA (F.) et al, op. cit. P. 404. 80 Art. 385(2) UA. 81 COZIAN (M.) et al, Droit des Sociétés, 16ème Edition, Litec, Paris, 2003, P. 293. 82 BURDEAU (G.) et al, Droit constitutionnel, 26ème Edition, L.G.D.J, Paris 1999, P.89. 83 MFOU (E.J.), «Le Principe de la Séparation des organes dans les Sociétés Anonymes », Mémoire de DEA, Université de Yaoundé II Soa , Mars 2003, P. 5. 84 See the following works; ANOUKAHA (F.), et al, op. cit, P. 416, POUGOUÉ (P-G.) et al, op. cit, P. 202. 78
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Law of 1867 and 1966. The Article of Association acts as a reference for the choice of this administration of public limited company85. The statute (1966) therefore retains the original principle that management should be in hands of a board of directors (Conseil d’ Administration: (Articles 89-117) with one individual as the managing director (Président Directeur Général; PDG) and up to 14 other directors86. The Uniform Act unlike the Common Law inspired Companies Ordinance provides that; there is the possibility to have an S.A with a sole managing director (Administrateur Général)acting as chief executive officer, assisted if need be by one of more assistant managing directors; or a board of director (Conseil d’Administration) which is being presided either (i)-a chairman of the board of directors(Président de Conseil d’Administration) who must be assisted by a general manager (Directeur Général) acting as chief executive officer (Président-Directeur Général), who may be assisted by one or more deputy general managers. It is obvious that the distribution of power in a company managed by a board of directors will not be the same as in the case of company managed by a single giant managing director. 1.1.1
Management of Public Limited Company (S.A) by a Board of Directors The administration of public limited companies is carried out through an organ known
as the Board of Directors. The institution of the board of directors existed under the law of 24 July 1867 governing public limited companies as a matter of practice only. The Uniform Act has legalised it87.OHADA Law has come out with the distinction between the administration and the management of public limited companies 88. This is an innovation as compared with the Common Law inspired Companies Ordinance which never made a distinction between administration and direction. Following this distinction brought forth by the UA, we may talk of the legislative and executive roles which are being played by the board of directors and the managing directors respectively89.
85
See Art. 414 UA. DICKSON (B.), Introduction to French law, First Edition, Pitman Publishing, London, 1994, P.176. 87 POUGOUE (P-G.) et al, « L’acte uniforme du 17 avril 1997 relatif au droit des sociétés commerciales et du groupement d’intérêt économique », in OHADA : Traite et Actes uniformes commentes et Annotes, 3 e Edition, Juriscope, 2008, P. 453. 88 POUGOUÉ (P-G.) et al, op. cit. P.437. 89 DAVIES, (P.), op. cit. P. 15. 86
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The administration of public limited companies with a board of directors is done in two ways, either by a chairman and a managing director or by a chairman of the board of directors and general manager90. The board of directors has special prerogatives as regard the distribution of power in a corporate entity which is our main concern in this work. This board has a composition, powers, functions and their work as tradition always put it does not go without remuneration. 1.1.2
The Board of Directors
1.1.2.1 Composition The life of any corporate entity depends on the caliber of the directors. Directors are very important because a company being a moral person can only be headed by a director(s). Both the Uniform Act and the Common Law inspired Companies Ordinance has made provisions for the board of directors. A board of directors is a body elected or appointed persons who jointly oversee the activities of a company91. The Common Law inspired Companies Ordinance unlike the Uniform Act has provided for a definition of who is a director. The Common law inspired Companies Ordinance under it Section 2 defined a director as “including any person occupying the position of director by whatever name called”. This is the same definition which has been taken up by the Nigerian legislator. According to them, “a director includes any person occupying the position of director by whatever name called; and include any person in accordance with whose directions or instruction the directors of the company are accustomed to act”92. The definition of directors to be used for this work is that which defines directors as persons duly appointed by the company to direct and manage the business of the company. Directors are the members of a board of directors, and they can either be physical or moral person.93In a situation of a moral person, the moral person must designate a representative which must be a physical person to run the affairs of the company for a particular mandate94.
90
Art 415 UA. S. 71, Table A of the first Schedule to the Companies Ordinance Cap. 37 1958. 92 Section 650 of the 1990 Nigeria Companies and Allied Matters Act. 93 ANOUKAHA (F.) et al, op. cit.P.417. 94 Ibid. 91
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This is quite a innovation as compared to the Common Law inspired Companies Ordinance which provides that directors must be individuals, without making any possibility for a moral person to be a director in a company. Directors can be owners, managers, or any other individual elected by the owners of the business entity. Directors who are owners and or managers are sometimes referred to as inside directors, insiders or interested directors. Directors who are managers are sometimes referred to as executive directors. Directors who are not owners or managers are sometimes referred to as outside directors, outsiders, disinterested directors, independent directors, or non-executive directors95. OHADA statute has opted for simplicity rather than other value as for as company management and administration is concerned despite the pressure from reformers in France, the United States and the United Kingdom who call for independent directors, (that is persons who have no substantial relationship with the corporation other than directors) OHADA statute on the other hand, seems to assume that it may be too difficult to find independent directors and that, in any event, even if a new “broom sweeps clean, the old one knows all the corners”96. The Common Law inspired company ordinance like the OHADA Uniform has made provisions for the number of directors to constitute a board of directors. Under the UA, the board of directors is composed of at least three members and at most twelve members97it may go up to fifteen directors in case of public offerings. The reason behind this is to ensure that decision making in the company is not too unwieldy a process 98. Non shareholders can also be directors in a company but their number may not exceed onethird of the total number of directors99. In cases of fusion or merger with one or more companies, the number of directors may temporarily exceed twenty-four100. This is simply because some administrators should not loose their mandate as a result of such a fusion101. The Common Law inspired Companies Ordinance has provided for a less number of members in to the board of directors as compared to the Uniform Act. The provision of Section 74 of this Ordinance stipulates that every company must have directors at least two in the case of public company and at least one where the company is a private company. 95
HICKS (A.) and GOO (S.H.), Cases and Materials on Company Law, 2 nd edition, London, Black Stone press Ltd, 1997, P. 222. 96 MOORE DICKERSON (C.), «Harmonizing Business Laws in Africa: OHADA calls the tune», Columbia Journal of Transitional Law, 2005, P. 35. 97 Art. 416UA. 98 OLSER et al, Corporate Governance in Canada: A Guide to the Responsibilities of Corporate Directors in Canada, Fourth Edition, 2005, P.20. 99 Art 417. UA. 100 Art 418 UA. 101 ANOUKAHA (F.), et al, op. cit. P. 417.
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The American law on corporation just like the Uniform Act holds the view that all Companies with a board of directors should have at least three members 102. The Law also goes ahead to stipulate that each director must have fulfilled certain conditions such as being a shareholder or resident of a state. However, most states in the United States permit the board of directors to consist of one or two directors. As regard the first members of the board of directors they are appointed either by the Articles of Association103 or during the constituent general assembly104. Subsequently members of the board of directors where necessary are appointed in the way provided by the Articles of Association, it can also be by the company in its general annual meeting105. The position of the Common Law inspired Companies Ordinance is not the same as to that provided by the Uniform Act as regard the first members of the board of directors. Under the Common Law inspired Companies Ordinance, the appointment of a director by the Articles of Association is prohibited106one becomes a director under this Ordinance either by signing and filing a consent to act as such with the registrar of companies or by signing a Memorandum of Association for a number of share not less than his share qualification or an undertaking to take from the company and pay for his qualification shares107. Directors just like the company does not hold that position for life 108 Both English law and OHADA law made provisions for the term of office of directors. Under OHADA law, the term of office of directors is usually freely fixed by the articles but however, they have provided legislation which has set a limit of six years in cases of appointment during the existence of the company and two years in cases of nomination by the articles or by the constituent General Meeting109. However, the law in this area is so flexible in that it has possibility for the renewal of the term of office of directors. The position under Common Law inspired Companies as regard the term of office of directors is not same as that under the OHADA law. This Ordinance stipulates that the first directors must retire at the first Annual General Meeting after incorporation. Also one third of the board must retire and apply for re-election at each subsequent Annual General Meeting.
102
The Model Business Corporations Act 1984, this is an American Statute. Art 397(2) UA. 104 Art 419 UA. 105 Art 419(2) UA. 106 Section 75. 107 Ibid. 108 The duration of the company may not exceed ninety-one years. Art. 28 UA. It can be renewable, the position under English law is different, a company has no duration. 109 Art. 420 UA. 103
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The American law on corporation stipulates that, the term of office for directors is one year. That is all directors are usually elected each year at the Annual Meeting of the shareholders. This therefore implies that the term of office for directors are determined annually in the Annual Meeting of shareholders. Directors under the three legal systems do not hold that office for life. The Common law and the American law have been on the same footing as regard the term of office of directors. Both legal systems share the same view of one year renewable as against two years and six years provided under OHADA law. The board of directors under OHADA and English law is the ultimate decision making body of a company. It is vested with much power which has made some authors to consider it as the primary organ of the company110. 1.1.2.2 The Powers of the board of directors A company being a moral person, most of its powers can only be exercised by natural persons through an institution of the board of directors. In most Common Law jurisdictions, the powers of the board are vested in the board as a whole and not in the individual directors111. The focal point of this work is the distribution of power within a corporate entity. Directors occupy a formidable position on that distribution. Accordingly their power will be extensively x-rayed vis-à-vis that of the General meeting which is another organ on the distribution of power to see where the scale tilts. Under the Uniform Act, the members of the board of directors have the widest powers to act on behalf of the company112. The meaning of the widest power does not mean that they work out of the object of the company. It has to exercise its power within the limit of the object of the company and without prejudice to those powers conferred to the shareholders and other organs within the company113. The business of a company shall be managed by the directors who may exercise powers of the company. No alteration of the memorandum of association and no such directions shall invalidate any prior act of the directors which would have been valid if that alteration had not been made or that direction had not been given. The powers given by this 110
STEPHEN (G.), Company Law, Fundamental Principles 2nd Edition, Pitman Publishing, London, 1996, P.222. See the following BARNES (A.J.) Law for business 3 rd Edition, Illinois, Irwin 1987, P. 510, Breckland Group Holdings Ltd V London and Suffolk properties (1989) BCLC 100. 112 Art 435 UA. 113 Ibid. 111
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regulation shall not be limited to any special power given to the directors by the articles and a meeting of directors at which a quorum is met may exercise all powers by the directors. When directors are acting within the powers given to them by the articles of association, they are not bound to obey resolutions passed by shareholders at a general meeting; such resolution cannot override a decision of the directors or control the exercise of their power in the future114. In Bamford V Bamford115 Plowman J said “a company cannot by ordinary resolution dictate to or override the directors in respect of matters entrusted to them by the articles. To do that, it is necessary to have a special resolution”. The board of directors under OHADA law just like under the Companies and Allied Matters Act shall represent the company and take decisions for the company. They have been described as highly skilful technocrats who have managerial powers vested in them 116. For example, they enter contracts on behalf of the company. The board of directors under Common Law has the power to determine the company’s objectives and the manner in which its business is managed, under OHADA law this is been done by the promoters of the company. The American law on corporation on the other hand provides that the board of directors may be given the general power to amend the by laws. Section 8.03(b) of the MBCA 1984 however restricts the powers of the board of directors to make major changes in the size of the board. In this situation shareholders must approve changes in the size of the board of directors. It may increase or decrease by 30% or more. This provision of the Model Business Corporation Act is not the same with what is obtained within OHADA member states. The board may not amend the charter of the company except with the approval of shareholders during the next ordinary general meeting117. The board shall also in the exercise of its power, control on a permanent basis, the management of the chairman and managing directors or the general manager. The 1966 French law also conferred this particular power to the board of directors 118. They also have the power to adopt the account of each financial year119.
114
Automatic self cleaning filter syndicate ltd. V. Cunningham (1906), 2 Ch. 34 CCA, 1970 CH, 212 at P. 220. 116 ELEBIYO (J.A.Y.), «The balance of power in a corporate entity: An appraisal of the Companies and Allied Matters Decree 1990», A dissertation for the award of Bachelor of laws Degree, Ahmadu Bello University, Zaria , July 1998, P. 36. 117 Art 451 UA , Companies Act Section 9 special resolution 1985. 118 RIPERT (G.) et al, Traité de droit commercial, Tome1, 18e édition, L.G.D.J, Paris, 2002, P. 435. 119 Art. 435 UA. 115
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Subject to article 27 of the UA, the registered office of a company may be transferred to a different location in the same town by the simple decision of the company’s management or administrator and this fall within the competence of the board. The provision of the Articles of Association or the decision of the general meeting limiting the powers of the board of directors does not bind third parties. The board does not transact any business with third parties. The decision by the board to transfer the registered office to a different place within the territory of the same contracting state is subject to ratification in the next ordinary general meeting120 but if the registered office is to be transferred outside the town of a member state, then, it is under the power of an Extraordinary general meeting121. The Companies Ordinance just like OHADA law has given the board powers to approve certain regulatory conventions or regulated agreements. Agreements between a public limited company and any of its directors, General Managers or Assistant General Managers shall be subject to the prior authorization of the board of directors. It holds same to transaction with third parties which the administrators are indirectly involved. Agreements between a company and an enterprise or corporate body where one of the company’s directors is the owner of the enterprise or a partner shall be subject to prior authorisation of the board of directors. However, authorisation shall not be necessary where the agreement concerns ordinary transaction concluded under normal conditions. The Uniform Act with an intension not to make the notion of ordinary transaction ambiguous, have defined it as transactions habitually carried out by a company as part of its activities. Normal conditions shall be conditions that are applied for similar agreements, not only by the company in question, but also by other companies in the same sector122. The director is bound to inform the board of directors as soon as he is aware of an agreement subject to authorisation. He shall not take part in voting on the authorisation applied for. The chairman of the board shall after the authorisation, alert the auditor within one month after the signing of the agreement. This will help the auditor to prepare his special report which shall be submitted to the annual general meeting who may either approve or disapprove the agreement123. It shall be null and void if fraud is noticed. This action can be brought by the organs of company or any shareholder acting individually, this
120
Art. 451 UA. Art. 451 (3) UA. 122 Art. 439 (2-3) UA. 123 Art 440-3 UA. 121
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action can only be brought within the period of three years following the date of conclusion of that agreement. However, the nullity may be avoided by a special vote of the Ordinary General Meeting upon a special report by the auditor stating the reasons why the authorisation procedure was not followed124. The powers of the board of directors as regard the distribution of power in a company is very important, since it is one of the organs beside general meeting that struggle to tilt more powers on it side. Both OHADA law and Common Law inspired Companies Ordinance had made provisions for the power of board of directors. Although both legal systems are similar in their provisions OHADA Law is much more innovative than English Law. OHADA Law has come out with the differentiation between general and special powers of the board of directors which is much welcoming. But although, flexible, the provision of this Act which provide that the chairman and managing director, the chairman of the board and general manager and the board of directors shall have the widest power to act on behalf of the company, can instead create great confusion in the management of a company with a board of directors. The function of the board of directors is also worth of consideration but, since it is like a deliberation organ although different from that of shareholders. As tradition always holds, directors do not perform their duties for free; they are always entitled to some remuneration. 1.1.2.3 Remuneration of directors The fact that one is holding the office of a director does not entitle him to remuneration as was decided in the case of Hutton V. West Cork Rly co125. Directors have no claim to payment for their services unless, there is a provision for that in the Articles of Association126or by a properly convened shareholders meeting. Where there is no authorisation either by the article or any contract for payment of remuneration a director shall not succeed in claiming remuneration. The House of Lords in Guinness V Saunder127 refused such claim by a director who successfully negotiated to take over bid for the company but whose remuneration was not properly authorised either by the directors or the company. In case remuneration is voted to directors, it shall be considered as
124
Art 447 UA. ( 1883) 23 Ch. D654.CA. 126 Mariarty V Regents Garage co. Ltd (1921) PKB. 423 at 466 127 (1920) 2AC 663 HL [1990] IAER 653. 125
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debt due from the company and as such shall be payable not only out of the company’s profit but also out of capital128. Both the Common Law inspired Companies Ordinance and OHADA law admitted the payment of remuneration to directors when it is due. Under the Common Law inspired Companies Ordinance 129the remuneration of directors shall from time to time be determined by the company in general meeting. OHADA Law has taken the same stand as regard the grant of remuneration to directors by general meeting.130 In Canada the situation is not the same, it is the board of directors who decide the remuneration of director and not the general meeting131. Even if in America it has been an obligation to make known to the public the remuneration of company directors, the situation in France has not been the same. Remuneration of directors was being made a secret until the French Law of 15 may 2001 came and changed the situation, making directors remuneration not an issue of secret 132. Directors’ remuneration can be divided into fixed and variable elements. As regard fixed elements of remuneration, this takes place where there is a service contract, and the company has already identified the appropriate level of remuneration and undertaken contractually to pay it. Both English law and OHADA Law are akin as regard fixed remuneration. In France administrator’s compensation consists of the attribution of a lump sum fee set annually by the SA’s shareholders. These fees are called “jetons de presence”133. Director’s may not apart from the sum of money paid to them under a contract of employment or by a resolution of the general meeting or decision of the board of directors, receive for their duties any further remuneration whether or not permanent 134. If a director receives more than he is entitled, he is guilty of misfeasance and is accountable for the money so received135. In a situation where the director is under a service contract, the articles of the particular company will bind him. If there is a provision in the article which says that the general meeting or a committee of directors should determine the amount of the payment, and 128
Re George Newman and Co(1895) I ch 674 CA at p. 686. S. 69. 130 Art 43, UA. 131 OSLER et al. op. cit, P. 25. 132 COZIAN (M.) et al, op. Cit. PP. 272-273. 133 BARTHELEMY (M.) France Business law, Taxation Law, Social law, Edition Francis Lefebvre, Fourth, Edition, Paris, 2004, P. 57. 134 See Art 430-1 of UA. 135 OLAKUNLE OROJO (S.),Company Law and Practice in Nigeria, op. cit. P. 333. 129
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it has been done so, then the director claim will be unfounded, under the article. However, where a director performs a service without a contract, he shall be entitled to payment on a quantum merit136. Beside fixed remuneration, OHADA Law as well as Common Law instruments has provided variable element which is an additional allowance to the fixed remuneration provided for by Article 430 of the Uniform Act. Directors may be paid all travelling hotel and other expenses properly incurred by them in connection with their attendance at meetings or committees of directors or separate meeting of the holder’s of any class of shares or of debentures of the company or otherwise in connection with the discharge of their duties 137. This provision of OHADA law is akin to that of Section 267(2) of the Companies Allied Matters Act in Nigeria, in France the position is the same. OHADA Law like the Common Law inspired Companies Ordinance is running on the same line as regard the remuneration of directors. Even if some differences do occur they might not be so great to be made mentioned of. The board of directors is always chaired by a chairman who may also be the general manager or not. 1.1.3
The President of the Board of Directors The board of directors shall be presided by a chairman or a president. He must be a
member of the board of directors and also must be a natural person. This is the view taken by Article 477 of the UA. The position under English Law is that the board of directors is also presided by a chair or chairperson or also called chairman or chairwoman who must be a member of the board and at the same time a natural person, third party cannot be president or chairman of the board. Both legal systems are akin as to regime of the president or chairman of the board of directors. Under English law the appellation chairwoman is some how preferable since both chairwoman and chairman is used to indicate that corporate law also do recognised equality of sex to handle position. However, the natural person here can be also the representative of a moral person who is a member of the board of directors.
136
MADUELOSI ASOMUGHA (E.), Company Law in Nigeria under the Companies and Allied Matters Act, 1 st edition , Lagos, Nigeria, Tama Micro Publisher Limited, 1994, P. 187. 137 Art 432 UA.
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The Nigerian Companies and Allied Matters Act shared the same view with both English law and OHADA law138. As regards his mandate, both English law and OHADA are akin. His mandate shall not exceed his term of office as director and his term of office as chairman of the board is renewable. If the board of directors under OHADA law and English law has made provisions for a chairman or president, it is because they foresee their duties in a company. 1.1.3.1 Duties of the President of the Board of Directors The chairman or president of the board of directors has three principal roles to play under OHADA law. The chairman presides over board meetings and the general meetings of shareholders, when he is also the general manager; he is responsible for the general management of the company. He has the power to carry out verifications at any period of the year that he deems necessary and may request all the documents he deems necessary or considers relevant for the accomplishment of his mission to be submitted to him139. The chairman under Common Law has some functions as those provided by OHADA Law. The position of chairman is an important and onerous one, for he will be in charge of the meeting and will be responsible for ensuring that its business is properly conducted140. The chairman is a key liaison between the board and senior management. The specific responsibilities of the chair will also depend on whether or not the chief executive officer serves as chair. There has been increased concern about board accountability and it has proved also increased pressure on corporations to separate the position of chair of the board and chief executive officer so that the board is able to carry out its responsibilities independently of management. While there is no legal requirement to separate the two functions we affirmed with Osler141 that the chair of the board should be an independent director. The chairman plays a crucial leadership role in ensuring that the board works effectively and so his combination of the role of chairman or chairwoman and chief executive constitute a concentration of power that can give rise to conflicts. Except where special circumstances exist, the roles should be separated so as to enhance accountability and avoid 138
OLAJIDE OLAKANMI, Companies and Allied Matters Act: Synoptic Guide, 1 st Edition, Abuja , Law Lords Publication, 2006, P. 218. 139 Art 480 UA. 140 DAVIES (P.), Gower’s Principle of Modern Company Law, op.cit, P. 585. 141 OSLER et al, Corporate Governance in Canada, op.cit, P. 23.
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concentration of power in the hands of one person. It has been proved many times today that those who hold power tend to abuse it. The services put in a company by any administrator do not end up without any reward. It always culminates to a remuneration which is due to him from the company performing the services of the president or chairman of the board of directors. 1.1.3.2 Remuneration of the Board President The chairman of the board of directors or the president always received remuneration for the work done or services rendered in the company. The chairman of the board of directors under the Uniform Act may be bound by a contract of employment 142 concluded in accordance with Article 426 of the UA143. The term and amount of remuneration of the chairman shall be determined by the board. This remuneration must be communicated during annual general meeting144 provided by Article 525 (5) UA which provides that every shareholders shall have the right by himself or through the agent designated to represent him at the meeting to examine the sum total, certified by the auditor, of remuneration paid to them or five best remunerated managers and workers, depending on whether or not the company employs more than two hundred workers. This might be to enhance transparency in the company. Even though the Common Law inspired Companies Ordinance recognises the position of chairman or president of the board of directors 145 it never provides much provisions surrounding is legal regime. OHADA Law is silent as to the age of the chairman of the board. Recourse can be made but to common law for an answer or French law. In France, the situation is that the age limit for a person to be chairman of the board is sixty five years as against seventy years provided by the companies Act of 1985146. Where circumstances cropped and the chairman or president of the board is temporally prevented from attempting and carrying out his duties, the board of directors may delegate the duties of chairman to one of its members. This is a welcome innovation since it was the president or chairman of the board of directors who had to appoint the person to replace him. This is the same to what is obtains in Nigeria under the Companies and Allied Matters Act 1990. Under this Act there is the possibility for the board of directors to appoint a 142
Art. 481 UA. This article gives the chance to directors to go in for a contract of employment with the company where such contract corresponds to an effective job. 144 Art 525 (5) UA. 145 Section 72 of the 1958 Cap 57 Companies Ordinance. 146 Section 293. 143
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chairman or president of the board of directors in case of his absence or incapacity to perform his duties as the board chair147. Be that as it may be, the position of chairman is very vital under the two legal systems. Although the Uniform Act is quite innovative as regard the position of the chairman or president of the board of directors, but we doubt what will happen when it has given the possibility for a chairman to be at the same time the managing director .The Common Law has cried out as regard this situation and called for separation of the two functions so as to enhance good governance and avoid the abuse of power in the administration of companies. Even though the Companies Ordinance is silent as to the provisions relating to the board of directors president, this only helps to demonstrate to us that this piece of legislation which is Common Law inspired was already not running with time as compared to the Uniform Act. The distribution of power in a corporate entity is quite a complex issue as regard the number of corporate administrators’ that participate in the company administration. 1.1.4
Corporate administrators in Public Limited Companies (S.A) OHADA Law has made provision for another alternative method of directing a
company. This can be done either by the president of the board of directors who becomes the managing director or by a managing director distinct from the president of the board of directors. The situation under the Common Law inspired Companies Ordinance is the same as that of OHADA Law. 1.1.4.1 The Chairman and Managing Director. Since it is difficult and inconvenient for the board of directors to carry on the daily management of the company, its day to day management powers are delegated to the managing director who at the same time can be the chairman of the company. The Common Law inspired Companies Ordinance just like the Uniform Act has made provision for the position of chairman and a managing director. Under the Uniform Act the office of the chairman and managing director most often than not is filled by one of the members of the board of directors and he must be a physical or
147
MADUELOSI ASOMUGHA (E.), Company Law in Nigeria under the Companies and Allied Matters Act, op. cit, P. 323, See also the provisions of the Companies and Allied Matters Act relating to the Board of directors.
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natural person148. As regard his term of office it shall not exceed his term of office as a director. The Uniform Act provides a possibility for his mandate to be renewable. The chairman who is at the same time the managing director plays a double function. The Companies Ordinance provides also for the possibility for the chairman to be at the same time the managing director. He must be a member of the board of directors and must be a natural person149. Although the Ordinance is silent on the statute of the managing director, it is implied that it need be a natural person. His mandate as a Chairman can be terminated before that as a director by the general meeting only and not by the board since they are powerless though they are the ones that appoint him. Under Common Law, managing director is the term used for the chief executive officer. It reflects his or her role as both a member of the board of directors but also as the senior manager. He must be a member of the board of directors and must be also a natural person. The Uniform Act, although quite innovative on the designation of the chairman / managing director, is akin to Common Law inspired Companies Ordinance as regard this issue of designation of chairman and managing director. A managing director who at the same time is a director has a further and different relation to the company150 unlike the other directors; he is a servant of the company for the purpose of the preferential payment of his salary in winding up of the company 151. The chairman and the managing director as the case may be tend to have many powers under the Uniform Act and Common Law inspired Companies Ordinance. Under the Uniform Act, he has powers to ensure the general management of the company and represents same in its relations with third parties; he presides over the meetings of the board of directors and the general meetings of shareholders.152 Under English law, though the Companies Ordinance is silent on the powers of the chairman and managing directors, the Common Law has made provision for some powers of the chairman and the managing director. The chairman and the managing director is expected to be better informed than other directors on the affairs of the company as was decided in shonowo V Adebayo153. Thus, where he feels certain transactions should be done on behalf of the company, he should make it known to the board of directors where it is not within his 148
Act 462 UA. Section 72, First Schedule, Table A of the 1958 Cap. 37 Companies Ordinance. 150 Anderson V James Sutherland (peter head) Ltd 1941, S.C. 203. 151 Re Newspapers Proprietory syndicate Ltd (1900) 2ch. 349. 152 Art 463 UA. 153 1969(2) A.L.R. Comm.419 [1969] ALL. N.L.R. 170. 149
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usual or implied powers, the reason for this is to absorb him of liability. They shall also preside over the meeting of the board of directors and general meeting of shareholders. The Common law just like the Uniform Act has made provision for almost the same powers of the chairman and the managing director. In the performance of his duties he shall be given the widest powers possible which he shall exercise within the limit of the objects of the company and subject to the powers expressly conferred on the general meeting or specially reserved for the board of directors by the laws and regulation put in place. This means that every power exercised by him should be strictly delegated to him by the board of directors of the company and these powers could either be stated or implied. In such a case the board have the widest powers of curtailing the rang of his activities154. Acts by the chairman and managing director with third parties which do not fall within the scope of the objects of the company bind the company and, any provision of the Articles of Association, decision of general meeting or of the board of directors restricting the powers of the chairman and managing director shall not bind third parties acting in good faith. As regard the terms and amount of remuneration of the chairman and the managing directors who is bound to the company by a contract of employment, both the Uniform Act and the Common law provide that his remuneration and terms shall be decided by the board of directors and it may include benefits of any kind. The chairman and managing director can make a proposal to the board of directors to appoint one or more natural persons to assist him and the board shall also freely fix the term of office of Assistant managing directors155. This is similar to what is obtained under Common law. The board of directors shall be in accord with the chairman and the managing director. The assistant managing director may also be bound by a contract of employment and his appointment normally terminates the expiry of his term of office. As regard his remuneration and term of office, it is determined by the board which appoints him. Looking at the instance where the board chair is at the same time the managing director calls for many observations. The Uniform Act and Common law is almost running at the same pace in their approach of looking at this situation. Even though they are almost the same, the Common Law has been worried about this situation and therefore called for the separation of this two functions so as to avoid the abuse of power in the administration of
154
NGWASIRI (C.N.), Lecture notes on Company law, University of Yaoundé, Polycopy, 1987, P. 189, see also HoldsWorth V. Caddies (1955) I.W.L.R, 352, H.E. 155 Article 470-1UA.
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corporate entity. The Companies Ordinance although recognises this situation, has been much more silent on it legal nature. The general manager is another corporate administrator that exercises some powers in the corporate administration. 1.1.4.2 The General Manager In companies where the chairman of the board of directors is not also the general manager, a general manager who is an individual is appointed by the board of directors either among its members or outside. This implies that a third party who is not a shareholder can be appointed as general manger156. This is different from the chairman and managing director (PDG) in that, he must necessarily be a member of the board157. Under the Common Law inspired Companies Ordinance158 the situation is not the same as obtained under OHADA Law. The English Law has decided to treat managers and directors jointly without any separation. A manager must be an administrator and a natural person who is been appointed by the board of directors. The Uniform Act and Companies Ordinance are running apart on who is to be a manager. The similarity between the Uniform Act and Companies Ordinance is that they all acknowledge the fact that a manager must be a natural person. The general manager under the Uniform Act when performing his duties shall make sure that he ensure the general management of the company and represent the company in its relations with third parties, when performing his functions, he shall be given the widest possible powers which he shall exercise within the limit of the company’s object 159. Limitation imposed by the board or in the articles is not binding on unknowing third parties. His powers may not be so limited that he lacks the ability to manage the corporation. The duties of the general manager under the Common Law inspired Companies Ordinance is similar to that under the Uniform Act160. In France, the general director or general manager supervises and manages the corporation and represent the corporation vis-à-vis the third parties. He is invested with power to act in all circumstance in the name of the corporation provided that; the act is performed within the corporate purposes expressed in the SA’s articles of organisation161 156
Art 485. UA. ANOUKAHA (F.) et al, op. cit. P. 162. 158 Section 74. 159 Art 465 (3) and 489 UA. 160 See section 71 and 72 first schedule, Table A, see also section 74 of this same Ordinance. 161 BARTHELEMY(M,) et al, op .cit, P. 61. 157
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Looking at the power of general manager under the three legal systems, we see that they are all the same. Be that as it may be, we observe that in a company where the chairman of the board is at the same time the managing Director, these double functions of the chairman and the managing director makes him a leader of an organ which is charged precisely with control. English Law has expressed so much worried on the situation and therefore called for separation so as to avoid the abuse of power.162 If this situation is not seen into and managed accordingly, the end result may be disastrous for the company because it is uneasy to be a judge and a party at the same time 163. In order to institute the principle of separation of power in the administration of corporate entity so as to avoid some administrators from been ‘Almighty’, it is humbly submitted that the functions of the Managing Director should at all the times be separated from that of the chairman of the board of Directors. OHADA Law like the English Law should try to institute the notion of independent directors. The distribution of power in a corporate entity always aimed at avoiding conflicts of competence and tries to assure investors that through the mechanisms of control, they can continue to invest. However, they can create their own business, thanks to the possibility given by the Uniform Act to have a public limited company with a sole managing director. 1.2.1
The administration and managing of a public limited company by a sole
managing director (administrateur général). If called to create a company, an economic operator obviously will go in for Public Limited Company with a sole managing Director, which is the second method of administration provided by Article 414 of the Uniform Act. This mode of administration is an innovation by the Uniform Act and it is aimed at favouring and fostering the creation of single member public limited companies and at the same time simplifying the management structure of these companies and thus attracting in the OHADA Member States foreign investments 164. This type of company or one man or single member company is quiet strange to the Common Law inspired Companies Ordnance and some of the Common law countries. Unfortunately for Anglophone Cameroon, the Nigerian Companies Ordinance of 1958 applicable thereto made no provision for such an institution. Reasons why the Uniform Act is innovative in this
162
See generally DENNIS KEENAN; Smith and Keenan’s Company Law for students, 10 th edition, London, Pitman Publishing, 1996. 163 POUGOUE (P-G.), et al, op. cit. P.214, ANOUKAHA (F.) et al, op. cit., P.429. 164 ANOUKAHA (F.) et al, op. cit, P. 429.
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area165, only few countries like Ghana was able to institute one man member company in its company Code of 1963 following Professor Grower report of 1961 aimed at adapting Ghanaian commercial law to local constrains166. However we should bear in mind that this type of company is different from sole proprietorship since this business now has an existence of its own, separate from that of the proprietor167. This type of management only takes place in a situation where the number of shareholders is equal or inferior to three members and the share holders may appoint a managing Director who shall be responsible for the administration and management of the company
168
.Following the provisions of Article 494 of the Uniform Act, it is just a choice
open whether to form a board or not. It is not an obligation 169. On the proposal of the managing director, the general meeting may appoint one or more natural persons to assist. This may be when he realized that the work load on him is too much. The term of office of the assistant managing director shall be determined by the general meeting and their, scope of powers shall be in accordance to that of the managing director. The general meeting has the competence to terminate their function at any time. The constituent general meetings appoint the first managing director or the Articles of Association designate one when the company is a going concern, the managing director may be appointed by the ordinary general, or the Articles of Association designate one. When the company is going concern, the managing director may be appointed by the ordinary general meeting, he may be chosen among the shareholders or he may be a third party. As regard their term of offices, it shall not be more than six years in the case of appointment during the existence of the company and two years in the case of designation by the Article of Association or appointment by the constituent general meeting. The Uniform Act has given the possibility to renew his mandate170. The power that is been accorded to the managing Director is so much that if not been check, it may led to tyranny since he performs almost all the duties alone. 1.2.1.1 Powers of the Managing Director
165
NZALIE EBI (J.), op.cit, P.108. Ibid. 167 Ibid 168 Article 494 UA. 169 MIESSAN (E.), « L`administration et la direction de la société anonyme de type nouveau issue de la reforme du droit des sociétés commerciales applicable dans la zone OHADA», in www.ohada.com /ohadata D- 07-06 / visited 04/02/2010. 170 Art 496 UA. 166
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At first we thought that the chairman and the managing director was the direction organ which concentrates many powers in his hands. But today with the coming of one Man Company, the managing director is almost omnipotence. The managing director has a very wide range of power to act in all circumstances on behalf of the company. The managing director performs the functions of administration and direction as with the case of public limited companies with the board of directors where administration is performed by the board of directors and direction by the chairman who at the same time is the managing director or by general manager. In the domain of internal management, the managing Director shall convened and presides over general meetings of shareholders and he shall be given the widest possible power to act on behalf of the company whose powers he shall exercise within the limit of the object of the company and subject to the powers expressly conferred on general meetings of shareholders171. He schedules the general meeting and presides over it following the laws put in place172. As regard the external management of the company, the managing director in his relation with third parties shall bound the company by his act even when it does not fall within the scope of the company’s object, unless the company can prove that the third party was aware of these facts or that under the given circumstances, the third party could not have overlooked it. Any provisions restricting the powers of the managing director cannot bind the third parties acting in good faith. As a tradition, the managing director shall be remunerated for the services rendered on behalf of the company. The general ordinary meeting shall fix an annual allowance and may also grant him special remuneration for missions and tasks entrusted to him and benefits in kind173. The managing director has the power to appoint his assistant which shall performed his duties with him in cases of temporal impediments. In the situation where the assistant managing director has not been appointed, the general ordinary meeting of shareholders shall appoint some one which they think is fit to do the work. If we look at the scope of power that the managing director has, we might not be wrong to say that there is no distribution of power in this management structure of a company or even if this power is distributed it is only done unequally with the managing director cumulating all the powers alone. In consequence, the managing director becomes the strongest 171
Art.498 UA. MIESSAN (E.), op.cit,P.1. 173 Art. 500 -501 UA. 172
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organ in this new form of management structure174. This presents a problem of power sharing within the company. So, in response to the strong power of this leader this could be in certain cases a source of absolutism. The other actors can only avails themselves by exercising some influence through decision making process. The institutions of one man public limited company lead to dissolve some principles governing the administration of these companies. The democratic principle that exists in companies with board of directors is absent here175. In this type of management structure, we see a good example of a monarch where powers are exercised by one shareholder who takes all the decisions alone. We also noticed that this type of management structure violate the principle of hierarchy of organs and the separation of powers as in the situation of companies with a board of directors. Despite the fact that the managing director is so powerful in the administration and direction of this type of management structure, OHADA Law although not very successful have tried to limit his powers by providing some prohibited acts and agreement which he cannot undertakes. 1.2.1.2 Constraints on the power of managing director The Uniform Act noticing the powers held by the managing director in administration of this type of management structure have decided to put on some constraints so as regulate the amount of power exercise by him the managing director while exercising his duties according to Article 498(3) of the UA shall do so “within the limits of the objects of the company and subject to the power expressly conferred on general meetings of shareholders”. The managing director or assistant managing director as the case may be shall be prohibited to grant to their relations and their parties any favour in the form of loans and contracts 176 the only exception here is where the company is a banking or financial institution. In this case it may grant its managing director or its assistant, a loan, a current account overdraft or otherwise a security, a guarantee or any other surety where the agreement relate to ordinary transaction concluded under normal terms177.
174
NOUEMO TSASSONHOUA (A.L.), « La sociétés Anonymes avec Administrateur Général », Mémoire de DEA, Université de Yaoundé II-Sao, 2004, P.8. 175 NKOA ATANGANA (E.T.), « Les dirigeants de sociétés anonymes dans l’acte uniforme relatifs au droit des sociétés commerciales et du groupement d’intérêt économique OHADA», Mémoire de DEA, Université de Dschang, Avril 1999, P. 72. 176 Art. 507 UA. 177 Ibid.
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There is an obligation on the managing director to get the auditor informed of all agreements he undertakes with the company either directly or indirectly or through third parties. The auditor shall submit a report on these agreements to the general meeting of shareholders178. This will help the auditor to prepare his own report which he shall submit at the said meeting. Looking at this type of management structure of public limited companies we affirmed with some authors179 that the powers given to the board of director in a public limited company with a board is divided in this case between the managing director and the general meeting of shareholders which in principle not a management but a deliberative organ. The power of the directors cannot be totally divorced from their duties and this is attributed to the fact that the relationship between the company and directors is that of a fiduciary relationship. Looking at the duties of directors will be of great interest in this work since power does not go without duty.
1.3.1 Duties of Directors. A company as a juristic person vests power of management in favour of the directors which creates an agency relationship180. By his agency, the company takes the position of agents181 and is this that brings about the assumption of a fiduciary relationship. The duties expected of the directors acts as checks on the excessive use of power by them182. Since the actual running of the company is in the hand of the directors, it is therefore of vital importance to examine the duties owed by the board of directors in the exercise of these powers bosomed on them by the general meeting. Besides the general meeting, directors in the exercise of their powers constitute the main organ of administration of the company. We should bear in mind that the Common Law duties and the general equitable principles has been codified by the 2006 Companies Act 183. Section 170 of this Act is to the effect that the codified Statute should be interpreted and applied in the same way as the common law and equitable predecessor. This means that case law is still valid since it could be used to substantiate these duties. However where the contrary is expressly stated, the old law will not apply. They have been dealt with under Sections 171-177 of the Act. 178
Art 503 UA. ANOUKAHA (F.) et al, op. cit, P. 432. 180 FRIDMAN (G.H.L.), Fridman’s Law of Agency, seventh Edition, London, Butterworths, 1996, P.11. 181 SEALY (L.S.) et al, Commercial law: Text, Cases and Materials, third edition, London, 2003, P.194. 182 ELEBIYO (J.A Y.), op. cit, P.36. 183 The 2006 Companies Act is the recent legislation on Companies Matters in Britain; it came into force 1st of October 2008. 179
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since
It would be pertinent under this section to note that, the statutory duties, the codified common law duties and the duties provided by the Companies Ordnance and OHADA Law are not left out. When directors act out of their powers they are in a position of breach which most of the times amount to some remedies. 1.3.1.1 Fiduciary duties of directors. It is often stated that directors are trustees and that the nature of their duties can be explained on this basis. However, to describe directors trustees today seem to be neither strictly correct nor invariably helpful. Directors can better be defined as agents of the company and not trustees. As agents they owed a fiduciary relationship to their principal which is the company. The duty virtually identical with those imposes on trustees, and to this extent the description trustee analogy has no place. 1.3.1.2 General Equitable Principle. The basic principle is the same as that which applies to any other fiduciary. It is important to state here that where as the authority of the directors to bind the company as it agents normally depends on their acting collectively as a board, their duties of good faith are owed by each director individually. One director cannot as such be an agent of the Company with the power to make liable for his acts, but rather he will be a fiduciary of it. This aspect makes directors again very similar to trustees who must normally act jointly but each of who severally owes duties of good faith towards the beneficiaries. Another point to make mention is the fact that the fiduciary duties are owed to the company and to the company alone. Here, it suffices to emphasize that, in general the director owe no duty to the individual members as such. This principle is regarded as firmly established by the much-criticized decision in Percival V Wright184. However this does not mean that directors can never stand in a fiduciary relationship to the members: they may, if they are authorized by the latter to negotiate on their behalf with; for example, a potential turnover bidder: Briess v Wolley185. Furthermore, here duties, except in so far as they depend on statutory provision expressly limited to directors, are not so restricted but apply equally to any officer of the company who is authorized to act on its behalf and in particular to more acting in a 184 185
(1902 )2. Ch.121. 1954. A.C. 333.H.L.
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managerial capacity186. Also, the duties attach from the date when the director’s appointment takes effect, Lindgren V. L & P. Estates Ltd187 In applying the general equitable principle to company directors, four separate rules have emerged. There are; (i) that directors must act in good faith in what they believe to be the best interest of the company, (ii) that they must not exercise the powers conferred upon them for purposes different from those for which they were conferred, (iii) that they must not fetter their discretion as to how they shall act; and (v) that without the informed consent of the company, they must not place themselves in a position in which their personal interest or duties to other persons are liable to conflict with their duties to the company. 1.3.1.2.1
Acting in good faith
The 2006 Companies Act
188
has codified this fiduciary duty. Section 172 provides that a
director must act in the way most likely to promote the success of the company for the benefit of its members as a whole. Accordingly, the duty is displaced when the company is insolvent and may be modified by an obligation to have regard to the interests of creditors as the company near insolvency189. Although at face value the directors over-riding duty is to act in the best (economic) interest of the company, this interest has not always been economic in nature. There are, in fact, certain socio-political considerations which many and sometimes actually do, come to bear heavily190. This rule that directors must act honestly and in good faith is tested on common-sense principles, how they exercise their duties is for them to decide and not the court or any one else. Directors are required to act “Bona fide in what is in the interest not what the court may consider is in the interest of the company….” Per Lord Greene M.R in Re smith and Fawcett Ltd191. This duty is simply to display subjective good faith. Directors may however breach this duty not with standing that they have not acted with conscious dishonesty, where they have failed to direct their minds to the question whether a transaction was in fact in the interest of the company, as decided in the case of RW. V. M. Reith Ltd192and also in the case of Charter 186
Aero Service V. O’ Mulley [1973]] 40 B.L.R. (3d) 371 at 381. [1963] Ch. 572. C.A. 188 Section 172. 189 MASON (R.), «Fiduciary Duties of Directors to Creditors in the zone of insolvency», www.Utcle.Org. 190 BISON TANYI (G.), «Directors’ duty to act in the best interest of the Company: Changing Attitude», in Juridis Info no 2, Avril-Mai-Juin, 1990, P.59. 191 [ 1932] Ch. 304 C.A at 306. 192 [1967] I.W.L.R.432. 187
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bridge Corps. V. Lloyds Bank
193
where the directors of a company forming part of a group
had considered the benefit of the company as a whole without giving separated consideration to that of the company alone. It was held that “the proper test…in the absence of actual separate consideration must be whether an intelligent and honest man in the position of a director of the company concerned could… have reasonably believed that transaction were for the benefit of the company”. What exactly is meant by saying that they must act in the interest of the company is a question that leaves our minds in doubt. Despite the separate personality of company it is clear that directors are not expected to act on the basis of what is for the economic advantages of the corporate entity disregarding the interest of the members. The word company here does not mean the “company as a commercial entity as distinct form the co-operators” as was decided by Evershed MR in Green halgh V. Arderne Cinemas194. If as will normally be the case, the directors themselves are shareholders, they are entitled to have some regard to their own interest as shareholders and not to think only of the others. As it was rightly put in an Australian case, they are “not required by the law to line in an un real region of detached altruism and to act in a vague mood of ideal abstraction from obvious facts which must be presented to the mind of any honest and intelligent man when he exercises his powers as a director”: Mills V. Mills195 The company directors have moved from the duty of interest to it members to enlarge it to that of it work force or employees. So they have to take the interest of true employees as well as it members into consideration. This recognition that the interests of the company include more of it work force has been supplemented by judicial dicta and legislative provision which accept that when the company is insolvent or is nearing insolvency, the interest of the shareholders should be supplemented or replaced by those of the creditor. This suggests that the director’s duties should be seen as being owed to those who have the ultimate financial interest in the company: the shareholders when the company is a going concern and the creditors once the company’s capital has been lost196. However when considering the question of whose interest is legitimate for the directors of a company to pursue, it is also crucial to distinguish between ends and means. Even if, in the going concern the company interest are those of the shareholders (with some 193
(1970) Ch. 62. (1951) Ch. 28. C.A. P.291. 195 (1938) 60. C. L.R. 150. 196 FARRAR (J.H.), op. cit., P. 378. 194
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regard having to be paid to the employees), it will do the shareholders no good if the company has dissatisfied customers and angry groups, disrupting it annual general meetings. In other words much action, which on the face of it promotes the interest of non-shareholders groups, can easily be justified by management as necessary of the furthering of the shareholders. 1.3.1.2.2
Proper Purpose.
This is another duty of the directors which has been codified by the 2006 Companies Act197. It now falls under heading; Duty to act within powers. This Section codified the equitable rule that a director must act in accordance with the company; constitution and must only exercise his powers for their proper purpose. In Nigeria, this duty has undergone codification in the Companies and Allied Matters Act 1990198 under the duty to exercise powers for proper purpose and not for collateral purpose, the Nigerian Law just as the English Law means that directors cannot use their powers to feather their own nest 199or to preserve their own control. Following the above, we see that the Section 279(5) of the Nigeria Companies and Allied Maters Act 1990 is similar to Section 171of the British 2006 Companies Act as regard director’s duty to act within powers. Section 171 of the Companies Act does not clarify aspects of the duty to exercise powers for the proper purpose such as how those purposes are to be ascertained or the extent to which an improper purpose may taint a decision. Such matters will fall to be determined in accordance with previous case law, under which courts have approached the duty by first ascertaining the purpose for which the powers was conferred, and then the director’s substantial purpose exercising the power. The liability is strict; if the director’s substantial purpose was not the purpose for which the power was conferred it will not matter if he exercised the power in good faith or in the belief that it would promote the success of the company for the benefit of the members as a whole. However the exception here is where the issue was within the power of the company and could therefore be ratified at a general meeting as was seen in the case of Hogg V. Crumphorn
200
. It is an improper purpose if shares are issued solely for the purpose of
destroying the existing majority shareholdings. If issued to ensure the stability of the issuing company it may be proper. 197
Section 171. Section 279 (5). 199 OLAJIDE OLAKANMI , op .cit, P.43. 200 (1967) Ch. 254. 198
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1.3.1.2.3
Unfettered discretion.
Section 173 of the Companies Act
201
codifies this duty to exercise in dependent
judgment. The duty will not be informed by a director acting in accordance into an agreement entered into by the company that restricts the future exercise of the director’s discretion nor in a way authorised by the company’s constitution as previous case law
202
have shown. It
follows that any powers of delegation should not be dehors the Articles of Association. The Nigeria law maker just like her British counterpart has codified this duty under Section 279(6) of the Companies and Allied Matters Act 1990. This means that directors cannot contract as to how they shall vote at future board meeting’s neither can they listen to that parties in the exercise of their powers; since the director’s powers are held by them in trust for the company. In the same vein directors, in the absence of express authority, must not delegate their discretion to others-“delegation non postest delegare”. Both Nigeria and British Law are running on the same footing as regard this duty and has gone so far as codifying them. The principle in Thorby V Goldderg 203was recently applied by the Court of Appeal in Cubra Estate PLC V. Fulham Football club 204. The application of “no fettering” rule would make companies unreliable constructing parties and perhaps deprive them of the opportunity to enter into long term contracts which would be to their commercial benefit. It may be wondered what is left of the “no fettering” rule after this decision, and whether the past decided cases cannot be rationalised as an application of the bona fide principle. what ever the case, the principle may still have a role to play where the directors purport to contract as to the advice they will give to the shareholders in the future on a matter which lies within the shareholder’s power of decision. John crowther group PLC V. Carpets international 205 Base on the same principle, the board must not be in the absence of express authority, delegate their directions to others: Cartmell’s case delegate is invariable conferred by the articles. 1.3.1.2.4
Conflict of Duty and Interest.
201
2006. Thorby V Goldberg (1964) 112. C.L.R. Aust H.L 203 Ibid. 204 (1994) I BCLC. 363. C.A. 205 (1990) B.CL.C 460. 206 (1874) L.R. 9ch. App. 691. 202
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206
but in practice wide authority to
Section 175 of the Companies Act of 2006 replace the non-conflict rule applying to directors. It now falls under the heading duty to avoid conflicts of interest. Following this duty a director must not, without the company’s consent, place himself in a position where there is a conflict, or possible contract, between the duties he owes the company and either in his personal interest or other duties he owes to a third party. It will be convenient to consider its application in three connections; transactions with the company, use of corporate property, opportunity or information and competing with the company; which all shall be discussed below; 1.3.1.2.4.1 Transactions with the Company This has been codified as duty to declare interest in proposed transaction or arrangement with the company under Section 177 of the Act 207. Directors may not have an interest in a transaction with the company unless the interest has been authorized by the members. The trustees like the directors are liable to vitiate any contract, which the board entered on behalf of the company with one of their member. This principle was expatiated in the case of Aberdean Ry V.Blaitrie208in which a contract between the company and a partnership of which one of the directors was a partner was avoided at the instance of the company not considering that it terms were perfectly fair. Lord Cransworth L.C. said that; A corporate body can only act by agents,and it is of course,the duty of those agents so to act as best to promote the interest of the cooperation whose affair they are conducting.Such agents have duties to discharge of a fiduciary nature toward their principal. And it is a rule of universal application that no one, having such duties to discharge, shall be allowed to entered into engagement in which he has, or can have a personal interest conflicting, or which possibly may conflict, with the interest of those whom he is bound to protect…
207 208
By the Act under this Section the are referring to the 2006 Companies Act. (1854) 1 Macq H.L. 461. H.L. S. C.
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This principle applies not only to transactions directly with the directors but also to those in which they are in any way interested, whether because they benefit personally or because they are subject to a conflicting duty. This principle also applies to promoters but the burden of it falls more heavily on directors. Promoters can enter into transaction with the company provided they disclose in full all material facts either to an independent board or to members of the company. But the director themselves cannot easily escape. Hence, in the absence of express provision in the company’s articles the only effective step is to make full disclosure to the members of the company and to have the contract entered into or codified by the company in general meeting. 1.3.1.2.4.2 Use of Corporate Property Opportunity or Information. Another consequence of the principle that directors must not place themselves in a position where their fiduciary duties conflict with their personal interest, is that they must not with the consent of the company, use for their own profit the company’s assets opportunities or information. This prohibition is one that has not proved so easy to avoid by provisions in the company’s articles209. The misuse of corporate assets generally presents no particular problems; every director should know that he must not use the company’s property as if it was his own 210. It is misuse of corporate information or a corporate opportunity
211
which give rise to difficulties. The
decided case of Regal (Hastings) Ltd V Gulliver212 shows that corporate opportunities and information always go together. 1.3.1.2.4.3 Competing with the Company. This is another example of a situation, which might be expected to give rise to a conflict between a director’s interest and his duties , which is, when he carries on or is associated with a business competing with that of the company. A fiduciary without the consent of his beneficiaries is certainly strictly precluded for competing with them. It is generally stated that a director can be restrained from acting as a director of a rival company: London and Mashonaland Exploration co V. New Mashondon and Exploration co
213
, and
it has been said that “ what he could be for a rival company he could, of course, do for himself” as per Lord Blanesburgh. 209
FARRAR (J.H.), op.cit, P. 416. Even though this is frequently overlooked or ignored in a “one-man” company. 211 In practice the two are likely to overlap. 212 [1942] 1. ALL. ER. 378. 213 (1891) W.N.165. 210
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Moreover, it has been recognized that one who is a director of two rival concerns is walking on a tight rope and at risk if he fails to deal fairly with both; as per Lord Denning in Scottish Co-op wholesale society Ltd V Meyer214. This however does not mean that a director cannot hold other directorship posts in other companies he can, if the companies do give their consent, so long as he observes his subjective duty to the various companies by subordinating his interest to those of the companies. Even if the consent is given, the director is likely to be faced with constant difficulties in avoiding breaches of his subjective duty of good faith to the company or companies concerned. He will end up not putting his effective service as a director on any of the companies since he is “Jack of all trade and Master of non’’. He may be able to subordinate his personal interest to those of a single company but it is less easy to reconcile conflicting duties to more than one company. 1.3.2 Common Law Duty to Exercise Reasonable Care, Skill, and Diligence. This is another area of director’s duties that has been codified by the Companies Act. They now have a statutory building under Section 174 of this 2006 Act. Whereas high obligation is needed from directors as regard their duties of good faith and loyalty, very little obligation expected from them to display any skill and diligence. The duty of care towards a company was until recently defined in three proposition concerning skill, diligence and liabilities for others by Romer J in Re city Equitable Fire Insurance co Ltd215. He made his judgment clear by using these terms: skill, diligence and liability with regard to others. 1.3.2.1 Skill A director must exhibit the degree of skill that may be reasonably expected from a person of his knowledge and experience. This standard is objective in that, the director must act as a reasonable man but it is also subjective in that the reasonable man is only regarded as possessing the knowledge and experience of the individual concerned. This means that a company that appoints a moron as director could only expect from the standard of moron216. But this is no longer the case as it is provided by both Companies Act 217 and the Nigerian Companies and Allied Matters Act 218 that; “every director shall exercise that degree of care, 214
(1959) A.C. 324-HL. (1925) Ch; 4 0, at P. 428. 216 Re Brazilian Rubber Plantations and Estate Ltd (1911) 1 H. 425. 217 S. 174. 218 Section 282. 215
46
diligence and skill which a reasonably prudent director would exercise in comparable circumstances”. Failure to take reasonable care shall grant an action for negligence and breach of duty. 1.3.2.2 Diligence Romer L.J. also lay it down that a director is not bound to give continuous attention to the affairs of his company; his duties are of an intermittent nature to be performed at periodic board meetings. He is not bound to attend every meeting though he ought to attend whenever in the circumstances he is reasonably able to do so, as was decided in the case of Re Cardiff savings Banks (marquis of Bute’s case)219. There has been a great evolution in this area of corporate Law in Nigeria
220
and
Britain221. Now each director shall be individually responsible for the actions of the board in which he participated and the absence from the board’s deliberations, unless justified, shall not relief a director of such responsibility.
1.3.2.3 Liability with Regards to Others. Directors in the absence of suspicious circumstances are entitled to trust the company’s officers to perform their duties properly. But in the past, they had abuse this proposition by totally relinquishing their duties in favour of subordinates and this had resulted in colossal financial losses to the company222. The situation now under Section 174 of the Companies Act and S.279 (7) of the CAMA is that where a director is allowed to delegate his power, he shall not do so in such a way and manner as may amount to an abdication of duty. It may be said, and rightly too, that the rule enumerated in Re city equitable cases223 cannot be accepted in the light of recent legislations and in view of the activities of
219
(1892) Ch. 100. section 282(3) of the CAMA. 221 Section 174 companies Act 2006. 222 (1969) 2 A.L. R.Comm 419. 223 [1923] Ch.881. 220
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professional directors. The duty of care and skill as laid down in Re city equitable fire insurance224 is so lax and not objective. The company, as is the case with fiduciary duties, can always ratify duty of care. It should be noted that the court in an action against an officer for breach of duty has the power to grant relief where, although the officer is in breach, it appears that he has acted honestly and reasonably. The reasonableness of a director’s conduct may depend on whether he has taken legal advice. 1.3.3 Director’s duties under the Companies Ordinance The Companies Ordinance has not expressly made provision for director’s duties. This can only be deduced from some sections. Instead, the duties of directors under the ordinance have been associated with powers of directors. Directors’ duties can only be understood under the Companies Ordinance by looking at the powers of directors. Article 71 Table A, entrusts the power of management in the hands of the directors who are expressly empowered to exercise all such powers of the company as are not by the Ordinance required to be exercised by the company in general meeting. The provision of this Ordinance is akin to Article 335 of the UA which deals with powers of the board of directors. The leverage given to the directors by the Article 71 table A type of provision places directors in a highly privileged position which carries it corresponding obligations, called the fiduciary duties of directors225. These fiduciary duties can be classified into duties of honesty, loyalty and good faith. To these, can be added the duty to avoid conflict between their personal interests and those of the company. Comparatively, these duties are akin to those provided under the present 2006 Companies Act. 1.3.4
Director’s Duties under the Uniform Act. The Uniform act just like the Common Law inspired Companies Ordinance made
provision for director’s duties, but however in its own distinct way. There are a lot of distinctions between director’s duties under the UA and the Common Law inspired Companies Ordinance. 224 225
[1925] Ch.40 at P.428. NGWASIRI (C.N.), op. cit, P. 128.
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The first distinction to be made concerns duties and powers of directors. There is seemingly an exchange in the use of these words under the Uniform Act. At one point, they are used interchangeably to mean the same thing. However, duties as understood under Common Law inspired Companies Ordinance are not the same under the Uniform Act. Duties under UA refers to activities carried out or to be carried out by the director’s or manager’s meanwhile under English law; directors are given powers and in the exercise of those powers they have certain duties they must abide to, failure which, might lead to liability. A good example of duty under the Act is provided for in Article 328 of the UA, which says ;
In relation between partners and where the articles of Association do not define the duties of the managers the later may perform all management acts in the interest of the company.
It is however obvious that the duties that are referred to above is with respect to powers of the directors to do all he can in the management of the company. But on the other hand powers of directors under English law specify what the director’s functions are, and the duties, which are the manner in which he carries out his functions, are also well defined. There is no such distinction under the Uniform Act. This does not mean that the Uniform Act does not provide or enhance the duties as understood under Common Law inspired Companies Ordinance. There are general equitable duties that can be read out of the Uniform Act 226. Article 328 of this act, in its concluding sentence of sub paragraph one provides that, the manager shall act for the best interest of the 226
As aforementioned these equitable duties has been made statutory under sections 171-177 of the 2006. Companies Act.
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company. This supposes therefore that, any action that is seen to be against the interest of the company would not be deemed to be within the authority delegated to the manager, and as such a breach of his duties. What is not clear however under the Uniform Act is whether the test to be used to arrive at whether a transaction is for the best interest of the company is a subjective or objective one. It is submitted that it would be most likely an objective test to be used since the act does not say the manager should act according to what he thinks is the best interest of the company, but rather is called upon to act for the best interest of the company, obviously, it will be what the court or a reasonable man will take to be the best interest of the company. Furthermore, paragraph 3 of Article 438 makes it clear that where any transaction is entered into in which the director or manager is a party to it, he must disclose this to the board of directors. The chairman of the board shall then inform the auditors who in turn shall produce a report containing details of such transactions and submit it to the annual ordinary meeting. This article is akin to Section 177 of the 2006 companies act under the heading; “Fair Dealing Restrictions”.Article 450 of the Uniform Act dealing with forbidden agreements falls under this same duties of fair dealing restrictions. Article 440 of the UA also requires disclosure of any interest, which a manager or director might have in any transaction. The report to be submitted by the authors to the ordinary general meeting must be such as to be able to help the shareholders assess the interest in concluding such arrangements227. Moreover, the Uniform Act does not only try to assess the interest of directors in some transactions, but goes further to out rightly ban certain transactions as per Article 507 which provides that; The managing director or the assistant Managing director, as well as their spouses, ascendants, descendants and third parties shall under penalty of the agreement being declared null and void, be forbidden to contract, in any form what so ever, from the company, to have it grant them a current account overdraft or otherwise. As well as to have the company provide security or guarantee for their commitments towards third parties. The importance of this provision needs not be over emphasized. It is therefore obvious that as far as the general equitable duties are concerned, the Uniform Act recognizes them and 227
Art. 503 UA.
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enforces them. Matters with respects to care and skill are not mentioned in the Uniform Act, but it is likely that if a matter were to come up in the court under this heading, with the use of equitable duties, the judge would find a means of imputing with duties on the defendant. Also the Uniform Act does not make mention of what becomes of the directors knowledge and useful information about the company when the director’s duties comes to an end. Is he free to use this information as he wishes? And if not, what are the circumstances to abstain from the use of such information? There are all questions that are left open by the UA. Unlike the Companies Ordinance, the UA in Article 465 gives the managing director widest possible powers in the exercise and performance of his duties. The use of the phase; “widest possible powers” might be misleading, leading to the thinking that he is free to do any thing. But however, under the same Article 465, it is said that he shall exercise this widest powers “within the limits of the objects of the company…,” which means his powers are under control. Another remarkable distinction between the Uniform Act and English Law in this area is the fact that, there is a limit at which a director can be held liable; it is based on whether an expert would have done the same act, if he was in the director’s position. But under the Uniform Act, directors are indefinitely liable for any failure that results in their managerial duty. The director is also liable for mistakes that are committed in the discharge of his duties228.This makes it clear that the Uniform Act does not create an opening for specialization in company administration and it places heavy liability upon the directors. Looking at the directors’ duties be it under the Common Law inspired Companies Ordinance or OHADA law, we noticed that there are great similarities. The codification of the Common Law duties under the 2006 Companies Act shows important steps as regard English Law. However, where the director fails to respect the duties given to him, he shall be responsible for his act which at times the company can remedy it. 1.3.5 Breach of duty. Where the director’s fails to honour the duties spelled out to him, and act beyond his powers or contrary to his powers he is said to be in breach of his duties. The question that arises is who may sue for breach of duty? 228
Art. 330 UA.
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The director owes his duty to the company and so it is normally the company, which should take action if he is in breach of his duty229. The general rule that directors owe their duties to the company has traditionally been taken to mean to the shareholders as a collective body: Abbey Glen Property corp. V. Stumbory 230, but they owe no general duty to individual shareholders. The proposition that the company should be the ones to sue directors in case of breach, to which they are exceptions, was laid down in the case of Foss V Harbottle 231. There are exceptions to the rule in Foss V. Harbottle232 where individual members of a company are permitted to bring proceedings against directors or others, like in the case of “minority protection233. The Companies Act 2006 provides in its Section 170 (i) that only the company will be able to enforce director’s duties but however, shareholders may be able to bring a derivative action on the company’s behalf. The stand of OHADA Law is akin to that of English Law. There is a possibility for a shareholder to bring an action on behalf of the company under Articles 165 et seq and 331 et seq of the Uniform Act. 1.3.5.1
Remedies for Breach of Duty The action to be taken against a director or the board of directors must be appropriate
to the nature of the breach for which a remedy is sought. The remedies for breach of duties about to be discussed include situations where the directors, individually or collectively have acted beyond the authority conferred upon them. 1.3.5.1.1
Damages or Compensation.
The remedy for a breach of Section 175 (duty to exercise reasonable care, skill and diligence) will usually be damages. Compensation is the equivalent equitable remedy granted against a trustee or other fiduciary, to compel restitution for the loss suffered by his breach of fiduciary duty as in Re Exchange Banking co. Flitcroft’s case234. In practice, the distinction between the two has become blurred, and probably no useful purpose is served by keeping them distinct. 229
See the following : ESTELLE SCHOLASTIQUE, Le Devoir de Deligence des Administrateur des Sociétés : Droit français et Anglais, L.G.D.J. Paris , 1998, P. 169, OLAKUNLE OROJO (J.), op.cit., P.321. 230 [1978]85. D. L.R. 231 (1843) 2Hare 461. 232 Supra, note 231. 233 Prudential Assurance Co Ltd V. Newman industries Ltd (N0 2) ([1982] Ch .204. 234 (1882) 21 ch. D 519.
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In claiming damages from directors for exceeding their powers, it is unnecessary to show that they have been negligent, their liability arises from causing a loss to the company by a breach of their duty to act within their powers as pointed out with the case of Re DKG Contractors Ltd235.All the directors who participate in the breach are jointly and severally liable with the usual rights of contribution inter se. The OHADA Law just like English Law has made provision for a claim of damages form directors when they failed to respect their duties or work dehors their duties. This is usually in the form of individual suit236 or action in the interest of the company
237
.According
to Article 167 of the UA; one or more partners have ability to sue for damages for injury suffered by the company238 1.3.5.1.2
Accounting for Profits
This liability may arise out of a contract made between a director and the company; Imperial Mercantile Credit Association V Coleman
239
or as a result of some contract or
arrangement between the director and a third person. In the former case, accounting is a remedy additional to avoidance of the contract and is normally available whether or not there is rescission. If a director has sold his property to the company, the right to an account of profit will be lost if the company elects not to rescind or is too late to do so as was the case of Re Ambrose Lake Tinco240. When the profit arises out of a contract between the director and a third party there will be no question of rescinding that contract at the instance of the company. Since the company is not a party to it, only an account of profit will be the sole remedy in such a case. Recovery of the profit does not depend on proof of any loss suffered by the company; not as damages or compensation but because the company is entitled to call upon the director to account to it. The Companies Ordinance
241
has made it an obligation for the directors to render an
account of any profit made. This shall be during the company’s general meeting. 235
(1990) Bcc 903. Art.161 et seq. 237 Art.165 et seq. 238 See also Art.741 UA. 239 (1973) L.R.H.Ll.189. 240 (1880) 11.ch.D.390. CA. 241 Section 106 first schedule table A. 236
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OHADA Law just like English Law has also made it possible for directors to render any account of profit made in their transaction on behalf of the company. Even though the UA has not expressly made this clear, but from the reading of article 438 et seq. we notice here that the director is obliged to render account of any profit. According to Section 197 of the Companies Act242, a company may not make a loan to one of it directors unless the details of the loan have been disclosed and shareholders’ approval has been obtained via ordinary resolution. Any director that acts against this is liable to account to the company for gain that he has made. 1.3.5.1.3
Summary Dismissal
At Common Law, an employer has the right to dismiss an employee who has been guilty of serious misconduct but this has no application to the director as such. However the shareholders have the right under Section 303 of the English Companies’ Act 1985 to remove a director at any time by ordinary resolution and the articles sometimes provides that a director must resign if called upon by a majority of the board to do so. This could be an effective sanction against directors, since it may involve loss of livelihood rather than simply loss of position and director’s fees. The Companies Ordinance has made provision for rather disqualification of directors than dismissal243. This Ordinance is silent as regard the dismissal of directors. The UA although has dealt with the dismissal of a director
244
it has not given
circumstances in which the general meeting may deem it necessary to dismissed a director. But we believed here that one of the instances is where the director is at great fault. But there is no doubt that justice and equity demand that a director who is to be removed should be given an opportunity to defend himself. Indeed he should be given a fair hearing245. According to Section 217 of the Companies Act, a company can only make payments for loss of office to a director if the members in general meeting approved. Loss of office includes not only loss of the office of director but also the termination of any related employment: however, the bona fide settlement of a director’s contractual or legal entitlement is exempted and does not require shareholder approval. 242
2006. Section 77. 244 Article 433(2) UA. 245 MADUEOSI ASOMUGHA (E.), Company Law in Nigeria, op.cit., P. 176. 243
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Looking at the position of the legal systems on summary dismissal of directors, we see that they have all provided provisions for director’s dismissal. But the similarities should not make us to run into vivid conclusion that the legal systems on this aspect of corporate Law are the same. The English Law seems to be more advanced on this notion than OHADA Law. The English Law has gone as far as providing circumstances where a director can claim dues as a result of unfair dismissal. The UA has just mentioned the fact that a director can be summarily removed at anytime without providing the legal regime surrounding the dismissal. 1.3.5.1.4
Injunction or Declaration.
It is the duty of the directors to use only such powers as are delegated to them by the articles, which cannot be wider than the limits defined by the objects clause, and to use those powers in a proper manner. Thus, if the directors act beyond their powers or use the power for an improper purpose, the appropriate remedy may be an application to the court for a declaration, or if necessary, an injunction to restrain the directors. This could be illustrated with the case of Parke V Daily News Ltd,246 where a shareholder successfully prevented the company from distributing it assets to redundant employees. This remedy might be employed when the breach is threatened but has not yet occurred. If action can be taken in time, this is obviously the most satisfactory course. It may also be appropriate where the breach has already occurred but is likely to continue, or if some of its consequences can thereby be avoided247. The UA has limit the power of directors by saying that they shall work within the object of the company and subject to the power reserved the company in general meeting 248. OHADA Law just as English Law has made provision for a possibility for an application to the court to restrain and claim damages when a director is acting beyond the powers spelled out to him249. We noticed that both the English and OHADA Law are almost on the same footing as regard the remedy of injunction or declaration. Even though directors are considered as the gatekeepers of the company they are not all that autonomous in the Administration of the company. The deliberative organ of the
246
(1962) Ch. 927. Measures Bros V measures ((1910) SCh. 248. C.A. 248 Art. 435(2) UA. 249 Art .741 UA. 247
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company through the shareholders also partake in the company administration and at most of the times struggle to balance power in the company.
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CHAPTER TWO THE CORPORATE DELIBERATIVE ORGAN
The board of directors when exercising its powers of administration and management shall do that without encroaching on the powers reserved to the shareholders in general meetings250. This means that power in a company is shared between the boards of directors and the general meetings. Some authors
251
have term the general meeting as the supreme
legislative authority of the company. Since the formal relationship between the shareholders and the board of directors can be best explained by the fact that, the shareholders elect and appoint directors, the directors thus have to report on their stewardship to the shareholders and are accountable for its progress. In principle, shareholders are equal as regard their rights and obligations towards the company252. The shareholders meetings normally comprise of an Annual Ordinary General Meeting (AGM), Extraordinary General Meeting (EGM) and Special Meetings (SM)253 .Shareholders meetings are usually a mixed meeting for shareholders, directors, third parties and even bond holders. Mentioned must be made of constituent general meeting convened by the founders of the company after the notarial statement of subscription and payment of funds has been drawn up. In a company, amongst the shareholders we usually have some who are called majority shareholders and others by the name of minority shareholders. The rule that the majority must always prevail has drastically changed both at English law and OHADA law. However even if the directors tend to monopolized most powers in the administration of a company, we see that the general meeting is standing out as prominent also especially with it powers to appoint and dismiss the directors. Under this chapter we shall be looking at issues like shareholders rights and obligations, the general meetings, and the majority and minority protection.
250
Art. 435 (2) UA. OLAKUNLE OROJO (J.), op.cit., P. 93. 252 See generally, TOZWEN TEUNKWA (R.F.), «Le Principe d’égalité entre associes en droit des Sociétés OHADA», Mémoire de DEA, Université de Dschang, Octobre , 2004. 253 See articles; 456, 551, and 555 of the UA. 251
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2.1
Shareholders’ rights and obligations Talking of rights and obligations of shareholders/members in a company will
obviously make us to ask who are a shareholder/ members in a company. According to Olakunle
254
a member or shareholder of a company is a person who has a constituent
proprietary interest in the company and whose name is on the register of members. Thus, a shareholder of a company having a share capital is a member when his name is entered in the register, and a person who undertakes to make a contribution in the event of the winding up of a company limited by guarantee becomes a members of the company when his name is entered in the registered of members 255. The use of terms “member” and “shareholder” interchangeably means the same person256. In order to have a fine discussion of right and obligations of members or shareholders under the Companies Ordinance and OHADA law, it would be of vital importance to know who can be a member under the two legal systems under study. Just like under the Companies Ordinance, the general rule under the Uniform Act relating to Commercial Companies and Economic Interest Groups is that, any legal person257 may become a member of a company: but minors and other persons not enjoying full legal capacity may not be shareholders in companies where their liability for the company’s debt may exceed their contribution, i.e. in an unlimited liability company258 similarly, personal representatives, companies, husband and wives, trustees in bankruptcy, and aliens are subject to special rules. Under the Common Law inspired Companies Ordinance, a person becomes a member of a company in one of the following ways; by subscribing to the memorandum upon the in corporation of the company; by signing and filling an undertaking as a director, to take and pay qualification shares; by application and allotment followed by entry on the register of members, by transfer from another member followed by registrations, by succeeding to shares on the death or bankruptcy of a member. The ways of becoming a member of a company under the OHADA Law are similar to that of the Companies Ordinance. Membership may be affirmed by subscribing to the memorandum upon the incorporation of the company by application, by allocation of shares, 254
OLAKUNLE OROJO (J.),op.cit., P. 253. Ibid. 256 TABE TABE (S.), «Membership in a Corporate Entity: An appraisal of the OHADA Uniform Act relating to Commercial Companies and Economic Interest Groups», in Annals de FSJP, Dschang , Maryland printers Bamenda, Tome 13, 2009, P.42. 257 A legal person here simply means any person who is accepted by law as a subject of legal right and duties. 258 Art. 8 UA. 255
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by registration, by transfer of shares, by appointment of first directors, and by written contracts. Evaluating the rights and obligations of members under Companies Ordinance, it will be important to point out that the Articles of Association was a document regulating the rights of the members of the company inter se, and the manner in which the business of the company was to be performed259. The case of Hickman v Kent
260
throws more light on the
rights and obligations of members under the Articles of Association of a company. However the shareholder is bound to enjoy a minimum of rights and prerogatives, which shows that, he is even more than a creditor of the company261. OHADA Law provides rights and obligations under Article 53 of the said law. These rights include, the right to a share of the company’s net assets when share following the dissolution of the company or where the company’s share capital is reduced; the right to a share of company’s profit whenever they are distributed; where necessary the obligation to share in the company’s losses under the conditions laid down for each form of company and the right to participate in and vote on the collective decisions of the partners, unless otherwise provided by the UA for certain classes of shares. These rights can be both discuss under political and financial right262. Even though the Companies Ordinance has not made this classification, it shall be exercised in accordance to the amount of contributions made during the formation of the company or during the existence of the company263. 2.1.1
Political Rights Political rights include the right to participate in decision making, the right to attend
meetings, the right to vote, the right to information, the right to transfer or withdraw from the company, and the right to share certificate. 2.1.1.1
The Right to Participate in Decision Making
Both the Companies Ordinance and OHADA Law recognised this primordial right of a member. As owners of the corporation, they have unchallengeable rights to influence management through decision making. This right is manifested through the posing of questions and the proposal of solutions at annual general meetings (AGM) and extra ordinary meetings (EGM). This right goes around the establishment of the framework within which the 259
Section 12-14 of the Companies Ordinance. (1915), Ch. 881. 261 ANOUKAHA (F.) et al, op.cit, P.74. 262 POUGOUE (P-G.) et al, op.cit., P.174 -5. 263 Art. 54(1) UA. 260
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directors exercise their powers of management. The UA clearly spells out this right by insisting that, each partner shall have a right to participate in collective decision and that any contrary provisions in the by-law will be null and void 264. The UA just like the Common Law inspired Companies Ordinance has made provision for three kinds of shareholder’s meetings265. As the highest control body in the administration of the corporation, it therefore serves as a centre of mediation for the settlement of disputes and the taking of decisions which do not fall within the domain of the board of administration or management. The UA has made provision for punitive sanction against any one who prevents a partner from attending shareholders’ meetings266. Article 132 of the UA provides for two kinds of joint decisions. There are ordinary and extraordinary decisions. The procedure to be followed for these decisions is laid down in specific provisions of the UA for each type of company. Articles 126 and 127 of the UA lay down the modalities under which a shareholder may be represented by some other person designated by him and the rules applicable to joint ownership of shares and Article 133 provide that, under the conditions laid down for each form of company, joint decisions may be reach at GM by correspondence. However, in spite the convenience of such meetings, in some Common Law jurisdictions, like Canada, correspondence is prohibited or not encouraged since it may be difficult to determine who is speaking or how the participants are reaching to the comments of others267. Meeting in person is often preferable to conference correspondence or telephone or electronic meeting because it is more likely to facilitate frank and open debate. Shareholders meetings are usually convened by the directors, but however, can be done by statutory auditors after an unsuccessful attempt to request the board to do so or by a court representing at least one tenth of share capital held by the shareholder entitled to attend GM or the liquidator if the company is under liquidation268. It can also be convened by one or more partners whose shareholding represents half or one quarter of the company’s shares269. For notice to be served to shareholders and statutory auditors, it must be executed at least 15 days before the meeting and at least 6 days in advance if the meeting is being 264
Art 125 UA. Annual General Meetings, Extraordinary Meetings, and Special Meetings. But however, the Constituent General Meeting is not forgotten. 266 Art. 892 UA. 267 OSLER et al, Corporate Governance in Canada, op. cit. P. 27. 268 Art 516 UA. 269 Art. 337 UA. 265
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scheduled with the same agenda for a second or subsequent time 270. Notice to the shareholders is served; if all the shares are registered shares through an invitation, hand- delivered letter with acknowledgement of receipt or by registered letter with notification of reception or otherwise it shall be published in a legal journal. The UA has also enumerates the information to be mentioned in the letter of invitation. The most important being the venue, time and date271. Proxies can represent partners in the meeting and their appointment is valid only for one meeting and EGM held on the same day as within a period of seven days and shall be valid for successive meetings concerned for the same agenda. The shareholders must not vote under the use of majority powers as the decision will be null and their responsibility can be engaged and through a proxy for the part of his own shares in person for the other part272. Thus any meeting that has been improperly convened shall be annulled, but this action will be inadmissible when the parties were present or represented273. The meeting is presided by the chairman of the board of directors or in the event where he is unable, by the partners holding a majority of shares or in case where two partners are placed pari pasu, by the senior partner274. This is the same position taken by the Companies Ordinance275. The right to participate in decision making is usually materialised through attendance at the meetings. 2.1.1.2
The Right to Attend Meetings. A member of a company under OHADA Law like the Companies Ordinance
276
has
the right to receive notice of meetings and attend such meetings. The Common Law inspired Companies Ordnance just like
OHADA Law have made mentioned of four types of
shareholders meetings namely constituent general meeting , ordinary meeting, extraordinary meetings and special meetings 277 . 2.1.1.3 The Right to Vote
270
Art .518,338, 303 and 286 UA. Art. 514 and 286 UA. 272 Art. 1538, 336, and 334 UA. 273 Art. 339, 514, 303 ,and 286 UA. 274 Art. 529 and 341 UA. 275 Section 53, first schedule , Table A. 276 Art. 69 7days only. 277 Art. 551-554 UA. 271
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The Companies Ordnance just like the UA recognized this right to vote. Under the Companies Ordinance the right of a member to vote either in person or by proxy is of great importance278. Under OHADA Law a member can express his opinion only through a vote 279. According to Article 129 of the UA, voting right of each partner shall be proportional to the company shares he holds unless otherwise stated. The right to vote is therefore the essential attribute of shares which denotes equal capital, equal vote280. In principle, each shareholder is entitled to one vote, meaning that the voting right attached to shares is proportionate to the percentage of the capital that they represent. But a limit can be brought to this right of equality as different classes of shares or shares with special rights may be created 281. Following the disposition of Art. 752 of the UA, double voting rights may be conferred by the AOA or EGM on fully paid up shares where there is justification that such shares have been registered in the name of the same holder for at least two years. Shareholder democracy, which is in any event a democracy of shares other than of shareholder, is, or may be, an imperfect one 282 As regards the manner of voting, Table A, regulation 60 provided that a vote in general meeting was to be by a show of hands unless a poll was demanded. And, on a poll just like under the UA every member had one vote for each share which he was the holder and his votes could be given either personality or by proxy. The difference between a vote on a show of hands and a poll was that on a show of hand each shareholders present had one vote only irrespective of the number of shares he held; on a poll members could exhaust all the votes attached to all the shares they owned. A poll therefore was the more accurate reflection of voting strength among the members. At common Law, the right to demand a poll was recognized in the case of Marx v Estates and general investments ltd 283 Directors have always been held to have fiduciary duty to the company unlike shareholders. This is because a shareholder when voting may consider his interest since company shares have been accepted to be a piece of property which is to be enjoyed and exercised for the owner’s personal advantage. But this right has always been subject to the doctrine of fraud on the minority such that the majority may even waive the breach of fiduciary duties by the directors to the detriment of the minority. The dissident shareholders 278
Sections 60-66 of Table A, first schedule of the Companies Ordinance, see also Sections 69 of the said Ordinance relating to provisions as to meetings and votes. 279 POUGOUE (P-G.) et al, op.cit. P.70. 280 ANOUKAHA (F.) et al, op.cit., P.77. 281 See articles 53, 543 and 751 UA, see also, TOZWEN TEUNKWA (R.F.), op.cit. P.39. 282 DAVIES (P.), op.cit., P. 564. 283 (1976) I W.L.R.380.
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will usually guard against this abuse on minority by buying more shares to influence management. But this is usually not the case as these shareholders are not always able to buy more shares in the company either because they cannot afford them for financial reasons or because the other shareholders are unwilling to sell. The Uniform Act has made provision to solve this situation by indicating that, collective decisions based on the undue use of majority on the minority shall be annulled284. This undue use of majority indicates that the resolution taken is not in the interest of the company and contrary to the interest of the minority. Thus to ensure minority protection the partners engaged in undue use of majority shall be liable if they are unable to justify that the decision that has been taken is on the interest of the company 285. This does not pose a problem in partnership as almost all decisions are taken unanimously since there is flexibility in its administration286. We should bear in mind that this right is manifested at the GM, which is a forum regarded by many to be the supreme organ of the company. Both legal systems recognise the right to vote with great importance. However, the AU has not given precise stipulation as to the mode of voting. It is submitted that this could only be settled by the provisions of the Articles of Association. The Uniform Act however makes it clear that blank votes shall not be taken into account. Company is not a prison for it members they are free to leave at any time they want. 2.1.1.4 The Right to Transfer or Withdraw from the Company. The most common means to leave or withdraw is through transfer of shares. But this right is more restrictive in partnerships than in the limited liability companies. This is because in partnerships the personality of partner counts more than his contribution, since his withdrawal may likely lead to the collapse of the company. Transfer differs from withdrawal in that, with the right to withdraw, the shareholder can leave the company at any time than with transfer which at times the shareholders will find it very difficult to get an outstanding purchaser ready to take his shares at a reasonable price. But the situation is different when shares are listed and thus making him to have a market. However, the transfer of shares is accepted by the Uniform Act. Article 57 of the UA states that company stocks shall be transferable while shares shall be transferable or negotiable. Actions have always been transferable but not company’s stock. The transfer of company stock is an innovation brought about by the UA. 284
Art. 130 UA. Art. 131, UA. 286 See NAH FUASHI (T.), op. cit. P.83. 285
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The Companies Ordinance just like OHADA Law recognized this right to transfer shares. A share shows the interest of a shareholder in a company. A shareholder had an unrestricted right to transfer his shares to any person, subject to any restrictions in the articles as was illustrated with the case Weston’s287. The article could restrict the shareholder to transfer share. Table A, Regulation 20 of the Companies Ordinance, provided that “the directors may decline to register the transfer of a share not being a fully paid to a person of whom they shall not approve”. It has also given the possibility to the directors to suspend registration of transfers during the fourteen days immediately preceding the ordinary general meeting in each year. The directors have power to refuse a transfer of share without giving reasons for their refusal and unless there is evidence to the contrary they are presumed to have acted in good faith, and in the interest of the company288. The case of Re Smith and Fawcett
289
shows a
good example where a director acted within his right by refusing the transfer of shares. The Companies Ordinance and UA are both similar as regard the transfer of shares. The UA by making it possible to transfer company stock is a welcome innovation. Both legal systems have made this notion of transferability of shares only under public limited companies. A director plays a major role as far as the transferability of shares is concerned. Having a share in a company must be testify by a certificate 2.1.1.5
The Right to a Share Certificate.
A share certificate is a document issued by a company under its seal signifying that the holder of the share certificate was entitled to the number of shares stipulated there in, 290 thus a share certificate under the common seal of the company specifying any shares or stock held by any member, shall be prima face evidence of title of the member to the shares or stock291. Section 100 (1) of the Companies Ordinance give a time limit of two months for directors to issue a share certificate to the rightful owners. Any director that fails to do this shall be liable to a fine292. It should be noted that a share certificate is not a negotiable instrument for its transfer from one person to another does not move the ownership of the shares. It does not constitute title but mere evidence of title as all amounts to then, is a statement by the company that at the 287
(1868) L.R. 4ch. App.20. Ibid, regulation 20. 289 (1942) ch. 304. 290 MADUELOSI ASOMUGHA (E.), op.cit. P. 266. 291 See Section 25 Companies Ordinance. 292 Companies Ordinance Section 100 (2). 288
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moment when it was issued, the person named on it was the legal owner of the shares specified in it and that those shares were paid up to the extend stated. Any shareholder who want to sell or pledge his shares need just to sign and deliver it to the transferee. The shareholder is entitled to a share certificate only after when he has subscribed to the articles or has purchased the shares from the corporation293. The UA on it part has not categorically talk of a share certificate, but indicates that, upon the preparation of an allotment letter indicating the number of shares subscribed and duty signed by the subscriber or his agent, a copy of the allotment letter written out on a loose-leaf shall be handle over to him. It also mentioned that each partner shall be entitled to a copy of the Articles of Association. The Common Law inspired Companies Ordinance unlike the Uniform Act is advanced in so far as the issued of share certificate to partners are concerned. As members of a company, they need to be informed on how the running of the company is going on. 2.1.1.6 The Right to Information It is but normal that the shareholders as owners of the company need to be frequently informed because they have taken the risk of investing in the company. The UA has paid special attention to this right. Shareholders have the right to consult all corporate records and documents. During the holding of the GM shareholders have the right to be informed and to have access to all documents as regards the meeting. In private limited companies shareholders shall be permanently alert or informed on the business of the company prior to the holding of general meeting. The right to communication is enforced on the basis that they shall have access to all financial statements of the fiscal year and the management report prepared by the managers294. The directors shall make sure that they give to the members all accounts and the minutes of general meetings when ever need arises. The right of communication of members could be exercised during the fifteen days preceeding the holding of the general meeting 295 and the UA limits this request to two times a year to avoid frequent solicitations that can become a menace to the functioning of the company. The managers need to be informed 15days before in advanced 296 so from the date of 293
Companies Ordinance, first schedule table A, regulation 6. See art 344 and 345 UA. 295 Art. 345 UA. 296 See for detail article 345 for the SARL; see article 525 in the UA which also gives the power to every shareholder to examine at the registered office documents relating to AGM; see also Article 526. 294
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communication of corporate documents, any partner shall have the right to ask written questions which the manager shall be bound to answer during the general meeting. A partner may, at time obtain copies of documents of the company of the last three fiscal years297. This examination of corporate document must be reasonable, as interference that is unreasonable will be rejected. But when the purpose of inspection is proper and the company refuses to communicate information so requested, this may be enforced through an order of the court.298 We should note that this information is most often enforced during the AGM, as it is this forum that all financial transactions and accounts of the company are voted and approved. To avoid unprecedented demanded for inspection, English law makes the payment of a commission condition sine qua non for the inspection of registers after the partner has exhausted all the two occasions accorded for that purpose. The Companies Ordinance has not categorically made provision for the right to information. It instead provides that, preference shareholders had rights to receipt and inspect report. By Section 121(1) of the Ordinance, holders of preference shares and debenture of a company had the same rights to receive and inspect the balance sheets of the company and the reports of the auditors and other reports as was possessed by the holders of ordinary shares in the company, according to section 121(2) of this same ordinance this right did not apply to a private company. OHADA Law unlike English Law has been flexible on the right to information as a means to control the exercise of power in the administration of a company. OHADA Law as we see is much more advanced than English Law on this aspect of the law. In general, as regard the political rights of a shareholder, we notice that they are almost the same be it under the OHADA Law or the Companies Ordinance. A member of a company despite his political rights which he enjoyed in the company, he does have some non political rights which can also be term financial rights. 2.1.2
Financial Rights.
Even if it is no doubt today a single proprietor company can exist 299, it is but a feature of most companies that they act as mediums for bringing together and putting to use, capital contribution of individuals and institutions who become the shareholders of the company300. 297
Art. 345 UA. Art.528 UA. 299 Art. 5 UA. 300 DAVIES (P.), op. cit., P.705. 298
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The putting together of capital therefore is motivated by desire to share profits. This is obviously where the financial rights attached to shareholding are centered. 2.1.2.1 Right to Dividends when Declared. Each shareholder has a right to dividend which shall be proportionate to the amount of capital it represents301. Dividend is the part of benefits that the company distributes to each of it shareholders302. The annual general meeting is competent to fix the amount of dividend to be distributed. Dividends are usually paid in cash, but however, the company may in some instances decide to distribute corporate assets other than cash. This means that shares or stocks or any other non cash asset of the corporation can be distributed. Following Article 53 of the UA, shareholders have the right to share in the company’s profits whenever they are distributed. The amount they received is proportionate to their respective contributions 303. After the dividends have been declared, the shareholders have a right to it, and it becomes a debt of the corporation and enforceable by law, as any other debt. Under the OHADA Law, at least one-tenth of profits of the fiscal year from which have been deducted past losses, where necessary, shall be deposited in a reserve fund known as “legal reserve” .The rights and obligations of partners are proportionate to the amount of their contribution, whether such contribution were made during the formation of the company or during the existence of the company, except the Articles of Association provide otherwise. Any partners who, either by fraud or by mistake receive dividends from the company shall be bound to return them. Following Article 143 of the UA, distributable profit is the income of the trading year, to which shall be added income brought forward less past losses and appropriation for reserves in accordance into the provisions of the law or Articles of Associations. The zeal to distribute benefit is the point of departure for the exercise of this right since there can be no distribution, if benefits have not been declared. The company has a maximum period of nine months following the end of the financial year to pay dividends, except the president of the competent court accord an extension304 shareholders who have pledge his shares would not be entitled to payment, as his benefits will be directed to his creditor except the terms of the pledge stated otherwise. Dividends are therefore calculated as interest on the amount of paid up shares305. 301
Art. 754 UA. OLAKUNLE OROJO (J.), op.cit., P.411. 303 Art. 543, 750-4 UA. 304 Art. 140. UA. 305 Art. 145 UA. 302
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The Companies Ordinance just like OHADA Law has recognised this fundamental right of shareholders as far as the payment of dividend is concerned. A company did not require an express power in its Memorandum or Article to pay dividends although a guarantee company which was allowed to dispense with Ltd in its name could pay a dividend. Section 41 of the Companies Ordinance just like the UA provides that, a company if so authorized by it articles, could pay dividend in proportion to the amount paid up each share where a large amount was paid up on some shares than others. The payments of dividends were governed by two cardinal principles. The first was that dividend could not be paid out of capital, and the second was that a dividend could only be paid out of the profits available for that purpose. The Companies Ordinance imposed certain restrictions on the distribution of a company’s assets to it members. A further restriction was imposed on a public company making a distribution. It could only make a distribution if its assets were at least equal to the aggregate amount of its share capital and undistributable reserve. The undistributable reserves were: the capital redemption reserve fund and the amount by which the accumulated unrealised profit exceeds its current accumulated unrealised losses. If dividend was stated to be payable at some future date, a share holder was unable to enforce payment until the actual date for payment arrived. The Companies Ordinance and OHADA Law are akin so far as the payment of dividends to member is concerned. This is one of the fundamental financial rights of share holders which not be tempered with. Despite this similarity, OHADA Law is much more innovative in this aspect than the Companies Ordinances. OHADA Law unlike the English Law has made it possible for dividends to be payable out of company’s asset, thus not only cash can be use to pay dividends. Again, OHADA Law has given a precise time limited of nine months following the end of a financial year for the payment of dividend, despites the fact that this can be extended by a competent court president. The failure of English Law to made provision for a date limit can lead to much delay in the payment since no time limit is been given. The general meeting or the directors as the case may be can cause this advantage to accumulate dividends of shareholders. Thus, OHADA Law is advanced here than English Law. 2.1.2.2
Financial Right during Capital Increase and Dissolution of the Company.
When the business of the company is still a going on smoothly, especially when it is increasing its shares capital, shareholders usually have a share to preferential subscription. This pre-emptiness right only applies to contribution in cash and only the share can rename 68
this right. This primordial right of shareholders is aimed to resolved the multiple prejudices that they undermine during capital increase which comprises the reduction of his rights on reserves, the sharing of benefit among an important number of holders, and even the “political” risk linked to the entry of new shareholders306. During the liquidation of the company, the shareholders have a right to the company’s assets made as contributions to the company307. When the liability of the company has been settled out and its assets are realised, each shareholder is entitled to receive amount to his contribution as shares to the company. Also, during the dissolution of the company, each partner after the creditors have been paid receives a sum equal to his shares in the dissolved company. Art. 53 of the Uniform Act is more categorical on this point when if says that the shareholders shall have
rights to the company’s net assets when shared following the
dissolution of the company or whose the company’s share capital is being reduced. As regard this situation, those that contributed in kind may get back their property, but in a situation where the right to the property is lost 308, he can not benefit in this right in kind, except this inserted in the Articles of Association of the company. Following this situation, he has only an incorporated right against the corporation309. A shareholder that contributed in possession will obviously get back his property while those that contributed in services regain his liberty. When the assets of the company are more than its capital, the shareholder has a debt against the company.
In French this has been described as “Droit au bonis de
liquidation”310. This right usually occurs only when the company is being dissolved as a result of financial difficulties. The principle of proportionality of shares will be followed again here when sharing the “bonis de liquidation” to the partners. However, the Articles of Association can provide otherwise. The payment of interest does not depend at all on the existence of profits, since interest is a debt. It is payable whether profits are made or not, and may therefore lawfully be paid either out of capital or not of revenue. This is in sharp contrast with dividends which must be paid out of profit. The Common Law inspired Companies Ordinance
311
just like OHADA law has made
provisions as regard the right of shareholders during increase and reduction of capital. Both
306
MERLE (Ph.), Droit commercial : Société Commerciale ,9éme Edition, Dalloz, Paris, 2003, P.328. MARTOR (B.) et al, op.cit., P.94. 308 Right of property is lost where the property in the goods is lost. 309 ANOUKAHA (F.) et al, op. cit., P.8. 310 This simply refers to surpluses and profits put in reserves. 311 Sections 46 and 48. 307
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Laws accord much importance to this financial right of shareholder and maintained the same principle which is that of proportionality. As regards the rights and obligations of shareholders under both the Companies Ordinance and OHADA, we notice that there are a lot of similarities between them. 2.2
The General Meeting and Company Powers. The general meeting is an organ of the company through which major decisions are
taken at first hand. Although, decisions are taken by the board of directors, they are confirmed by the shareholders’ meeting under the umbrella of the meeting. The general meeting is a forum for members of the company to freely express themselves on company matters as they affect them usually at the benefit of the board of directors and preside over them312. A vital point to take note about the general meeting is that one must be a member of the company to be able to participate although there are few exceptions which include auditors of the company who are not members of the company. The Uniform Act has made provision for three types of shareholders meeting: Ordinary General Meeting, Extraordinary General Meetings and Special Meeting313. Beside these three types of shareholders meetings, there is another type called constituent or statutory meeting held just after the company has been incorporated. 2.2.1
The Constituent General Meeting. The Uniform Act just like the Common Law inspired Companies Ordinance has made
provision for the constituent general meeting. Under the Uniform Act, this type of meeting shall be convened by the founders after the notarial statement of subscription and payment of funds has been drawn up314. The founder shall make sure that notice of the meeting is given to those entitled to have them. It shall be by a hand-delivered letter against acknowledgment of receipt or by registered letter with request for advice of delivery, indicating the agenda, venue, date, and time of the meeting. This notice shall be addressed to each subscriber at least fifteen days before the date of the meeting315.
312
ELEBIYO (J.A.Y.), op. cit, P. 7. MATOR (B.), Business law in Africa, op.cit, P.95. 314 Art. 404(1) UA. 315 Art. 404(2) UA. 313
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For the proceedings of the meeting to be valid, the subscribers present or represented must hold at least half of the issued shares316. Where the quorum317 is not met, a second invitation shall be addressed to the subscribers no later than six days before the date fixed for the meeting. On the second invitation the proceedings of the meeting shall be valid only where the subscriber’s present or represented hold at least one quarter of the shares issued. If this is still not met, the meeting shall be held within two months from the date fixed in the second invitation. Now, the subscribers shall be convened at least six days before the date of the meeting. On third invitation, the proceeding of the meeting shall be valid only where the quorum conditions referred to above are met. The UA has attributed many powers on this type of meeting. Each partner’s contribution is determined in this type of meeting. Contribution in kind and each special benefit shall be the object of a special vote by the meeting 318. They have also as competence to approve or disapprove the shares auditor’s report on the evaluation of contribution in kind and the grant of special benefits. The shares of the contributor of the beneficiary of special benefits even where he is also a cash subscribe, shall not be taken into account when computing the quorum and the majority and the contributor or the beneficiary of special benefits shall not vote enter by himself or as authorize agent319. By Article 409 of the UA, the constituent general meetings are competent to reduce the value of contributions in kind or of special benefit only unanimously by the subscribers and with the express consent of the contributor or beneficiary. The constituent general meeting has power also in the following domains; the ascertainment that the capital is fully subscribe and that the shares are paid up under the conditions laid down in the Articles of Association; the adoption of the Articles of Association of the company which it shall amend only unanimously by all the subscribers; the appointment of the first directors; or managing directors, as the case may be as, well as the first auditor; the taking of a decision on the acts done on behalf of the company being formed, in accordance with the provisions of Article 106 of the UA, upon a report drawn up by the founders; giving, where necessary, authority
to one or more members of the board of
directors or to the managing director as the case may be, to enter into commitments on behalf of the company before its registration in trade and personal property credit register320. 316
Art 405 UA. A quorum is the vital number of people who are deemed to be able to pass a resolution in a meeting. 318 Art. 408, UA. 319 Ibid . 320 Art. 410 UA. 317
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The minutes of the constituent general meeting which is usually held once in a life time of the company, normally will indicate the date and venue of the meeting, the method of convening it, the agenda, the quorum, the resolution put to vote and where necessary the quorum and voting conditions for each of them 321. The chairman and one other member, or by the sole member shall Sign the minutes of the meeting. This shall be filed at the registered office together with the attendance sheet and it appendices. The Common Law inspired Companies Ordinance has made provision for these types of meeting. Section 67 of this Ordinance talk of statutory meeting. According to this section, every company limited by shares is required to hold a general meeting of the members of the company, within a period of not less than one month or more than three months from the date at which the company is entitled to commence business. It follows that once this meeting is held, the company must start business with the ensuring three months; and must not start business before the expiration of one month from the date of the meeting. This meeting which is held only once in the life time of a company is known as the statutory meeting322. Public and private companies must hold the statutory meeting. Public companies must at least seven days before the date of the statutory meeting, forward a report known as statutory report to every member of the company bearing the following information: -
The total number of shares allotted;
-
The total amount of cash received by the company in respect of shares allotted ;
-
The names and addresses of the directors and other officers of the company.
A copy of the statutory report must be sent to the registrar of companies. Where the company fails either to hold the statutory meeting or to prepare and circulate the statutory report, the company and every director manager or officer of the company in default shall pay a fine 323. The statutory meeting ensures that, within a short time from when the company is entitled to commence business, all the shareholders will have a claim of ascertaining the exact position of the company324. The Uniform Act provisions on the constituent general meeting are akin to the provisions of the Common Law inspired Companies Ordinance as regard statutory meeting or constituent general meeting. Despite these similarities, there exist a little bit of differences. OHADA Law unlike Companies Ordinance has made provision for many attributions to the constituent
321
Art 411 UA. NGWASIRI (C.N.),op. cit. P.110. 323 Section 67 (11) of the Companies Ordinance. 324 OLAKUNLE OROJO (J.), op. cit., P.273. 322
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general meetings, thus making this type of meeting to maintain it importance in the administration of a company. 2.2.2 The Ordinary General Meeting. The ordinary general meeting is also called annual general meeting. Every company is obliged to hold ordinary general meetings at the end of each financial year. The word ‘year’ means calendar year that is the period January between 1 st to December 31st325. This meeting is considered as the most important meeting of the company since it is used as a weapon by the shareholders to control the board of directors and possibly bring them to book326. The meeting shall hold within 6 months from the close of the fiscal year, subject to the extension of this deadline by a court decision327. The annual general meeting provides a formidable ground for corporate democracy to the extend that it allows shareholders especially in the case of public companies who are not part of the management team to have a say in the way affairs of their company are being managed by the directors who are the managers. The usual business discussed in an annual general meeting are its ordinary business which include the decision on the profit to be distributed, the appointment of members of the board and the approval of contracts concluded between the company and its directors
328
. Allocations for legal reserve and for statutory reserve are also
decided in this meeting and also the appointment, removal of directors, auditors, and in general to decide on all matters that do not entail the amendment of the Articles of Association329. This meeting has as competence to also authorise directors to issue bonds or not. Although the by-laws usually demand in the SA a certain number of shares before admission into the general meeting, the UA has taken the view that, this cannot be more than 10 shares. In terms of quorum, proceedings of the ordinary meeting shall be valid on the first invitation only where their shareholders present or represented hold at least one quarter of the company’s shares with voting right and on a second call with the same agenda, no quorum is required330. Excluding blank votes, decisions at AGM are taken by majority of votes cast. This meeting acts as a safeguard for the shareholders in that it provides them with an opportunity
325
Gibson V. Barton (1875) L.R. 10 QB. 329. MADUELOSI ASOMUGHA (E.) , op. cit., P.301. 327 Art. 348 and 548 UA. 328 Art. 546, 142 and 143 UA. 329 Art. 347 UA. 330 Art. 549. UA. 326
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of questioning the directors on accounts and reports, which are usually not necessarily presented to the AGM and on general matters331. The Companies Ordinance just like OHADA Law has made provisions for annual general meeting. This is found in Section 66. According to this Section, every company must hold an annual general meeting at least once every calendar year and not more than fifteen months since the last or previous annual general meeting was held. If a company fails to call an annual general meeting, the court may, on the application of any member of the company call, or direct the calling of a general meeting of the company 332. As regard the quorum, the Companies Ordinance has provided that, three members personally present shall be a quorum.333 Both the OHADA Law and the Companies Ordinance is akin as regard the annual general meeting. Despites these similarities between the two laws, we notice some slight differences though not of major significance. Under the Companies Ordinance a time limit of fifteen months is given following the closed of he calendar year in which an annual meeting must be held while the UA has made provision only for a lesser period of six months. Be that as it may be, the AGM remains a forum in which the shareholders can exercise their position as owners of the company on the directors. But this meeting must act only within the confined of the powers invested with, without encroaching on the power of the extraordinary meeting. 2.2.3 Extra-Ordinary General Meeting. Any meeting that is not an AGM is an EGM. The article usually makes provision for directors to call an EGM whenever they think fit. The AGM has powers to modify the by-laws of company334. This meeting can be described as a tool set aside to remedy emergency and unforeseen occurrences that might hamper the credibility and effective functioning of the company. Thus, increase or reduction in capital, a transfer of the company’s registered office, winding up or extension of the company’s term after the expiry of 99 years, mergers, spin-off or partial business transfers and changes must be decided by EGM. An auditor who is resigning may request the directors to convene an EGM. There is no specific period that
331
DENIS KEENAN, op. cit,P. 352. Section 66(2). 333 See in this light, section 51,First schedule, Table A. 334 See art. 551 and 357 UA. 332
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demands the holding of this meeting. The reason for this is simply because by it definition, they are called only for extra-ordinary reasons, which do not occur with any frequency. Shareholders may attend extraordinary general meeting without limitation of votes 335. The proceedings of this meeting shall be valid only where the shareholders present or represented hold at least half of the company’s shares on the first invitation and one quarter of the shares, on the second invitation 336. If it so happens that the quorum is not met, the meeting may be convened a third time within a period of not more than two months from the date fixed by the second invitation337. In such a case the quorum shall remain fixed at one quarter of the shares. However, for any resolution to be passed, a threshold of two-thirds of votes validly cast is required338. But a unanimous vote of shareholders who are present or represented is necessary to move the company’s registered office to the territory of another member state or if shareholders obligation are to be increased , and if the company is to be transformed into a SNC 339. The situation or position of the Companies Ordinances as regard the extra-ordinary meeting is wroth nothing. Section 68 of this Ordinance has made provision for this type of meeting. The directors are empowered to call an extraordinary general meeting to deal with issues which ought to be dealt with the next annual general meeting. Section 68(3) allows the holders of one-tenth of the issued and fully paid share capital to force the directors to convene an extraordinary general meeting; and this notwithstanding any thing to the contrary in the Articles of Association of the company. If the directors fail to hold the meeting within twentyone days, the requisitionists, may themselves convene the meeting. The provisions of OHADA Law are similar to that of the Companies Ordinance. They all recognized the fact that extra-ordinary meeting is competent to handle issue which does not full under the annual general meeting. The Companies Ordinance unlike OHADA Law has not made provision for the powers of the extra-ordinary general meeting. Thus, the items to be discussed in such meeting are therefore at the discretion of the members. The Uniform Act is more innovative in this aspect since it has sidelined some of the issues that can be handled at the extra-ordinary general meeting. Although all shareholders have the right to attend annual and extraordinary general meetings, the situation is not the same with special meeting which is open only to the holders of particular class of shares. 335
Art. 552 UA. Art. 553 UA. 337 Ibid. 338 Art. 554, UA. 339 See Article 554 and 359 UA. 336
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2.2.4
Special Meeting These meetings are quite rare. They are reserve for holders of shares of a given
category340 and the persons entitled to attend this type of meeting are usually those having preferential rights. These meetings shall have as power to; approve or disapprove the decision of general meetings where such decisions modify the rights of it members 341. The question that arises is that, does special meeting constitute the supreme organ of the company? The provision of this Article 555(2) of the UA is susceptible to cause much confusion and as regard the distribution of power in the administration of corporate entity. Since the UA has not brought any innovation on this type of meeting 342, it’s our opinion to hold that the response shall be in a negative. We humbly submitted that the special meeting should be seen as a class meeting belonging to a particular class of shareholders mandated only to call the attention of the general meeting on its rights and approve or reject modification only as subject to the Articles of Association. By so doing, special meeting will be nothing than a sub unit of the general meeting. Thus the general meeting retains it sovereignty. The Companies Ordinance has not made provision for this type of meeting. It recognises only two types of meetings which are, the AGM and EGM. OHADA law has gone forward to bring a third type of meeting which is solely for a particular category of shareholders. Under common law, this type of meeting is referred to as class meeting as oppose to special meeting under the UA, but whether class or special both refers to one meeting. Class meetings may be held by particular class of shareholders to decide matters relating to that particular class or shares. It was decided in the case of Re express Engineering works Ltd 343
that where all the shares of a particular class are held by one person, such person may do
what a meeting of shareholders of that class could do under the articles. The general meetings either under English Law or OHADA Law is aimed at exercising it powers as specified by the Articles of Association. The company’s meetings through it powers act as a check on the powers of the board of directors making us at times to believe that they are supreme. 2.3
The Powers of Company Meetings Shareholders in a general meeting exercise the following powers:
340
Art. 555, UA. Art. 555 (2) UA. 342 POUGOUE (P-G.) et al, op.cit, P.227. 343 (1920). Ch.466 (Court of Appeal). 341
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-Appoint the members of the board of directors or managing director and where possible the assistant managing directors and auditors as well as the power to dismiss these officials; -
Approves or refuse to approve agreements conducted between the manager and the company. The managers or directors do not have to enter into contract with the company or if they do so, they have to disclose such contract to the shareholders in a general meeting for their approval or rejection;
-
Issue bonds; the shareholders in the general meeting are the only ones entitled to issue bonds on behalf of the company;
-
Approve the auditors report;
-
Adjudicate on summary financial statement of the fiscal year;
-
Decide on the allocation of income under penalty of any decision to the contrary being declared null and void.
Some of these powers would be discussed in detail below. 2.3.1
Appointment and Dismissal: The most important power of the general meeting is that exercised by shareholders,
which is the power of appointment and dismissal of directors and managing directors of a company. However, a motion of approving a person’s appointment, or for nominating a person for appointment, is to be treated as a motion for his appointment 344. In line with the power of appointment of director, is the power of dismissal. The shareholders at a general meeting just as they could appoint or nominate somebody as director, can equally dismiss directors or managing directors. However, mention must be made of the fact that unlike the power of appointment, which is slightly discretionate, the power of dismissal is subject to some restraints since any director or managing director who is unjustifiable dismissed have as of right a remedy against the company. In other words, the power of dismissal is not to 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 director, or of any appointment terminating with that as director, or as derogating from any power to remove a director. Be that as it may be, what is crystal clear is that the shareholders at an annual general meeting may subject to restraints either appoint or dismiss a director or managing director under both OHADA Uniform Act and the 1958 Companies Ordinance. Consequently, by having the power to appoint or remove director, the annual general meeting of shareholders exercises the power of the company. 2.3.2 344
Approval of Directors’ Report.
English Companies Act 1985, Section 292(3).
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In fact, a company is distinct and separate from its management team. However, companies are run by directors on a day-to day bases. They infact carry out agreements in the course of exercising their duties. All such agreements entered into by the director must be disclosed for approval or rejection by the annual general meeting of shareholders. In so doing the shareholders exercise checks and control over the directors. Hence since shareholders must approve agreement entered into by the director of the company in an annual general meeting, it is reasonable to say that they are the ones that have supreme control over the company. Company meeting serves as a tool for members to exercise company powers. 2.3.3
Appointment, Dismissal and Approval of Auditors and Auditor’s Report. All companies except for some exceptions shall appoint an auditor. Auditors are
appointed at general meeting at which accounts are laid except in the case of private company, which has elected to dispense with the laying of account at general meetings. Just like the power to appoint auditors at annual general meetings, the company may by ordinary resolution at an annual general meeting remove an auditor345. However, special notice is required for a resolution at a general meeting of a company removing an auditor before the expiry of his term. Because the shareholders can appoint as well as remove, at an annual general meeting auditors of companies, this shows that, they are truly those on whom the power of control over the company rest. This is so because auditors like directors are senior officials of the company. In fact the auditors of a company write a report about the financial situation of the company, it is this report that is presented to the shareholders at an annual general meeting for approval346. In fact, the power to approve or disapprove the auditor report at an annual general meeting is an excellent power in the hands of shareholders at an annual general meeting. This power amongst others held by shareholders at an annual general meeting only go to make us believe that shareholders are the ones who really have the power of control of the company. 2.3.4
Other Powers Exercise by Shareholders at Annual General Meetings. Apart from the powers discussed above there are a host of other powers that are
exercised by shares holders at an annual general meeting. These powers as indicated above include the power to issue company bonds. In fact, the power to issue company bonds rest in the hands of shareholders at an annual general meeting and this power gives the control of the company to them. Again, there is equally the power of adjudication of summary financial 345 346
Section 249, Companies Ordinance Act 1985. Art. 547. UA ,see also Section 120(2) of the Companies Ordinance.
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statement of the fiscal year, which is always done at an annual general meeting of shareholders. Furthermore, shareholders at an annual general meeting equally decide on the allocation of income under penalty of any decision to the contrary being declared null and void. From the above analysis, since shareholders have the power to appoint and dismiss directors, approve auditors report, issue bonds, adjudicate on summary financial statement of a company as well as the power to decide on the allocation of income under penalty of any decision to the contrary being declared null and void, it is clear that in exercising these powers the shareholders at an annual general meetings have enormous disciplinary powers as well as wide powers of giving instructions which shows that the shareholders have full power of control in the administration of a company. Be that as it may, we should bear in mind that shareholders whether belonging to majority or minority group must exercise it powers without abusing it. The majority must not abuse the minority and vice- versa.
2.4
Majority Rule and Minority Protection The struggle between management and dissident shareholders can be taken in another
direction other than the annual general meeting. This is obviously in the courtroom. The position under Common Law inspired Companies Ordinance that the principle of majority rule will always prevailed to the detriment of the minority is far fresh from reality nowadays. Be that as it may, during corporate democracy, Majority rule remains the music of the day as a particular number of shares are fixed for each shareholder in order to attend general meetings and take decision. This can be considered as an exception to the rule that every shareholder has a right to attend meeting347. The minority is not left without a solution in this frustrating situation. Thus, they can resort to judicial action in order to influence decision making. By so doing, they can compel majority shareholders to change a decision. 2.4.1 The Principle of Majority Rule. Decisions taking through a vote in a company have often been surrounded to the doctrine of fraud on the minority such that, the majority can not waive a breach of the director’s fiduciary duty by approving a misappriation by him of the corporation’s property which could be fraud on the minority348. The reason behind this is that companies are regulated as democratic institutions in which the minority shareholders ought to abide by the will of the 347
TENWE KAMENI III (H.E.), « L’actionnaire minoritaire dans les sociétés commerciales (OHADA) », Mémoire de DEA, Université de Dschang, Janvier 2009, P.10. 348 GEOFFREY (M.), op. cit., P.392.
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majority349. This is in line, with, the common democratic saying that, “majority carries the vote”. Thus, we can say that, a majority rule is formed when at a voting for or against a resolution, the opinion of the majority vote casted holds water. It is a fact that, the fiduciary duties of directors are owed to the company and only exceptionally to individual shareholders. Thus, it is the company which has to bring an action against them if they breach their duties, and if the company decided not to bring an action, no further step can be taken since the directors are the wrong doers. So, despite what the articles of a company which constitute a contract binding the company and the members, may say about the directors having general powers of management, the decision whether to sue when a wrong is done to the company or where there is an irregularity in the administration of a company is by the company in its general meetings as was decided in Alexander Ward and Co.Ltd V. Samyang Navigation Co.Ltd 350. In Pavlides V.Jensen,351 the directors sold an asset of the company to a third party at a gross under valuation. Minority shareholders commenced an action. It was held that he could not do so since it was up to the company to decide whether to sue the directors for negligence. Therefore, it is certain that, the company will not bring an action if the majority of votes in a general meeting resolve not to do so. In a situation when the directors have the support of the majority or if they have the majority votes, the wrong can be condoned 352. In order to prevent this malice of multiplicity of suits against companies, English Law developed a much more elaborate and restricted set of criteria for Companies’ rights against wrong doing in what has become known as the rule in Foss V. Harbottle353 Obviously, the rule in this case is that where there is a breach done to the company, individual members of the company cannot sue on behalf of the company that is, to take action on behalf of the company. This rule is certainly that which is now codified in section 299 of the CAMA. The reasons for the rule are that: -
It is the logical consequence of the fact that a company is a separate legal person. It is the company that has suffered a wrong, therefore it is the company which seek a remedy;
-
It preserves the principle of majority ;
349
NJEUFACK TEMGWA (R.), « La règle de la majorité en droit des société commerciales OHADA», in Annales de FSJP, Tome 10, 2006, P.88. 350 [ 1975] I. W.L.R. 673 at P. 679. 351 [1956] Ch. 656. 352 KUNALEN (S.) et al, op.cit, PP. 59-60. 353 (1843) 2. HARE.461.
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-
It prevents multiplicity of actions. If each shareholders were permitted to sue, the company might be subjected to many lawsuits commenced by numerous plaintiffs;and
-
It prevents futile actions. The facts of this case is as follows; the plaintiff and two other shareholders brought an
action on behalf of themselves , and all other shareholders except the defendants who were the directors were alleged to have sold the companies property to the promoters at an undervalue and the profit was not disclosed. The court held that the alleged wrong was a wrong done to the company and that the proper plaintiff in such situation was the company and that the proper plaintiff in such situation was the company itself. The court regarded the matter as one of internal management which constituted acts which could be ratified by a majority of the members and thus refused to entertain the suit. The reasoning of the court was that where it is possible for the general meeting to confirm what the directors have done, the minority could not be permitted to bring an action which might nullify the wishes of the majority of the shareholders. We humbly submitted that, this rule will be seen as restraining people to invest in companies where they can not exercise their right. Thus, directors can do what they like to do and have what they want to have, since shareholders can not influence them. In any case, if the rule in Foss V. Harbottle354 were an absolute rule, the minority shareholders would be completely at the mercy of the majority shareholders. To avoid the above situation, both legal systems under study couple with adding democratic principles and practices in corporate transaction have turned the tides and today, a rule that was almost made absolute has been mitigated through a democratic principle of protecting minority. Thus, the majority can be sanction for abuse of majority and the minority can be heard in court for undue use of majority. 2.4.2
Minority Protection at Common Law Inspired Companies Ordinance and OHADA Law. Talking about the protection of minority shareholders, we mean the rights minority
shareholders have under certain circumstances to bring an action against the majority shareholders or of the company when they are discontented. Whether the rights are laid down in a special regulation or statute is immaterial for, what is important is the fact that minority shareholders at least under certain circumstance have rights irrespective of the rule in Foss V. Harbottle355. 354 355
Supra note 353. Supra note 353.
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The rule allows the following exception: -
Restrain of future ultra vires acts by directors. Any members of the company may now seek an injunction from the court to restrain the company going into any illegal on ultra vires transaction from doing any act which the articles stipulates to be done via special resolution by ordinary resolutions; from any act or omission affecting the applicant individual rights as a member.
-
Where the company acts on a resolution that has not been properly passed. In this case, where the matter complained could only be carried on the approval of a special majority of the shareholders, that is to say, the requirement that a special resolution must be passed, and this was not done, in a situation where an ordinary resolution was passed , the minority can sue as was the case of Edwards V.Haliwel 356
-
Where the individual right of the plaintiff as a shareholder have been infringed. An individual member may institute an action in order to have his right enforced and his reward here shall be a declaration or injunction which will restrain the company or directors from the act complained of by the applicant and not that he is entitled to damages award as was illustrated in the case of Pender V. Lushington357this can be comparable to the situation under the Companies Ordinance where the members have the rights to protection against oppressive conduct. The member or members had a right to be protected against oppressive conduct committed either by the director or the majority shareholders358.
-
Where the majority is committing fraud on the minority. “Fraud” as used is restricted to that at common law and denotes fraud in the wider equitable sense, including cases where the directors negligently (but not fraudulently) confer benefits on themselves at the company’s expense359.
The UA has consolidated this position in its Articles 130, by indicating that collective resolutions based on undue use of the majority shall be void and may commit the partners who voted for them vis-à-vis the minority shareholders. There is undue use of majority powers when the majority shareholders vote in favour of a decision which serves solely their interest, goes contrary to the interest of the minority shareholders, and can not be justified interms of the company’s interests. Fraud can be illustrated using the following English cases: a- Expropriation of company’s property. 356
[1950] 2 A.E.R. P. 1064. (1877), 6 Ch. D.P.70. 358 For a fine discussion on this ,see generally; Sections 66-69 of the Companies Ordinance. 359 For a fine discussion on the exceptions under the rule in Foss V. Harbottles, see slso, Hicks (A.) and GOO (S.H.), Cases and Material on Company Law, op.cit., PP. 385-387. 357
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The majority cannot waive a breach of a directors’ fiduciary duty by approving a misappropriation by him of the company’s property, which would be a fraud on the minority. This is what, the majority of shareholders tried to do in cook V. Deeks360. In this case, the majority attempted to immunise the director’s from a contract which they negotiated in their personal names instead of company’s name by deciding that the company has no interest in the contract failed. b-An issue of shares designed to harm the minority. In Clements V, Clements Ltd361 the plaintiff held 45% of the issued shares and her aunt who was one of the directors of the company held 55%. The aunt’s shares were use at general meeting to pass a resolution to issue further shares to directors and to trustees of an employee’s shareowners scheme. The resolutions were carefully designed to reduce the plaintiff holdings from 45% to about 24.5%. This deprived her or her powers. The court set aside the resolution on grounds that they were oppressive to the plaintiff since they were designed to ensure that she could never get control of the company and to remove her negative control. Also directors who attempt to do something which requires a special or extra ordinary resolution, without first obtaining such a resolution, a simple majority will not ratify the act and also a reduction of capital designed to harm a class of shareholders and a negligent act which benefit the majority at the expense of the company will be considered as fraud on the minority. Minority therefore exercise their rights of suit through direct or personal action that is brought by any partner who has been deprived of his right. Again, a third party who has suffered an injury can institute action against the company 362. The UA goes ahead to reiterate that an individual suit shall not bar a partner or several partners from instituting an action in the interest of the company for damages or injuries that the company might have suffered 363. Following this disposition we can assumed that UA contemplates the possibility of representative actions either in favour of third parties or in the interest of the company. For derivative actions, or actions in the interest of the company, one or more partners may institute action in the company’s interest after serving a formal notice to management which fails to act within thirty days364. Thus, the right to sue is derived from the company since it is the company that has suffered as a result of the undue use of the majority power. Before a 360
[1916] I A C 554, post, P. 402 . [1976] 2. all . E.R. 268. 362 Art .162 UA. 363 Art. 163.UA. 364 Art. 167 UA. 361
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shareholder benefit from this possibility, the court must be satisfied in certain areas before granting it. These include the fact that the court will be made to know the directors who are at the roots of affairs and are instrumental to the wrong doings,365 the applicant must also be seen to be acting in good faith and the action must be seen to be brought in the interest of the company and for this reasons it could be prosecuted, defended or discontinued. Justice Mohammed Bello gave an important judgment on this issue of derivative action in the case of OMISADE V AKANDE
366
where he said “a minority shareholders action or derivative
action is a procedural advice by means of which on the principle equity, a relief, such as restitution or unjust enrichment by its directors, is sought on behalf of the company”. The UA reassures this right by reiterating that any disposition on company’s articles subjecting the institution of an action in the interest of the company to a prior notification of management or GM will be void367. The shareholders shall be bared from exercising this personal and derivative action after three years when the wrong was committed or following its disclosure where the tort was hidden. However, if the act is a crime, the right to seek redress shall lapse after ten years368. In order to limit multiplicity of actions, a shareholder must have a certain number of shares in order to be allowed to institute an action on behalf of the company. This is particularly in the case of private limited company and public limited company. In private Limited Company for a partner to be successful, he must be representing at least one quarter of the company’s total capital 369. As regard Public Limited Company, they must represent at least one- twentieth of the registered capital.370 Looking at these situations, we are tempted to doubt the reality of minority shareholders, protection. The raison d’être for this is because in a situation where the company is reluctant to take an action, the minority shareholders will be frustrated to do so on behalf of the company. The situation is deplorable when the minority’s shareholding is not up to the number of shares that can give him access to the general meeting, which is the only milieu where he can express his worries. From the above discussion, we can see that the distribution of power in a corporate entity both under English law and OHADA Law is not an easy task. Because of the complicated nature of company administration some organs which are very vital have been put in place to 365
ELEBIYO (J.A.Y.) , The Balance of Power in a corporate Entity: An appraisal of the Companies and Allied Matters Decree, op.cit., P. 62-3. 366 [1987] 2 NWLR (P+55) 158 at P. 159. 367 Art. 168, 169, and 172, UA. 368 Art. 743 UA. 369 Art. 331UA. 370 Art. 741, U A.
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better administer the company. In order to avoid the abuse of power both Laws have separated these organs and spelled out their competence. These vital organs which are the management organs that is been headed by the Board of Directors and the deliberative organ driven by the Company’s owners in their capacity as shareholders are at most of the times at conflict. Be it management or deliberative organ, it should be borne in mind that under both legal systems at the center of our study, the Articles of Association and the Memorandum of Association most of the time acts as a reference book for the powers of these administrators. The success of any company depends on how these laws are respected. Even if both legal systems have put forth a complicated system of administration of a Public Limited Company (SA) by a board of directors, The UA has introduced as an innovation the administration of a public limited company by a sole managing director. So today, within the OHADA jurisdiction, a single person can run and operate a public limited company alone. Unlike the powers of a sole proprietor which can likely give rise to abuse because it is not check,371 OHADA Law just like English Law has brought in the shareholders and their meetings to act as a check on the powers of these directors. This is an attempt made by the two legislators in order to try as much as possible to avoid the abuse of power in the administration of corporate entity and at the same moment trying to equate power in the administration of companies. The shareholders and their meetings both under the UA and the Common law inspired Companies Ordinance has been a forum which stands out clearly to counter balance the enormous powers of the directors in the administration of companies. They usually do this through their classical methods of questioning the directors on financial aspect of the company and in acts which may ruin down their investment in the company and thus the closing of the company. Under both systems under study, it seems that directors have been privileged with so many powers in the administration of the company; the constant use of the phrase; “The directors shall act in the widest powers” by both laws best substantiate this ideal. However be that as it may be, the multiplicity of structures that received powers in the administration of a company the directors always stand out distinguishing with enormous powers.
371
AYAWA TSAKADI (A.), «Réflexions sur les pouvoir de l’associé unique», in Juridis Périodique n o 81, Janvier- Février- Mars, 2010, P.83.
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PART TWO LIMITS AND LIABILITIES OF CORPORATE ADMINISTRATORS
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Even if the Common Law inspired Companies Ordinance and the UA have portrayed directors as dragging the blanket on it side so far as the distribution of power in the administration of the company is concerned, there are also possibilities which have been put in place by these Laws in order to limit the powers of these directors and by so doing trying to balance power between the directors and the shareholders who are always at conflict as to who is supreme in the administration of the company. The limit to the powers of directors can be seen through the institution of the control organs which act as a watch dog on the powers of the directors. This control be it either under Common law or OHADA business law, usually takes the form of internal and external control undertaken by the shareholders and the statutory auditors respectively. The two systems under study have made provision for circumstances under which the company administrators can be held liable for their misdeeds or wrongdoing. This is also an attempt made by these Laws to make the directors to be aware of what awaits them if they act contrary to the powers laid down in the Articles and memorandum of Association as the case may be. Their liability under both systems can either be civil or criminal depending on the nature of the act committed372. Even if the two laws have made provisions for civil and criminal liabilities of company administrators, the English law, is some how advance than OHADA law since it has provide for the criminal liabilities of companies. For a better comprehension of this part of the dissertation, we have decided to treat the limit to the powers of the corporate administrators in chapter three and the liabilities of these administrators is the preoccupation of chapter four.
372
For a fine discussion on the liabilities of corporate administrators, see POUGOUE (P-G.) et al, op. cit; PP.119-144. See also generally NJEUFACK TEMGWA (R.), « La responsabilité de dirigeants des sociétés commerciales », op.cit, .
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CHAPTER THREE
LIMITS TO THE POWERS OF CORPORATE ADMINISTRATORS
It is no longer an illusion to affirm that directors have important powers to exercise in the company under both the Common Law inspired Companies Ordinance and OHADA Law. In discharging these powers, they must not interfere into the powers reserved to the company in general meeting and those reserved especially to the board of directors. The directors in their relationship with the third party contract even on matters that does not full within the object of the company. As a result of this, the English and OHADA Law thought it wise to limit it powers so as to avoid abuse or arbitrary use of power. It is in line with this that both legislators brought in the notion of political right of shareholders especially that of information as discussed above. Because of the various opportunities put to the shareholders, they can through the company’s document control the directors. This can be term internal control373, which is usually exercised through their obligation to inform the shareholders. The account presented by the directors must be a reality of their expenditure. It is in a bid to attained this objective that both the English and OHADA Law have brought in third parties to control the account presented by the directors and to inform the shareholders of the reality of this account after their investigation. This is term external control carried out by statutory auditors374. 3.1 The obligation to inform shareholders This can also be referred to as one of the most important political right of the shareholder which has been detailly discussed under the political right of shareholders. Both English and OHADA Law have classify this obligation to inform shareholders as being so important in the control of a company since it acts as a check on the power of its administrators or directors. The UA unlike the Common Law inspired Companies Ordinance has classified it under occasional or periodic information and permanent or continuous information. The shareholders also have been accorded new mechanism to interrogate the management body of the company. This new mechanism which can be regarded as an innovation from the classical function of information brought forward by OHADA Law seem to be better effective if properly use. Under this head, we are envisaging alert procedure by 373 374
POUGOUE (P-G.) et al, op.cit, P. 233. Ibid.
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the shareholders and management evaluation taken up by a judge at the request of any disgruntle shareholder. 3.1.2 Alert procedure by the shareholders. This can be term as measure which are undertaken to prevent a devastating situation that is about to occur in the company. This is an innovative measure given to the shareholders by the UA to control and check on the powers of corporate administrators. Any shareholder who is not a member of the management has the right twice a year to sent written questions to the management regarding anything which may jeopardized the continuation of the company’s activities375. The management must reply to such questions within one month and if the company has an auditor then it must sent a copy of its response to him. The Common Law inspired Companies Ordinance unlike the UA has not made provision for this early warning procedure initiated by the shareholders. This procedure will lead to scare the company’s directors from abusing power of management bestowed on them thus making them to be conscious of their duties as administrators or director. This power of the shareholders shows us that although directors have the widest power to act on behalf of the company, they are not all that “almighty”. However, if the directors failed to reply to the worries of the shareholders, they cannot just sit and fold their hands, to see their investment been ruined down. They have an option to take the matter to a judge to help them investigate the situation and if possible bring things under normal condition. 3.1.3
Management Evaluation.
This is another possibility given to the shareholder to call the directors to order. Here we see the intervention of a third party in the company’s affairs. Management evaluation can be defined as the possibility given to shareholders, especially minorities, who represent a reasonable fraction of the company capital, to demand for an investigation on one or more operations of management. We must say that the institution of management evaluation is one of the remarkable innovations of the UA on the law of commercial companies in Africa. This is another means of respecting the right of the minority shareholders by a judicial action376. According to Articles 159 -160 of the UA, a shareholder who seem not to be clear on the management of the company despite the information furnished to him, has the right to ask the court to carry out management evaluation in order to clarify him or her on certain matters not 375
Art.158AU. MEUKE (B.Y.), «L’information des Actionnaires minoritaires dans L’OHADA : Réflexion sur l’expertise de gestion», www.ohada.com 376
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clear to him. This procedure acts also as a source of information and a means of control of the company by the minority shareholders377. As regard the designation of an expert, the UA has made provision for the designation of one or more partners holding at least one fifth of the company’s authorized capital may, either individually or as a group formed in any manner, petition to the president of the competent court of the registered office of the company to designate one or more experts to make a report on one or more management operation 378. Regarding this disposition, we can say without fear that the legislator has given a possibility to the judge to appreciate on this matter. But this liberty given to the judge need not be abused. Despite the silence of the UA, we think that his choice of expert has to be guided by, objectiveness, competence, neutrality and independence of the expert. He can not appoint as expert an auditor that has once worked in the company. As regard the president of the competent court, the UA, still is not quite clear. We can ask ourselves which president is he talking of? Is it the president that sits on referra matters or of the competent court president as regard commercial matters? Solution to this preoccupation can only be found at case law 379. The competent judge here is that who presides over commercial matters and exceptionally the juge de refere380 . Although it is the shareholder that solicited for this management evaluation, the judge has a major role to play. He is in charge of spelling out his power and scope. This is what OHADA Law clearly spelled out in Article 160 of the UA. The disposition of this article is thus: “where such a request is granted, the judge shall determine the scope of the mission and the extent of the powers of the expert. The expert fees shall be borne by the company. The report shall be forwarded to the applicant and to the management, supervisory and administrative structure of the company”. The UA by providing the possibility for the shareholders, especially the minority shareholder to intervene in the management of a company through judicial intervention is quiet innovative and welcoming. This will help to limit the powers of the company administrators or directors, since they, the shareholders have powers to oversee that management is going on smoothly and take action immediately they notice irregularity in the administration of the company by using the court room. 377
Ibid. Art.159 UA. 379 POUGOUE (P-G.) et al, «Traite et Acte Uniforme commentes et annotes», op.cit., P. 375. 380 TPI de Bafang ordonnance de refere n0 27/ord / civ. / TP/ 2007 du 25 Mai 2007, affaire sieur Noubicier c/ Ngamako Michel, commentée par Yvette Rachel KALIEU, in juridis périodique N 0 78, Avril- Juin 2009, PP. 2336 378
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The limits to the powers of company administrators or directors cannot only be taken by shareholders through their means of information that give them the opportunity to participate in management. Thanks to the alert procedure and management evaluation, they can seek the assistance of some professional to control the document of the company and report to them the result of such controls. 3.2
Accounting obligation Apart from the internal control exercise by the shareholders, the UA 381 like the Common
Law inspired Companies Ordinance382 has made provisions for an appointment of one or more auditors in a company to carry out external control of the company. 3.2.1
The position of statutory auditors The function of an auditor shall be performed by a physical person or by companies
incorporated by natural persons. The role is that of representation when the author is a moral person. In the OHADA member states, a person shall be appointed auditor only if he belongs to a recognized association of chartered accountants. In Cameroon, to become an auditor you must be a member of the National Order of Cameroon Chartered Accountant (ONECCA) 383. In Central Africa, it must be by a decision of the direction Organ of CEMAC and at times must belong to the Association of chartered Accountants in the country of origin. The situation in Cameroon is similar to that of Nigeria, where Section 358(1) of CAMA has provided that a person shall be qualified as an auditor only if he is a member of the institute of chartered accountants of Nigeria Companies Act 1965. Thus, an auditor can only be chosen from an authorized professional group384. Although the profession of auditors is a liberal one, there is however, the exigency of a guarantee of competence and morality. 3.2.1.1
Nomination of Auditors The UA like the Common Law inspired Companies Ordinance has made it possible
for the first auditors and their alternates to be designated in the Articles of Association or appointed by the constituent general meeting. During the life of the company, the first auditor and his alternate shall be appointed by ordinary general meeting385.
381
Art. 694.UA. Companies Ordinance, Section 119 (1). 383 My translation. 384 EQUIPE H.S.D; Droit Commercial et des Société en Afrique, op.cit. P. 101. 385 See article 703 of the UA; see also article 119 (5) of the Companies Ordinance. 382
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In a public limited company, it is obligatory to them to nominate an auditor and an assistant. If the company is making or makes public call of capital, they are bound to nominate two auditors and two assistants386. The UA has also made provision for an exception where an auditor or auditors may not be appointed by the Articles of Association or constituent general meeting. Under this head, there shall be appointed by a decision of a competent court in two hypotheses; where there was an omission to appoint auditors, by the assembly and /or where the person appointed has petitioned against. If the auditor appointed has petition, an action must be begin within thirty days from the petition nomination by one or more shareholders or partners representing at least 10% of the share capital387. The independence of auditors is justified by the fact that they are subjected to a regime of incompatibilities388. The worry as to whether two professionals that belong to a single firm may be appointed as statutory auditor and deputy respectively, will depend largely on the national and the professional rules applying in the member state concerned as the case may be. We see that both UA and the Common Law inspired Companies Ordinance are running on the same line as far as the nominations of auditors are concerned. Be that as it may, auditors under the two legal systems does not hold office for life, like directors and other officers of the company, they have their duration under which they can exercise their power. 3.2.1.2
Duration of their functions The term of office of statutory auditors and deputies under OHADA Law is two
financial years, expiring at the end of the ordinary general meeting at which the company’s annual accounts for second financial year are submitted to the shareholders for approval. Auditors appointed during the existence of the company by the ordinary general meeting shall have a term of office of six years 389. In a case of auditors appointed by the court their term of office will terminate when the general meeting appoints one390. Under the Companies Ordinance the auditor only hold office for one year whether he is appointed during the constituent general meeting or annual general meeting391. The Companies Ordinance unlike the OHADA Uniform Act has provided for a shorter term of office for auditors. This may hinder the auditors to carry out their powers since it may 386
NGUE (R.E.), “Mon” Commissaire aux comptes dans l’espace OHADA, Editions Afecac, 2010, P.72. NGOMO (A-F.). op.cit., P.117. 388 Articles 378, 697 and 700 UA, see also section 119(3) Companies Ordinance. 389 Article 704-705. UA. 390 Art.708 UA. 391 Section 119(1) Companies Ordinance. 387
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be very difficult for them to get acquainted with the financial situation of the company during this shorter time period of one year. The duration accorded by the UA is welcoming since it will enable the auditors to have enough time to master the financial situation of the company and hence promote effective control of account which is their primordial interest. The position under private limited companies is quiet different from what is obtained under public limited companies. In SARL, one or several partners controlling more than half of the registered capital shall appoint auditors for three fiscal years. But under circumstances where this majority is not obtained, and unless otherwise stipulated by the Articles of Association, the auditors shall be chosen by a simple majority vote, irrespective of share capital represented392. 3.2.1.3
Remuneration of Auditors. The auditors do not perform their functions for free. Both Laws have recognised this
fact. Under the Uniform Act, the company shall bear their fees and the amount shall be fixed globally no matter the number of auditors who shall share the fee among them 393. Our worry here as concerned this provision is that, on what bases is this remuneration negotiated. The UA has not given any solution. We affirmed with these learned professors 394 that this is freely negotiated with the company administrators. Because of this, we are tempted to ask ourselves how far the auditors are independent in the performance of their duties 395. Also, the company shall take care of the expenses of the auditors incurred in the discharged of his duties. These expenses can be travelling and subsistences expenses, it may also include additional professional activities carried out on behalf of the company or/and board. The Companies Ordinance just like the UA has made mentioned of remuneration of auditors. Under this Ordinance, the remuneration of the auditors of a company shall be fixed by the company in general meetings except that the remuneration of any auditors appointed before the statutory meetings, or to fill any casual vacancy, may be fixed by the directors396. We see that the two legal systems are almost the same as far as the remuneration of auditors are concerned. The Nigeria law has not been left aside as concerned the remuneration of auditors. The remuneration of the auditors of a company in the case of an auditor appointed by the directors 392
Art.379 UA. Art.723 UA. 394 POUGOUE (P-G.), ANOUKAHA (F.), NGUEBOU (J.), op. cit., P.238. 395 TAKAFO KENFACK (D.), «L’efficacité du contrôle des commissaire aux comptes dans la société anonyme (OHADA) », Mémoire de DEA, Université de Dschang, Fev. 2008 ,P. 58. 396 See Section 119(7) of the Companies Ordinance. 393
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may be fixed by the directors; or shall be fixed by the company in general meeting or in such manner as the company in general meeting may determine397. Remuneration here includes sums paid by the company in respect of the auditors’ expenses398. We noticed from the above that, so far as the remuneration of auditors are concerned, the three legal systems are the same on the law surrounding remuneration of auditors. If the auditors are been remunerated, it is because they put in their service at the disposal of the company. It is in line with the saying that ‘no work, no pay’. Their role in the control of the company’s account is so important since through them the financial health of the company is taken good care of and the arbitrary use of power by the company directors denounced399. 3.2.1.4
The role of statutory auditors. Auditors have rights and obligations that are given to them by both laws400.
Even if they play other roles, 401 they have functions that are peculiar to them only. Their role has been moved from the classical role to what can be termed as the new roles of the auditors402. The auditor is one of the pillars that assure good governance in the company. It is for this reason that both laws have given them very important role in the control of the company’s account. Their role can be broadly described as preventive. It is often said that prevention is better than cure, so the auditors take all necessary measures to prevent any difficulties that might result from the company’s directors mismanagement. They have as power to control with regard to their appellation, the legal revision of the company accounts, information obligation and alert procedure403. 3.2.1.4.1
Control of accounts
The auditors has as it primary mission to audit the assets and the accounting book of the company and to ensure that the present account responds to the legal qualification of regularity, sincerity and faithfulness404. The auditor has the power also to control the capital of the company. This control of the capital of the company can either be general or, and special control405. The auditors shall certify the company financial statement with an objective to verify the accuracy of the information given in the board management report and also in the 397
Section 361 (1) (a) & (b) of CAMA. ASOMUGHA (E.M.), op.cit., P.358. 399 TAKAFO KENFACK (D.), op. cit., P.6. 400 See Articles 718-724 as regards the right of auditors, See also Article 710 -717 of the same Act as regard the obligations of auditors. For a fine decision of the right and obligation under the Companies Ordinance, see generally Section120. 401 Articles 516 of UA. 402 MFOU EUGENE (J-M.), « Le principe de la séparation des organes dans les sociétés anonymes», op.cit., P.28 403 Article 150-150 UA, see also Companies Ordinance Section 120 404 Article 712, UA. See also Section 120 (i) of the Companies Ordinance. 405 NGUE (R.E.), «Mon» commissionnaire aux comptes dans l’espace OHADA, op.cit, P. 75. 398
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documents on the financial situation addressed to the shareholders. They also have to control the account of the company established by the directors. In their general mission or particular mission, the auditors shall have as mission to prepare a report in which they inform the board on the audit’s verifications and investigations that have been carried out, the items in the balance sheet and others accounting documents to which they consider if an amendment should be made, with any relevant remarks as to the valuation or proper method used in the preparation of these books, any irregularities and inaccuracies discovered, their conclusion, and recommendations taking into accounts the financial year, compared to those of the previous financial year406. This report must be made available to the chairman of the board or managing directors as the case may be, before the meeting of the board or the decision of the managing director or manager which adopt the annual account. Auditors have to be invited to all meeting of shareholders and as the case may be to the board meeting adopting the accounts of the fiscal year. Auditors when controlling the account of the company, however, he is not responsible for matters that are concealed from him. But if there are suspicious circumstances he must fully investigate them407. It is also important to note that an auditor must not confine themselves to checking the mere arithmetical calculation, but must ensure that the books show correct financial position. He is not responsible for tracking ingenius and skilful schemes of fraud when there is nothing to arouse his suspicion408. Auditors shall have as special control, the control of agreements passed between companies and their directors409. Auditors also play a very important role during capital increase of a company. Although it is the sole responsibility of the extraordinary meeting to do so, they can only react depending on the report made by the auditors 410, during the preemptive right of subscription, auditors give their opinion on the proposal and choice of data for calculating the issue price and on its amount411. In the performance of their special mission, the auditors have to prepare a special report on any regulated agreement. OHADA Law is a step advanced than the English law, as regard the control of companies’ accounts. The step taken to separate auditor’s special and general questions makes the difference between the laws. 406
Article715 UA. COLIN (T.) Company law, 2nd Edition, United kingdom, Teach Yourself books, 1990, P.173. 408 Ibid. 409 Art.438 UA. 410 Art.564UA. 411 Art. 591, UA. 407
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3.2.1.4.2
Information obligation
This is one of the major roles of the auditors. They must inform the shareholders or partners of the outcome of their investigations412. They shall equally inform the board of directors and public prosecutor during the next general meeting of any irregularities and inaccuracies discovered in the course of performing their duties413. During the performance of their duties, they shall not be bound to disclose any information that they acquired to a third party. They shall be liable for disclosure and violation or non respect of professional secrets if they do so414. The Companies Ordinance just like the UA has recognized this duty of information of the auditors. The auditor shall make a report to the shareholders on the accounts examined by them, and on every balance sheet laid before the company in general meeting during his tenure of office. 3.2.1.4.3
Alert procedure by the auditors.
This is one of the major innovations in the UA in this area of the law 415. It is also called the new mission of the auditor since it never existed before the coming inforce of the UA416. From its creations it was a technical preventive measure of company’s difficulties. But with the globalisation of the economy, it has become a venture means of control. The UA has recognised this to the auditors and shareholders which are the principal actors in the control the company417. By according auditors this possibility, the UA has reinforced its field of influenced. Auditors may seek for explanation from the managers, chairman of the board of directors, chairman or managing director who shall be bound to reply in respect of any matter which is likely to jeopardize the continuous operation of the company and which the auditor noticed while examining documents forwarded to him or those he had access to in the performance of his duties418. The chairman or manager or managing directors as the case may be shall be bound to reply in the same manner within one month after receiving the auditors report, giving analyses of the situation and specify, where necessary, the measures envisage to redress the situation. 412
Art 713. UA. Art 715,716,UA. 414 Section 310, Cameron Penal Code. 415 SAWADOGO (F.M.), Droit des entreprises en difficultés, Bruylant, Bruxelle, 2002, P.5. 416 The alert procedure started in France with the law of 1 st March 1984, that is, Law no84-148 of 1st March 1984, relating to the prevention and regulation of difficulties amicably in companies. 417 TAKAFO KENFACK (D.), «Faut-il supprime l’alerte dans l’espace OHADA ? », in Juridis Périodique no81, Janvier- Février- Mars 2010, P.106. 418 Article 150-153 UA. 413
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The auditors act on behalf of the shareholders who are the sovereign owners of the company, and all other persons and institutions interested with the functioning of the company. The UA through this procedure has given the possibility to the auditors to always dictate any illness that might jeopardize the smooth functioning of the company. Unlike the shareholders, it is an obligation for the auditors to start this procedure. This is the reason why this procedure is more effective under the auditors than that under the shareholders. In order to make this procedure more effective, OHADA Law should give the salary earners and creditors of the company the possibility to initiate it. Their interest must be taken into. If this consideration is taken into effect, then this procedure is going to better play the important role it has in our economy so far as control and prevention of difficulties is concerned in companies419. The Nigerian law has made the control of companies more effective as compared to the situation under the UA and the Companies Ordinance. There has been the institution of the audit committee420. This is one of the major innovations brought by the CAMA in its Section 359(3). It has become mandatory in Nigeria today for every company to have an audit committee. The principal duty of this committee is to examine the report of the auditors and make recommendations thereon to the AGM as it may think fit 421. Their composition is made up of both executive and independent directors, the ideal being to provide a means whereby the independent directors can monitor the financial activities of the company as operated by the management so as to correct any inevitable bias on the management including the executive directors422. It can be safely stated that the institution of the audit committee is part of the continuous effort of the Nigerian legislator to balance the interest of the shareholders and the public on the one hand against those of the board of directors and management on the other. The Nigerian legislator might have been inspired with what is obtained in other countries. In the United States of America they were established in the 70s and by the end of the decade, the over whelming number of P.L.C. had audit committee. Unlike in Canada where the institution of audit committee is mandatory 423,in U.K this institution is recognize but it has not yet be made been mandatory. The UA and the Common Law inspired Companies Ordinance has both recognised the important role auditors play in the control and prevention of difficulties in companies. The 419
TAKAFO KENFACK (D.), «Faut-il supprime l’alerte dans l’espace OHADA? », op.cit, P.108. OLAKUNLE OROJO (J.), op.cit. P.396. 421 Section 359(4) CAMA. 422 Ibid. 423 Canada Business Corporation Act, 1975. 420
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UA even if has done much to reinforce the powers of the auditors, more effort has to be made in order to meet up with the increasing exigencies of the modern economy today. They should take the lesson from what is obtained in Nigeria, Canada, United States and UK by putting in place the institution of audit committee which could better over see control in the companies. If the economies of these countries are booming today, it is no surprise that it is thanks to corporate good laws that are being put in place.
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CHAPTER FOUR LIABILITIES OF COMPANY ADMINISTRATORS
The main objective of this chapter is to examine the liabilities of persons involved in the management of companies under the Common Law inspired Companies Ordinance and the Uniform Act Relating to Commercial Companies and Economic Interests Groups. As aforementioned, a company is a person in the eyes of the law quite different from persons who made up its members. It should be borne in mind that this notion of artificial person in France was limited only to public law since it was used as regard only to states and its collectivities424. This notion saw the dawn in France only after the 19 th century when case law and certain texts brought up an actual theory 425, consecrating the implicit patrimonial autonomy of companies. By this implication, a company was eligible to own property, have rights and be subjected to liabilities and it does not hold its property as agent or trustees for its members426. Under common law, it was first recognized in the case of Salomon v Salomon & co Ltd427, that a company is a different person from the subscribers to the memorandum. The company therefore, will be liable for the acts of its agents when it is within the scope of their employment since it is on the company’s behalf that they performed such acts. The notion of legal personality only materialized when the company has been issued a certificate of incorporation under common law and upon its registration in the Trade and Personal Property Credit Register under the UA. Keeping this notion of a separate legal personality aside, liabilities can result from company management and to some extent the veil of incorporation is lifted to engage the liability of its directors. Company administrators have been given wide powers in the administration and management of the company. In the exercise of their functions, their actions usually bind the company. When company administrators breach any legal or contractual obligation which gives rise to prejudice to the company shareholders or third parties, they are held liable428. Company administrators are therefore responsible for any fault they committed in the process of administration. The aim of their liabilities is to act as a check 424
MERLE (Ph.), Droit Commercial, Sociétés Commerciales, 9éme éd. Dalloz, 2003, P.103. Ibid. 426 Macaura v Northern Assurance co. Ltd [1928] AC 619 at 629. 427 (1887) AC 22 428 NJUEUFACK TEMGWA (R.), op. cit., P.5. 425
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on the wide powers given to the company administrators and at the same time making them to know what awaited them if they abuse such powers or breach their duties. OHADA law unlike the English Law is very silent on the liabilities of a corporation. The UA only make mention of the liabilities of corporate administrators when the company is still going on smoothly and not when the company is in difficulties. However, the Uniform Act Organizing Collective Proceedings for Wiping- off Debts have taken cognizance of such liabilities especially during the liquidation of the company property. The definition of legal liability has not been provided by the OHADA Uniform Acts. Nevertheless, it only provides for two types of liabilities which can be group into civil and criminal liabilities429. The Common law inspired Companies Ordinance just like the Uniform Act has categorized these liabilities into civil and criminal liabilities. For a better understanding of these liabilities, we shall be discussing civil liabilities on the one hand and criminal liabilities of corporate administrators on the other hand. 4.1
Civil liabilities of company administrators When we are talking of civil liability of company administrators under this section of
the work, we are simply referring to the circumstances when the company administrators owes an obligation toward the company for whom they work or a third party. If the administrator fails to respect these obligations, then the company or the third party who has suffered damage as a result of this failure can institute an action in a court of law against these administrators so that the damages can be cured. Unlike criminal liabilities which are aimed at punishing the wrong doing and deter them from never committing such an act, the main objective of civil liabilities is to redress by compensation the injured party. It is worthy to note that both systems under study have not given a definition of civil liability but went on to provide circumstances under which such liabilities can be engage. If the management’s mistakes which resulted into liability are committed by severally members of the management, they are jointly and severally liable. It is the court who shall determine the amount to be paid by each of the administrator as regard their relation with each other430. Before company administrators are liable for damages caused by their mistakes, it must however be shown that such damages came about as a result of the following situations; where the act is a criminal offence which can call for an attachment of a civil claim, where there has been a poor management of the company resulting from negligence or imprudence
429 430
See generally Articles 160-172, 330-332, 740-743 and 886-905 of the Uniform Act. Art. 161 UA.
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and finally it must be proved that the mistakes result from a violation of the Uniform Act or Articles of Association even in circumstances where there has been no criminal penalty. The English law just like OHADA law has traced the origin of civil liability of company administrators as coming from a breach of particular legislation or must have failed to perform his duties or must have acted negligently or in breach of the duty of care. This breach however can be as a result of mistake. But it is regrettable that no definition has been given as regard mistake by OHADA law431 Unlike corporate law in Anglo-Saxon jurisdictions, under the UA, a public limited company administrator could be found liable for damages caused by managerial errors432. Their liabilities can be seen during the formation of the company and also during the functional phase of the company. Also, directors can be personally liable in tort and contract. Third parties however have right to claim against the directors when they are at fault. Company administrators can also be liable when the company is in difficulties or in case of insolvency. The Common Law unlike OHADA business law has gone a step further to extend liabilities of company administrators through piercing the corporate veil to make directors liable. Claimants of rights can institute actions against company administrators either in their own interest or in the interest of the company. 4.1.1
Liabilities during Formation Here both the UA and the Companies Ordinance strive to ensure that the rules relating
to the formation of a company are scrupulously respected. This is because, if a company is not well formed, it cannot function433. The reason for this is aimed at protecting the interest of those who never took part in the constitution of the company. Liability can result from mistakes which can either be intentional or unintentional, that can be seen through the disrespect of rules relating to the formation of companies. The rule here is that those in charge of accomplishing the formalities of the creation of a company must ensure that no prejudice is caused to the shareholders or third parties. Compensations provided for the breach of the requirement for the formation of companies are aimed at ensuring that these requirements are properly respected. It is the duty of the founders and the first directors to ensure that the company is regularly created. In the absence of this, 431
KAMNANG KOMGUEP (R-F.), «La Faute de Gestion dans le droit Uniforme OHADA », Mémoire de DEA, Université de Dschang, Novembre 2004, P.3. 432 BARTHELEMY (M.) et al, France business law, taxation, social law, op.cit. P.58. 433 KENE (V.L.), «Les Règles de constitution des sociétés commerciales dans le droit des sociétés OHADA », Mémoire de DEA,Université de Dschang, 1998, P.3.
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what await them is nothing apart from their liability been engaged. It is in line with this that the UA has provided that the founders of the company who are responsible for the nullity of the company and directors in office at the time when the nullity was declared may be held jointly and severally for damages suffered by shareholders or third parties as a result of the nullity of the company434. This means that their liabilities can originate from offences against the laws and regulations applicable to public limited companies or for offences committed within the period of formation of the company435. Both the Common law inspired Companies Ordinance just like the UA has treated this issue of the liability of promoter or directors during the company formation. Remedies under this legislation have been made available to those persons who have acquired shares in a company on the basis of a prospectus containing false statements or which had omitted prescribed information. The information that need to be put under this Ordinance 436 was too numerous and it contained issues such as: details of the actual issue such as shares, the number of subscription, right attached to the shares, subscription and allotment procedures; sufficient information relating to assets and liabilities of the company such as information on contract relating to the sale of company property or existing business437. According to Section 84 (2) of the Companies Ordinance, it is an obligation to the director or proposed director to sign a copy of every prospectus and file it for registration before its publication. The Registrar is forbidden to register a prospectus unless it was dated and signed by every persons named thereon as a director of the company 438. The prospectus must also carry the indication showing that the company has been filed for registration. Any person that failed to comply with this provision is liable to a fine following Section 84 of this Ordinance. The intention or objective of English law here is aimed at protecting members of the public who are the potential buyers of the company shares. Thus, if the promoters or directors had been fraudulent in misrepresenting facts stated in the prospectus, they have to be liable in damages for the tort of deceit. Following Section 90 (2) of the Companies Ordinance, directors were persons duly appointed by the company to direct and manage the business of the company without 434
Art. 738 (1) UA. Art. 740 (1) UA. 436 Section 86 (1) 435
437 438
TABE TABE (S.), «Company Formation », op. cit. P.344. Section 84 (3) Companies Ordinance.
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misleading the public. This point can be buttressed by the judgment of Jessel M.R. when he said: “Directors have sometimes been called trustees, commercial trustees, and sometimes they have been called managing partners. It does not matter what you call them so long as you understand what their true position is, which is that they are really commercial men managing a trading concern for the benefit of themselves and all the other shareholders in it”439. Both legal systems under study have taken cognizance of the liability of company directors during company formation. Linked to the liabilities of company administrators during the formation of a company are the liability for gross-over-valuation of contributions in kind and the liability for torts of omission of a mandatory detail in the Articles of Association and acts of nullity. 4.1.1.1 Liability for Gross-over-valuation of Contribution in Kind The UA has made it possible for the Articles of Association to contain the evaluation of in-kind contribution and any benefit that might accrue from it 440. It is the responsibility of the share auditor to carry out such an evaluation in cases where the value of the contribution or benefit or the overall contribution or benefit at hand exceed the sum of five million CFA Francs. The share auditor who is been appointed by the president of the competent court in accordance with the view of the company’s founder, shall draw up a report of the evaluation in kind which is attached to the constitution of the company or the Articles of Association. Pursuant to Articles 312 and 408 0f the Uniform Act the shareholders and directors of private limited company and public limited company are jointly and severally liable via-avisthird parties for a period of five years for the value attributed to contributions in kind and/or special benefits when this is different from the value determined by the in-kind contributor appraiser. This gross over- valuation of contribution in kind is aimed at giving the public a wrong picture about the credibility of the company’s assets. Thus the founders of the company will be liable for the gross-over-valuation made by the share auditor. The same will go too with the auditor who shall be liable to the company and third parties for this negligence in the exercise of his duties. However, following Article 726 of this UA, the auditor shall not be liable for damages resulting from by offences committed by the members of the board of directors or by the managing director as the case may be, unless where he has knowledge of them and fails to disclose them in his report to the general meeting. 439 440
In the Forest of Dean Coal Mining Co. (1878) 10 Ch.D. 450 at P. 451-452. Art. 312 UA.
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Any action for damages against an auditor shall lapse after a period of three years from the date of commission of the tort or where such tort was hidden from the date of its discovery441. However, where such deed is described as a felony, the action shall lapse after a period of ten years442. At Common law, the liability of an auditor can either be in tort or contract. In contract, an auditor has a contract with the company and if he is in breach of his duty in regard to the work he has agreed to do for the company, which is normally set out in a letter of engagement, he can be sued by the company for damages. As regard tort, an auditor here will normally be in negligence. It is unlikely that a professional person would make statements which he knew to be false in order to deceive a party, but if he did, the claim would be in the tort of deceit 443. To succeed in a claim for negligence, the plaintiff must show that the defendant auditor owed him a duty of care, that the auditor was in breach of that duty and finally that the breach caused the damage to the plaintiff444. The Common Law unlike the Uniform Act has not properly treated this liability of auditor as regard gross-over-contribution in kind, but we can deduce from the duties of auditors under both common law and Companies Ordinance that any auditor who intentionally give a wrong figure of in kind contribution shall be liable for damages caused by his wrong valuation. During the company formation the liabilities of the company administrators can result from torts of omission of particular detail in the Articles of Association and also as a result of acts of nullity. 4.1.1.2
Liability for torts or Omission of a mandatory detail in the Articles of Association and acts of nullity Company administrators that took part in the formation of a company may be liable for
any torts they commit. It is in line with this notion that the UA has made provision that, even managers shall be liable jointly or severally as the case may be to the company or third parties for violations of legal or statutory provisions applicable to private limited companies or for violations of the Articles of Association or for mistakes made during their management 445. In a
441
Art. 727 UA. Ibid. 443 DENIS KEENAN; Smith and Keenan’s Company Law for students, op. cit., P. 419. 444 Ibid. 445 Art. 330 (1) UA. 442
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situation where several of them were involved in the commission of the torts, the court shall determine the amount of damages to be paid by each of them446. The UA has also made it possible for the first shareholders of the company and the first members of management to be jointly and severally liable for torts caused by an omission of a mandatory detail in the Articles of Association or for the omission or improper fulfillment of a prescribed formality for the constitution of the company447. Also in a situation where there is an amendment of the Articles of Association, the members of the management organs, directors or managing directors in office at the time, shall incur the same liabilities448. To also ensure the protection of investors, the UA equally contemplates possibilities for liability for acts of nullity. This may be in order to make sure that the rules of contract are properly respected. It is in this line that this prompted the UA to stipulate that partners and company executives to whom nullity is attributed may be declared jointly and severally liable for any damage suffered by third parties for the nullity of the company. So, the partners and company executives could be vicariously liable for acts or omissions committed by other members of the company which results to the nullity of the company. The Common Law inspired Companies Ordinance just like the Uniform Act has make mention of the liability of company administrators as regard torts or omission of a mandatory detail in the Articles of Association. This can be found under Section 86(i) of the Ordinance. Failure of the first directors or promoter to provide such information in the prospectus as mentioned above shall call for his liability. So the two systems under study have admitted the fact that, failure by the directors to comply with the laws governing a particular type of company or to respect the articles (under OHADA law) or the Articles and Memorandum of Association under the Common law inspired Companies Ordinance shall be liable to both the company and third parties for any damages as a result of this. However, the Common Law inspired Companies Ordinance unlike the UA has not made mention of liability that can result from the nullity of a company. This stands out as a major difference between OHADA Business Laws on the one hand and on the other hand the Companies Ordinance when assessing the liabilities of company administrators during the formation phase of the company. This doctrine saw its existence in the continental systems and stand out today as an innovation of OHADA Law 449. However, many liabilities are incumbent on company administrators during the functioning of the company. 446
Art. 330 (2) UA. Art. 78 UA. 448 Art. 79 UA. 447
449
TABE TABE (S.), «Company Formation », op. cit., P. 342.
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4.1.2
Liabilities during the Operational Phase of the Company Company administrators in the two systems under study obviously will incur many
liabilities after the company had been formed. These liabilities weigh very much on administrators of the limited liabilities companies since they are very much involved in the running of the affairs of the company. As aforementioned, their liabilities are on faults committed in the exercise of their duties. The faults committed may not be common to all companies. Some companies may have some specificity. Pursuant to Article 259 (1) of the UA, an administrator is going to be liable for default to convene an annual meeting to examine the accounts and financial statements; for omission or irregularity in the publicity formality. At Common Law also, an administrator may be liable in case where in accepting his function, he was subject to incapacity, incompatibility or had been declared bankrupt or had been convicted for an indictable offense. Some liabilities of these directors can only be declared when they are dealing with particular companies like the private limited companies and public limited companies. It is in light of this that the OHADA Law has made provision that the directors of these companies shall be liable for default of convoking shareholders or auditors in case of dissolution of the company where the capital is deduced by more than half. Directors shall be liable for not designating an auditor in SARL and in a SA. This goes same with the managers when they fail to provide a deliberation on the option to take in case of capital decrease below the minimum legal level 450.The management however can become liable for some mistakes committed during the management of the company. 4.1.2.1
Management Liability This can come about as a result of carelessness or negligence of the management .But
however, this has been very difficult to identify451.The administrative board of a public limited company actually has a managerial responsibility. As such, a board member or members could become liable for complacent management, negligence, abuse of corporate funds, payment of excessive salaries or commissions, submission of a false balance sheet, insufficient supervision of employees or insufficient supervision of the SA’s president 452. What the law stresses here is that directors should have that aptitude to avoid measures which 450
See the following Articles; 376, 367, and 368 UA. MERLE (Ph.) op. cit., P.438. 452 BARTHELEMY(M.) et al, France business Law, taxation and social Law, op. cit., P.58. 451
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may be considered unreasonable at the time it was taken. After all, there is no businessman who is so competent, diligent and prudent who does not commit errors. Company administrators that are likely to put the company into insolvency situation and again prevent the shareholders from exercising their fundamental role of controlling the company’s business shall be civilly responsible for such acts453. The members of the directive organ have the supervisory duty to verify operations carried out by the other directors454. English Law just like OHADA Law is running on the same footing so far as the liability of management organ of the company is concerned. The management liability could arise from negligence as a result of a breach of the duty of care. Under the Companies Ordinance, some provisions are available which make the management civilly liable for their acts of negligence or intentional act that can put the company at peril and third parties455. The two systems under study have both recognized the fact that management shall be liable for any fault they commit during the exercise of their duties. Since the management is acting on behalf of the company, there are certain circumstances in which the company is going to be held liable for acts committed by its employees when acting within the scope of their employment. 4.1.2.2
Liability to the Company The UA has made it possible for founders and first directors to be held liable to the
company. In this light it has provided that founders and first directors may be held liable to the company for faults committed in the exercise of their duties or for failure to comply with the law governing the type of company in question or with the Articles of Association 456. In pursuant of Articles 165 of the UA, each company executive shall be individually liable to the company for torts committed in the exercise of their functions. Where several company administrators partake in the same wrong, the shares to be paid by each of them is going to be determined by the commercial court. The situation will be a little bit different in Cameroon since we don’t have a commercial court, but however the competent court depending on the amount to be paid in by the different executive shall determine the issue at hand. It is our hope to see that the member states of OHADA should organize their legal jurisdiction to suit the application of the Uniform Act. English Law just like OHADA Law has made provision for the liability to the company. A company under this system of study may be liable civilly for the acts of its 453
MORSE (G.);Charlesworth and Morse company , op. cit., P. 367. See the following Articles of the UA 328 which relate to SARL and 435 (1) and 480(1) as regard SA. 455 See the Companies Ordinance Section 64 et seq. 456 Articles 165,.339 and 740 UA. 454
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primary organs or of its officers and agents.457 Such liability may be in tort or in contract and, subject to the civil liability of the company, the relevant common law rules and the doctrine of equity will find their way here also. In contract, the liability arose where there was a breach wholly or in part of an act or omission failing to properly fulfill the obligations of the contract. The cause of action in contract was complete when the breach occurred. For one to sue upon the breach, it must be established that he was a party to that contract. Thus non parties are excluded. Therefore, no third party could seek to enforce the contract even if made by contractors on his benefit or advantage. Following the Common Law rules as to the liability of the company in contract, it is but a fact that the company was going to be liable as principal and the general rules of agency between a principal and his agent was applied, namely that a principal was only liable for the acts of the agents which were within the actual, usual or apparent scope of his authority. Thus, a principal is liable for the acts of the agent in any of the following case: where the act is one which the agent is actually authorised to do; where the act was one which an agent of that type could normally have authority to do; and where the act was one which although he has no authority, the principal had held him out as having authority to do458. As concerns tort, care was usually taken in exercising the liability of companies. In Ayodele James v. Midmotors (Nig) Ltd459 for instance, the Nigerian Supreme Court ruled that the general law has been stated that a corporation aggregate is liable to be sued for any tort provided that (1) “It is a tort in respect of which an action will be brought against a private individual; (2) the person by whom the tort is actually committed is acting within the scope of his authority and in the course of his employment as agent of the corporation; and (3) the act complained of is not one which the corporation would not commit unless perhaps the corporation has expressly authorised the act”. For both tort and contract, there is the general principle at Common Law that the company will only be liable if the acts are within the objects of the company. This is known as the ultra vires rule. A third party can still enforce a contract against the company, entered into by its board of directors even though the contract is ultra vires the company, as long as he can show that he acted in good faith460. Following the case of Salomon v. Salomon and Co. Ltd the corporate veil was established having as consequences that members of the corporation could not be harassed for 457
OLAKUNLE OROJO, Company Law and Practice in Nigeria, op. cit, P.102. See Visinon Ltd v. National Bank of Nigeria Ltd [1975] 2, A. L. R. Comm. 190. 459 [1978], 11& 12 S.C. 31. 460 COLIN (T.), Company Law, op. cit. P.123. 458
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the company’s debts once it has been incorporated under English Law and registered into the TPPCR under the UA. As a result of this, members are free from liabilities. This fundamental aspect of separate legal personality is the basis for the advantages of incorporation461. However, the company at certain circumstances will not be held liable for the acts of its administrators. Certain liabilities will result from the acts of company administrators when the corporate veil is lifted. So the limited liability rule, which is fundamental to corporate law, is shaken. 4.1.2.3
Extension of the Liability of Company administrators under Common Law The lifting of corporate veil to make directors liable is no longer strange at Common
law today. Situations may arise where instead of the company being liable for its acts, the director who presumed acting on behalf of the company is held liable. This is usually when the veil of incorporation has been torn so that what is hidden behind the corporate layer by the directors is unveil to the public. This is a limit to the principle of legal personality both recognized at Common Law and the UA. English law has gone a step further from the UA to establish the liability of company administrators even at all cost. This is just to show the directors that they cannot hide behind the corporate veil or blanket and enrich themselves at the mercy of hard earned wealth of the shareholders. The corporate veil under Common Law or English Law has been lifted by both the statute and the courts or case law. 4.1.2.3.1
Extension by Courts or Case Law.
It is difficult to be precise about the circumstances in which a judge will lift a corporate veil. However, it may be said that the power to do so is a tactic used by the judiciary in a flexible way to counter fraud sharp dishonest practice operation and illegality. If the company is set up as a cloak or sham with the fraudulent intention of evading the promoter existing obligations, the court may exceptionally give equitable remedy against both the company and its members. In the case of Gilford Motor Co. Ltd v. Horne 462 an exemployee personally could have been prevented by a valid restraint of trade clause from approaching his ex-employer’s customers. He therefore formed a company which he claimed could not be so restrained. The court issued an injunction against him and his new company.
461
See generally TABE TABE (S.), «Corporate Personality at Common law and under the OHADA Uniform Act relating to commercial companies and Economic interest Groups: A Comparative study », op. cit. 462 1933 AIL, ER. 109.
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Another situation where corporate veil has been lifted to make the directors liable concern the issue of paramount public interest. In time of war, the courts have looked at the nationality of its owners in order to determine the real nationality of a company. In this situation, the court is preoccupying itself with the need to serve an overriding public interest in order to disregard the separate legal personality of a company. The court decided in the case of Daimler Co. Ltd v. Continental Tyre (GB) Ltd,463 that although the company was registered in England, it was being treated as German company because of its shareholdings. In line with this common law position, the Cameroon Penal Code in its Art. 108, which are captioned, “Wartime” provides that anyone who directly or indirectly concludes a business transaction with a subject or agent of the enemy or with any person residing in Cameroon shall be punished with an imprisonment term for from ten to twenty years. Apart from the courts or case law which have extend the liabilities of company administrators under common law, statutes also have done a bit in this field. 4.1.2.3.2
Extension by Statutes
Some English statues like the Companies Act of 1985 has provided for instances where the liability of the company administrators can be engaged. Under the CA. 1985, S. 246, a director may be personally liable where the company carries on business without having at least two members or without having at least two directors 464. If the company carries on business for more than 6 months after the membership has fallen below two, every director or officer who knows that it so carries on business is liable jointly and severally within the company for the debts of the company contracted during the period465. Even if the UA has not contemplated for these occasions for the lifting of the corporation’s veil of incorporation, company administrators will be liable for any irregularities and torts committed against third parties under the shelter of the company as discussed above. We hope that the law makers of the OHADA law when revising its Uniform Acts shall take this into consideration so as to better enforce the liability of company administrators. However, company administrator’s liability that starts from the formation to the healthy functioning of the company does not end there. It extends when the company is in difficulties. 4.1.3
Liabilities of Company Administrators in case of Insolvency of the Company
463
[1916] 2 AC. 307. See Sections 93 and 246 CA. 1985. 465 CA. S. 93. 464
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The company administrators would be liable also during the period when the company is in difficulties such as insolvency. This can crop up as a consequence of the company administrators’ poor administration such as negligence and failure to exercise the duty of care and skill in carrying out his functions. The consequences of corporate insolvency may also lead to the directors being disqualified466.The UA has made provision that in a situation of losses recorded in the summary financial statements and when the shareholders’ equity of the company falls below half of the company’s authorized capital, the board of directors or the managing director as the case may be, shall be bound, within the period of four months preceding the approval of the accounts that testify the losses, to hold the extraordinary general meeting to take decisions as to whether or not the company should be wound up prematurely467. This has prompted the learned Professor POUGOUÉ 468 to describe the situation as where the corporation is squandering its own capital. This situation can be so disastrous to the company since its capital represents its wealth and a source of guarantee when borrowing. So the company would hardly be granted a credit since they would be insolvent to pay it back. The management organ of the company in this type of situation must call the shareholders and auditors to seek their views as regard the dissolution of the company. If the company administrators fail to take such a decision and the company subsequently goes insolvent, they shall be held liable. When the company is facing difficulties, the impact of the company administrators can be felt through many angles. This might result to the failure of payments in the company to an aggravation in their civil liabilities extending right to professional penalties. 4.1.3.1 The Cessation/Failure of Payments in the Company The cessation of payment in a company did not have legal redress. This problem was only being solved on the 1st of January 1999 when the Uniform Act Organizing Collective Proceedings for Wiping- off Debts came into existence. Article 25(1) of this Uniform Act provides thus “a debtor who is unable to settle his current liabilities with his available assets shall file a declaration of cessation or failure of payment for purpose of opening proceedings for legal redress or liquidation of property, regardless of the nature of his debt. For the debt to be cleared, it must exist, be certain, and finally it must be liquid. So any debt that does not fulfill these conditions cannot be claimed.
466
MORSE (G.), Charleswroth and Morse Company Law, op.cit. P.367. Art. 664 UA. 468 POUGOUE (P-G.) et al, op. cit.P.184. 467
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Before a person claims failure of payment by a company, he must at least show proved through the following ways. This may include; either the creditor, i.e. to say the shareholders or partners and third parties, no matter the nature of their claim they cannot refuse to pay the debt as long as it is unquestionable, liquid and due 469. But a debtor who is unable to settled his debt with the available assets shall file a declaration to this effect in the competent court, 470 which shall then examine the matter on its own motion notably on the basis of information provided by a representative of the public prosecutor’s department, the auditor’s partners or institutions representing the staff who shall indicate to the court the facts likely to motivate such initiative in court471. 4.1.3.2
The Aggravation of civil Liabilities of Company Administrators When there is a failure or cessation of payment in the company, the liabilities of the
company administrators becomes much more aggravated or worsened. Chapter Six of the UACPWD titled, “Special Provisions Governing Managers of Corporate bodies” handles this issue in its Article 180 which provides thus: that this provision shall apply in case of cessation of payment by a corporate body to managers be they natural persons or corporate bodies, ex officio or defactor, apparent or hidden remunerated or not and to natural persons who are permanent representatives of the managing corporation. So following the readings of this Article, these types of sanctions are likely to be mated out to company administrators in such circumstances. Their stocks or share capital shall be inaccessible, their property can also be liquidated and also other professional sanctions can be mated out to them. 4.1.3.2.1
Inaccessibility of responsible managers on their Stocks or Share Capital
Company administrators who are dishonest during the performance of their functions will be cut off their powers as regard their liberty to dispose their own stocks in the company. We see here that one of the fundamental rights of transferability of stocks or shares of members in a company no longer exist to them. In pursuant to Article 185 of the UACPWD, the competent jurisdiction shall have the power to order for an expropriation of the stocks or shares of the director in order to pay for the debts of the company for economic, social and public interest motives. This means that a director during the opening of collective proceedings against the company can not transfer company shares, stocks or all other company rights without the approval of the official receiver following the disposition put forward by the law472.Directors who are no longer members of the company are not excluded. 469
Art. 28 UACPWD. Art. 25 (2) UAC PWD. 471 Art. 29 UAC PWD. 472 Art .57 UACPWD. 470
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The company’s right shall not be transferred to any person who interfered in the management of the company so far as such interference is declared 473. Directors who are at the same time partners in the company shall incur the same sanction. But however, following Articles 417 of the UA, not all directors are shareholders of the company. Even in a private limited company, not all the managers are deprived of their right to transfer stocks or share capital during the cessation of payment in a company. Circumstances might occur that their liability is been extended to the liquidation of their property. 4.1.3.2.2 Extension of Liability to the Liquidation of the Property of the Company Directors. The extension of liability to the liquidation of the property of the company administrators can result from the abuse of powers by them which have led to the failure of payments by the company. When it has become very certain that the directors caused the failure of payments, the company has many options open to redress the situation. Some of these options include the following: 4.1.3.2.2.1
Legal redress and the liquidation of the assets as a result of abusive action.
In a situation the company is put into administration or liquidation, the members of management may be declared personally in liquidation if they have exercised a personal commercial activity under the hidden of the company, or have used the company’s credit or assets as if they were their own personal interest when it was inevitable that this would lead to insolvency474. This provision of the UACPWD resembles that of the Common Law, Section 212 of the Insolvency Act 1986 which provides that if in a winding up it appears that any person who is or has been an officer (director, manager or secretary) of a company or promoter or manager, liquidator, administrator etc of a company, has misapplied or retained or become accountable for any money or other property of the company or has been guilty of any misfeasance or breach of trust or other duty to the company, the court may on application of the official receiver,475 the liquidator or any creditor or contributory, examine his conduct and order him to repay or restore the assets or contribute to the assets of the company as the court thinks just. 4.1.3.2.2.2
Legal redress and liquidation of assets as a consequence of passive action.
473
Art. 57 (2) UACPWD. MARTOR (B.) et al; op. cit. PP.186-187, See also Art. 189 UACPWD. 475 In accordance with Section 147 of the Companies’ Ordinance, the term “official receiver” shall mean the official receiver appointed for the purpose by the Governor General. This definition is rather vague. 474
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The company administrators in this situation shall have their asset been liquidated as a result of their passive action. This is an attempt by the competent jurisdiction to redress the disastrous situation of the company. However, this sort of solution might not be effective because the court had failed to take into consideration that it is not the company administrators or directors of an SA who are not shareholders indulge in a commercial activity. But this applies without any reservations to company administrators who had contributed totally or partially to the debt of the company. Before the liabilities of company administrators are engaged for their passive actions, there must be certain indicators that must be accomplished. There must be insufficient assets to meet the company’s liabilities and it must have resulted as a sign of bad management 476.The zeal to unify the legislation or laws by the UA has today presented itself as a precondition for good administration and coherence in justice. It is in this light that Article 184 of the UACPWD has given the power to the competent jurisdiction to declare liquidation order for goods and assets of moral persons. The courts however are obliged to convict the administrators. This can be deduced from the wordings of the UA when is say “the competent court may” So the used of a discretionary word “may” makes it optional. This can be a setback to the effective implementation of this liability since the court may not convict based on some reasons which turn out to favour the default administrator in question. Furthermore, a judge is not obliged to pronounce a joint sanction. It may decide the sanction based on the facts at hand. Under Common Law, this liability has been treated as criminal. The fraudulent trading of company administrators is punishable by Section 458 of CA 1985. The principle of separate legal personality and limited liability is both taken into consideration by this section. So any person who reaps at the detriment of the company must answer or refund them. It is as a result of this that this section has provided that if the company is in the course of winding up, the court could declare that the culprits be made personally liable without limitation of liability, for all or any of the debts of the company to the extent that the court may direct. This provision of the Companies Act is similar to that of the UACPWD governing fraudulent trading. However what differs between the two systems under study is that English Law has treated wrongful trading as a civil offence under section 214 of the 1986 Insolvency Act, while the UA looks at it as being both a civil and criminal offence. The flexibility of the UA in trying to make the liability of company administrators effective is much saluted. So under OHADA Law, a director can be both civilly and criminal liable for a single act. 476
MARTOR (B.) et al, op. cit. P.186.
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The liability of the company administrators during this period of legal redress and liquidation of the company’s asset can take the form of a professional sanction which is much more attributed to personal bankruptcy. 4.1.3.3
Personal Bankruptcy Individual commercial operators and individuals who are members of the management
of a company or their permanent representatives shall be subject to personal bankruptcy during collective proceedings477. The provisions of the UA which duel much on this aspect are found under Articles 194-215 of the UACPWD. This provision of the UACPWD is similar to Sections 134 of the Companies Ordinance which talks of the personal bankruptcy of the company or other representatives. As far as acts which amount to personal bankruptcy are concerned, the UA has classified them into two categories. That is obligatory and optional. All this will depend on the weight of offence of the company administrator. Pursuant to Article 196 of the UACPWD, obligatory personal bankruptcy or disqualification shall be decided by the competent court to any person during collective proceedings who has: -Removed the accounts from the company, embezzled or conceal part of the company’s assets or fraudulently or notice debts which did not exist; -used the credit or asset of the company as if they were his own; -fraudulently obtained a composition agreement which has subsequently been declared null and void; or -exercise a commercial activity in his own personal interest; -committed certain acts in bad faith or has been guilty of inexcusable negligence or has seriously infringed commercial rules and practices. The above prohibited acts of the company administrators can take the form of; the exercise of a commercial activity or management functions when under a prohibition to do so; failure to keep proper accounts; the deliberate delaying of a declaration of insolvency by using methods that cause further damage to the company, etc478. Pursuant to Article 198 of the UACPWD, three cases of optional personal bankruptcy can be deduced. The UA here again has used the phrase “The court may…” showing that the discretion is left to the court either to charge the person or not. So this will affect the directors who have committed serious mistakes or errors other than those referred in Article 197 of the 477 478
Art. 194 UACPWD. MARTOR (B.) et al, op. cit. PP.187-188.
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UACPWD or those directors who have been notice for gross incompetence in the administration of the company. This sanction would equally go to company administrators who have not declare within 30 days, the cessation of payment in the corporation and also those members of the company management who have not pay the debts of the company for which they have been ordered to do so. The Common Law just like the UA has treated instances where the sanction of personal bankruptcy can be inflicted upon the company administrators. The Companies Director Disqualification Act (CDDA) 1986 has brought out these instances under which the court may or must charge a director for personal bankruptcy or disqualification. The use of the discretionary words “may” or “must” by in English law means it can either be obligation or optional. This situation is similar to that provided by the UACPWD in it Articles 197-198. A director can be said to be in a position of personal or been disqualified when he has done the following acts; where he becomes bankrupt or negotiate for an arrangement or constitution with his creditors in general; where they have committed a serious offence such as acting in bad faith as regard the administration of the company; where they undertook wrongful trading which lead to the insolvency of the company; and finally where a director is found to be unfit to take part in the management of the company either on the reasons of his behaviour as a director of a company which has become liable to pay it debt or it can be as result of material uncovered in the investigation carried out by the company. So, the Common Law and the UACPWD are running on the same footing as far as the circumstance that might lead to the infliction of the sanction of personal bankruptcy is concerned to company administrators. The effects of personal bankruptcy are that it usually goes alongside with the prohibition of some freedom of the default administrator. Pursuant to Article 203 of the UACPWD the company administrator who have been sanctioned with personal bankruptcy shall be restricted to do the following; to manage, administer or control an individual business unite or any company with an economic activity, prohibition to hold an elective public office, administrative, legal or professional representation office. The position under Common Law as provided by the Insolvency Act 1986 (Section11) is that when a personal bankruptcy is declared against any company administrator, he shall with the power of the court ban from acting as an administrative receiver or from being associated either directly or indirectly in the promotion, formation or management of the company. The Insolvency Act just like the UACPWD restricts the company administrators from partaking in the administration of the company. 116
However, unlike the Common Law, the UACPWD is much harder as regard the restrictions levied against the company administrators. This is just in an attempt to show defaulters how ‘grand’ or heavy their liability has been and at the same time act as a warning to other company administrators of what await them if they fall into the same “pot of soup”. Like any other sanction, there is always a duration. It is in line with this that the UA has made provision that these sanctions shall run for a duration which may not be less than five years and not more than ten years. In this circumstance, the judge has the discretion to fix the exact sanction depending on the gravity of the liability. Be that as it may be, any person or any company administrator be declared bankrupt may be put back to his formal position before the initial period of sanction comes to an end. The only exception here applies to persons convicted for a felony or a misdemeanour which were as a result of their restriction479. The administration of corporate entities or entity under the two systems of study cannot give rise only to civil liabilities of these company administrators. However, it is not a surprised for us to see company administrators being attack by the wrath of the business criminal law, thus making them to be criminally liable for their wrongful acts. 4.2
Criminal liability of company administrators Business constitutes the engine of the economy and the source of richness or wealth to
a nation. As a result of these importance OHADA Law have decided to sanction any person who indulges in any fraudulent business act480. In the light of the above, criminal offences have been laid down in the Uniform Act that applies to company administrators. Although these offences apply to all types of commercial companies under the OHADA business law, most of these offences are directly linked to the public limited companies 481 .The reason for this might be that it is a company whose impact is greatly felt in an economy since most investors choose to do business with this type of company. It is worthy to note that the objective of criminal liability is to punish those company administrators who have violated any penal offence of the OHADA business law. Unlike the civil liability which is aimed at compensating victims as a result of damages they have suffered due to the mistake of the company administrators, criminal liability does not award anything to the victim but to the business man who have lost as a result of the fraudulent act of the administrator.
479
Art. 207 UACPWD. SOCKENG (R.), Droit Pénal des Affaires OHADA, 1 ère Edition, Collection Lebord, Presses Minisi le Competing, Douala, 2007, P.18. 481 POUGOUE (P-G.) et al, op.cit P.119. 480
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The UA has only enumerated offences that can be committed when the company is a going concern, but forgot those that can be committed by the company administrators when the company is in difficulties. These can only be found in the UACPWD 482. Also the UA unlike the Common Law inspired Companies Ordinance has not made provision for the criminal liabilities of moral persons, especially those companies governed by OHADA business law. With the increasing rate of Multinational Corporations around the globe today accompanied with their evil deeds, it is but with great regret that the UA will not stand the test of time as regard this field. In France (Law of 9 March 2004) the criminal liability of moral persons can be engaged in all offences. The judge can today sanction a company five times than that which can be inflicted to it drivers483. OHADA Law has not made adequately provisions for the criminal liabilities of company administrators. The reason is that they have failed to provide for any provisions that contain penalties to be meted out to the company administrators in offence. But following Article 5(2) of the OHADA Treaty creating OHADA indicates that Uniform Acts may contain criminal offences. This is discretionary, meaning that may not. If they do not, it will be incumbent on the Member State to provide them. So the penalties to accompany these offences are laid down by the local criminal law of each Member State. It is in respect of this provision of the treaty that Senegal484 and Cameroon485 adopted laws on criminal sanctions to be inflicted to company administrators. Senegal was the only country that responded to the cry of the UA within the time limit. Cameroon responded only after five years from the adoption of the first Uniform Act. It is worthy to note that the Cameroonian law unlike the Senegalese counterpart who have provided only for sanctions as regard offences in the UA, do provides for sanction as regard the Uniform Act on commercial companies and Economic Interest Groups; UA on General Commercial law; UA on Accounting, and UA on Collective Proceedings486. The Uniform Act in so far as unification of the business criminal law of the member states is concerned, focuses on the unification of substantive law. Each member state is allowed to operate the criminal procedure it deems appropriate. The reasons why the member states have been given the latitude to made provision for penalties applicable to the offences lay down in the Uniform Acts are varied. One of the motives is base on legal reason. It is believed that the criminal systems of the different 482
See in this light Articles 226-246 UACPWD. BRAUD (A.); Dorit Pénal des Affaires ; Edition Eillipses, 2005, P 4. 484 Law No 98/22 of 26 March 1998 on penal sanction in the UA. 485 Law No 2003/008 of 10 July 2003 on criminal offences in the Uniform Acts. 486 SOCKENG (R.), op. cit P.43. 483
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member states are not the same, so states should fix penalties that can suit their reality and values. OHADA Law has opted for a liberal system and this is the reason why it has accorded that liberty to member states to sanction business criminal law. Again the UA never wanted to intervene in the issue of national sovereignty of the member states 487.The point of national sovereignty here is baseless because following the international law norms each state is required to avail her of national sovereignty protection to the benefit of an organization such as the one in question. If OHADA and it member states are not fast enough to avail themselves of the national sovereignty protection, then the organisation is never bound to go ahead as planned. This gist or step taken by the OHADA member states488 to provide for these sanctions is wonderful. But however, this solution can instead turn back to present itself into another new problem which will tend to hampered the smooth function of the organisation. This can be as a result that some countries might not sanction some acts prohibited by the UA, and some might provide so much sanction than others489. The reason that can prompt some nations to enact sanctions that are softer than the other is their attempt to attract more investors as possible490. But the learned Professor491 went forth to say that they might be doing this only at their own risk and peril. But we doubt if sanction scared investors. Instead it is a weak law that can help paralysed an enterprise. The problem here is to know how to regulate these situations492. Another reason why giving competence to the member states might be a problem or lead to a problem is that the various articles of penal nature has to be interpreted not by the Common Court of Justice and Arbitration but by the national courts, thus making it to have divergent interpretation in all member states. All these can prevent unification that is in the great search by the UA. To properly handle this issue, OHADA Law should sent expert on the field to study the criminal laws of all its member states and then bring out a sanction that would be suitable to all the member states. Looking at criminal liability of company administrators in both systems under study, we notice that both of them are on the same agreement as to the liability of the company administrators. What makes a great difference as aforementioned is that unlike the Common Law inspired Companies Ordinance which can hold corporations criminally liable, the UA is 487
ANOUKAHA (F.) et al. op. cit. PP. 234 -235. Senegal and Cameroon out of the 17 Member States. 489 KOM KAMSU (M.); «Le droit pénal des sociétés commerciales dans l’acte uniforme OHADA », Mémoire de DEA, Université de Dschang, Février 1999, P.130. 490 POUGOUE (P-G.) et al, op.cit P.120. 491 Ibid. 492 LAUNARIS (H.) et al, Droit pénal spécial des sociétés par actions et à responsabilité limitée, Dalloz, Paris 1964. P.7. Cf. POUGOUÉ (P-G.) et al, op.cit. P.120. 488
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yet to recognise this, thus making the English system to still stand distinguishing as a model. But before we proceed to examine these liabilities, we must establish that before any person is held liable in criminal law two conditions must be proved by the prosecution. These conditions are the material element of the offence or actus reus. Here it must be established that the director in question actually carried out the acts which is deemed to be criminal. The second condition for them to be held liable is that the director in question must have committed the crime intentionally and so, the mens rea must be established. Before we proceed, it would be pertinent for us to first of all establish the basis of criminal liability at Common Law. 4.2.1
Basis of criminal liability at Common Law. When criminal law first developed as an independent body of law in England, it was
directed only to human beings. It could scarcely have been foreseen in those days that criminal law would have one day to take account of corporations. But with the advent of industrialization, things began to change and it was inevitable to extend criminal law to corporation493. The modern general principle of criminal liability of companies was fully established at Common Law in 1944 in the case of Director of Public Prosecutions v. Kent & Sussex Contractors Ltd494 where it was held that “It is true that a corporation can only have knowledge and form an intention through its human agents, but circumstances may be such that the knowledge and intention of the agent must be imputed to the body corporate…If the responsible agent of a company, acting within the scope of its authority, put forward on its behalf a document which he knows to be false and by which he intends to deceive, I apprehend that …. his knowledge and intention must be imputed to the company”. The same view was taken by R V.I.C.R. Haulage Ltd495. So the provision at Common Law is that the courts will however, only convict if all the essential elements of the offence are present. Because of the nature of a company, it cannot be indicted for certain offences. 496 The reason for this fact was that an artificial body is incapable of having the requisite mental elements and intention that is required before the prosecution can grant conviction 497. A company may be criminally liable for the acts of its members in general meeting; the board of directors or
493
NGWAFOR (E.N.), Corporate Criminal Responsibility, 2 nd Edition, London Institute of Third World Art and Literature,1989, P.1. 494 (1944) K.B. 146. 495 (1944) K.B. 551. 496 The only exception is strict liability offences, like statutory offences. 497 NGWAFOR (E.N.), op. cit, P.8.
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the managing director as if the company were a natural person 498.This was based on the doctrine of alter ego which may be extended to managers if in fact they are in control. However a distinction had to be drawn between the acts of these directors and mangers who control the company, account being taken of any delegation of authority and the extend of such delegation499.Thus, the alter ego of a company is to be found not only among directors but also managers, secretary or other officers of the company or indeed, someone to whom they had delegated control and management with full discretionary powers of some sections of the company business. English courts have found it very difficult to hold corporations liable in certain circumstances. In R V. ICR Haulage Ltd500 two setbacks to corporate liability were brought out. First, there were certain offences which from their very nature, could not be committed by corporations, for example, sexual offences like rape, incest and bigamy, just to name a few. But circumstances may come out where the company is going to be liable as an accomplice or accessory. In Cory Bros & Co501 it was held that a corporation could not be liable for violence. The second circumstance where a corporation could not be convicted of an offence under the common law was where no effective sentence can be ordered against the corporation like murder and treason for which the only penalty opens to the court is imprisonment or death. This was the bone of contention in the case of R V ICR Haulage Ltd. So where a corporation was convicted of an offence it was punished by the imposition of a fine or compensation order. But this has been described as imperfect and totally ineffective. This is because the fine is so low to serve any deterrent objective 502. Also at common law, a company is not liable for misappropriation from the company committed by those in control of its affairs because such misappropriations are not the acts of the company since the latter could not have agreed to it and is in fact a victim503. French law for example is still reluctant to accept completely the criminal liability of corporations. It prefers holding the actual perpetrators responsible. The English and Canadian courts are now willing to hold corporations criminally liable although the English courts unlike their Canadian counterparts have been criticized of taking a regressive attitude in recent times. 498
OLAKUNLE OROJO, op. cit. P.1001. Tesco supermarket Ltd. v. Nattrass (1971) 2 AILE.R. 127(H.L.). 500 Op.cit. 501 (1927) 1 KB 810). 502 NGWAFOR (E.N.), op. cit., P.87. 503 Stephens v.T. Pittas Ltd (1983) STC. 376. 499
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The situation in America is quite impressive since they are even more willing to extend liability and this they have done by refusing to draw a distinction between vicarious liability and corporate criminal liability. The reason for this difference of approach with English and Canadian court is on the fact of numbers and sizes of American corporations as compared to those in England and Canada504. Corporate criminal liability is intended to deter management from using the corporation as a tool of crime. It could also serve the same function as would vicarious liability. In the second case, the reason behind it is to compel the management to police or followed a strict compliance of the law. Despite the fact that the UA have not yet made provision for criminal liability of corporations, they just like English law have make mentioned of the criminal liability of company administrator which is our major preoccupation in this portion of the work. Company administrators are usually liable during the company formation, during functioning of the company and during the period when the company is in great difficulties. 4.2.2
Criminal liability of Company administrators during the formation of a company. OHADA law has brought out some criminal offences relating to the formation of the
company. These offences are applicable to all forms of companies under the umbrella of OHADA business law. The Common law inspired Companies Ordinance and Companies Act is not silent as regard the criminal liability of company administrator during the formation of a company. Because of the importance of which companies play in our economies, the liability here tend to make those in charge of forming a company to be alert of what awaits them if they indulge in any fraudulent act. It is worthy to note that a company is formed or deemed to be formed from the date of signature of its Articles of Association and it is from this date that criminal liability attaches to regulate the proper constitution of the company 505. These offences which have been dealt with in Articles 886 to 888 of the UA can be properly examined from the angle of those directly and indirectly linked to the formation of the company. 506 These articles represent two types of behaviour, one directly concern with the formation of the company, the other indirectly concerned. 504
NGWAFOR (E.N), op. cit., P.69. Art. 101UA. But under Common Law a company is formed from the date of signature of it Articles of Association and memorandum of Association. When a company is formed it does not yet acquire legal personality since this is only after registration in the Trade and Personal Property Credit Register. 506 POUGOUE (P-G) et al, op.cit, P.121-127. 505
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4.2.2.1
Offences directly related to the formation of the Company.
The offences directly related to the formation of the company will include: false declaration of the notary, the tender of false list of shareholders or subscription bulletins, fraudulent increase in the value of contribution in kind, simulation of subscription and deposit of funds and publication of false facts. 4.2.2.1.1
False declaration of the notary.
This offence was initially provided by Article 15(1) of the French Law of 24 July 1987. Today it has been taken by the UA in it Article 887(1). This Article stipulates as follows; “whoever - knowingly, by the establishment of the notarial statement of subscription and payment or of the depositary’s certificate certifies as true and authentic subscription he knows are fictitious or declares that the funds which have not been placed definitely at the disposal of the company have been effectively paid, shall incur a punitive sanction”. In line with this article, it means a false statement included in a notarial declaration in order to satisfy the prescriptions of Article 73 of the Uniform Act. This article makes it incumbent on founders and first members of the management organs of the company to deposit at the Trade and Personal Property Credit Register a declaration in which they describe all the actions carried out towards the regular formation of the company and by which they affirm that such formation has been carried out in conformity with the Uniform Act. This declaration which is drawn up by a notary is known as the “Declaration of regularity and conformity”. The falsehood consists either in confirming the truth and authenticity of subscription known to be fictitious or in declaring that the funds which have not been placed definitely at the disposal of the company have been effectively paid. The presence of either of the above facts suffices for the actus reus of the offence to be established. The person who establishes the declaration should have done so with knowledge of the fictitious nature of the subscription or the inexistence of the funds for the mens rea to exist. So, criminal liability here lies on those who acted intentionally. However, no liability shall be founded where the person is acting or acted in ignorance507. The Cameroonian legislator punishes this offence under Article (5)(a) of the 2003 law as a misdemeanor with imprisonment for from three (3) months to three (3) years or with a fine of 500,000 to 5,000,000 FCFA or with both such imprisonment and fine.
507
SOCKENG (R.), op.cit., P.70.
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In Senegal, the 1998 law punishes this offence under Article 2 with an imprisonment of one (1) year to five (5) years and with a fine of 100,000 to 1,000,000FCFA or one of these two sanctions. The two Laws have given different consideration to this same offence. The Cameroonian law unlike the Senegalese counterpart has been a little bit lenient so far as imprisonment is concerned, but attaches much interest on the financial aspect of the sanction unlike the Senegalese law. This might just be in connection in the differences in economic realities which prompted the African legislator to liberalise sanctions in the hands of the member states. The position under the Common Law is that the company administrators and the corporation on whose behalf they served has made it an obligation to respect the provisions of some English acts like the Borrowing Acts and the Prevention of Fraud Act etc. Any breach of these Acts will call for sanctions. The 2006 Fraud Act in its Section 10 punishes a member of the management who participates in a fraudulent business with an imprisonment term of seven years. By Section 94 (1) of the Companies Ordinance, a company with a share capital could not commence any business or exercise any borrowing powers unless; (a) in a case of where any share of the company have been offered to the public for subscription, shares held subject to the payment of the whole amount thereof in cash have been allotted to an amount not less in the whole than the minimum subscription; and (b) every director of the company has paid to the company on each of the shares taken or contracted to be taken by him, and for which he was liable to pay in cash, a proportion equal to the proportion payable on application and allotment on the shares offered for public subscription or in the case of a company which did not issue a prospectus inviting the public to subscribe for its shares, on the shares payable in cash; and (c) there has been filed with the Registrar a statutory declaration by the secretary or one of the directors, in the prescribed form, that the aforesaid conditions have been complied with. So where the company commenced business or exercised borrowing powers who was responsible for the contravention was without prejudice to any other liability, be liable to a fine of fifty pounds for every day which the contravention continued508. 4.2.2.1.2
The Tender of false list of Shareholders or subscription bulletins.
This is considered as one of the new offences brought forward by the UA since it never existed under the 1867 French law509.This offence is contained in Article 887(2) of the 508 509
Companies Ordinance, Section 94 (5). KOM KAMSU (M.), op. cit., P.21.
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UA. It could happen that managers or promoters in the process of depositing funds collected for the formation of the company cause to disappear the subscription bulletins of some shareholders. It also takes place where their names are been cancel from the list of shareholders. The consequence of this is that the bank designated as depository or to the notary chosen for the operation. Article 887(2) punishes any person who hands over to the notary or to the depository bank a list of shareholders or statements of subscription and payment bearing fictitious subscriptions or payments of funds which have not been definitely made available to the company. As concern the ingredient for the offence, criminal responsibility attaches once this false list is given to a notary or a bank by the person or persons intending to form the company. The offence is an intentional offence but criminal responsibility can still lie irrespective of whether the person handing knew it to be false or not. This offence is presumably under Article 5(b) of the Cameroonian Law of 10 July 2003 on the repression of offences contained in certain OHADA Uniform Acts with an imprisonment term for from three (3) months to three (3) years or with a fine of 500,000 to 5,000,000FCFA or with both such imprisonment and fine. This offence is punishable under the Senegalese Law of 1998 on the repression of offences in the UA with an imprisonment term for from one (1) to five (5) years and a fine from 100,000 to 1,000,000FCFA or one of the two sanctions only. The position under common law is almost similar to Article 887(2) of the UA. Following Section 27 (a) of the Companies Ordinance, companies had to keep a register of members and in the case of a company having a share capital a statement of the shares held by each member, distinguishing each amount paid or agreed to be considered as paid on the shares of each member. If a company failed to comply with this requirement it was liable to a fine of five pounds for every day during which the default continued; and every director and manager of the company who knew and willfully authorised or permitted the default was also liable to the like penalty. We noticed that the Companies Ordinance and the UA are running on the same line on this offence. 4.2.2.1.3
Simulation of Subscription and deposit of funds
This offence is provided for by Article 887(3) of the Uniform Act. In order to obtain new subscriptions and payments the author may cause the victims to belief that the formation of the company is on good track meanwhile nothing is happening510. The actus reus of the 510
POUGOUE (P-G.), op. cit .P.123.
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offence consist in false acts or through tricks to obtain new subscriptions and payment of deposit for the formation of the company. This is an intentional offence and so for the defendant to be held liable, the prosecution must prove not only that he did that intentionally but also that he knew the fictitious nature of the subscription or payments by publishing nonexistent subscriptions or payments and by attempting to obtain subscriptions or payments through false act. The Cameroonian law punishes this offence under Article 5(c) of the 2003 law with an imprisonment for from three (3) months to three (3) years or with a fine of 500,000 to 5,000,000FCFA or with both such imprisonment and fine. The sanction provided by the Senegalese law remained unchanged511. The position under common law is that company administrators who invite subscribers for securities by fraudulent misrepresentation are liable for an offence whose sanction is imprisonment term of seven years512. 4.2.2.1.4
Publication of false Facts
Publication of false facts is another offence related to the formation of a company. This is been dealt with under Article 887(4) of the U.A. This Article prescribed for the punishment of any person who by any false acts obtains or attempts to obtain subscriptions or payments. Article 887(2) on the other hand punishes the submission or publication of a list of shareholders or statements of subscription and payment bearing subscription or payments of funds which have not been definitely made available to the company. The offence under Article 887(4) will entail therefore, all the inexact methods utilized by promoters or company administrators to insure that public calls for capital is successful. The announcement for instance, of the distribution of dividends or profits which does not exist will constitute false publication of facts. For this offence to be committed, false facts must be published irrespective of the mode of publication and knowingly too513. The Cameroonian law just like the Senegalese law has provided for the sanction of this offence which is similar to that of simulation of subscription and deposit of funds. The Common Law position which is the same to that of OHADA is been provided under the French Act of 2006, Section 10. This section punishes for seven years imprisonment 511
Article of the 1998 law punishes this offence with an imprisonment term for from one (1) year to five (5) years and a fine 100,000 to 1,000,000FCFA or with any of these sanctions. 512 2006 Fraud Act. Section 10. 513 POUGOUE (P-G.) et al, op.cit. P.124.
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term any company administrators that try to raise funds for the company through fraudulent misrepresentation. The Companies Ordinance514 also punishes any untrue statement aimed at misrepresenting the public. It provides that where any prospectus was issued which included any untrue statement, any person who authorize the issue of the prospectus was guilty of an offence and was liable on conviction to imprisonment for a term not exceeding two years or to a fine not exceeding five hundred pounds or both such fine and such imprisonment, unless he proved either that the statement was immaterial or that he had reasonable grounds to believe and did, up to the time of the issue of the prospectus, believed that the statement was true. 4.2.2.1.5
Fraudulent increase in the value of contribution in kind.
This offence is provided in Article 887(4) of the UA. This Article punishes those who fraudulently cause a contribution in kind to be given an assessment above its real value. For this offense to materialize there must be the attribution to a contribution in kind a value which is above its real value and this attribution must be done fraudulently. The mere knowledge of over evaluation does not suffice515.The UA only looks at instances where the value of the initial contribution can be over evaluated. There can still be a situation where the in kind contribution is instead under evaluated. This might be toward the objective to cheat the contributor. With the increasing dishonesty in commercial transactions today in the world, it would be more effective if the UA takes this into consideration. This offence is punishable under the Cameroonian and Senegalese law with the same punishment as those provided for the offence of false publication of facts. The Common Law position is the same as that provided under the offence of presentation of false facts. 4.2.2.2
Offences indirectly related to the formation of the company There are some offences which are indirectly committed during the company
formation. It is worthy to note that these offences are committed exclusively by managers of Public limited companies. These are offences which are linked to the issue of shares in Public limited companies and the negotiability of these shares. It is worth refreshing our memory with the fact that shares in companies other than public limited companies are transferable and not negotiable. Those of private limited companies are not transferable but negotiable. 4.2.2.2.1
514 515
Offences related to the issue of shares
Section 89(1). POUGOUE (P-G.) et al, op.cit. P.124.
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This offence is laid down by Article 886 of the Uniform Act. It punishes the irregular issue of shares. The Article states that criminal offence shall be committed where founders, the chairman and the managing director, general manager or assistant managing director of a public limited company issue shares before the registration of the company or at any time whatsoever where registration is obtained by fraud or the company is irregularly formed. The judge has the latitude to identify instances which will constitute irregular formation of the company when seeking to punish for irregular issue of shares. The material element of the offence consists in the issue of a share fraudulently before the company is registered or the irregular issue of a share pursuant to the formation of the company. Concerning the mental part of the offence, the founder, manager or director of the public limited company must have nursed the intention to fraud in the issuance of the shares to the public. The fact that in the offence related to the issue of shares, there must necessarily be an element of intention in not binding by all authors. Others hold that a simple negligence can be satisfactory516 . The Cameroonian law punishes the offence relating to the issue of shares under Article 5(e) of the 2003 law. The punishment is imprisonment for from three (3) months to three (3) years or with a fine of 500,000 to 5,000,000 francs or with both such imprisonment and fine. So any founder, chairman and managing director, general manager, managing director or assistant managing director of a public limited company who issues shares before registration of the company or at any time whatever where the registration was obtained by fraud or the company was irregularly formed shall be punished severely. In Senegal, this offence is punishable under Article 2 of the 1998 law on the repression of certain offences in the UA. This offence is punishable with a penalty of for from one (1) year to five (5) years. The fine remained the same as that found under the punishment of offence of fraudulent assessment of contribution in kind above the real value. The Common Law is not mute on this notion of fraudulent issue of shares as enunciated by the UA. Even if the Common Law inspired Companies Ordinance is mute, the Companies Act of 2006 is not. A public limited company cannot conduct any effective business unless the Registrar of companies has confirmed that the minimum capital requirements have been attained517. So the Registrar will only issue a certificate of incorporation to a company if he is satisfied that the nominal value of the company’s allotted share capital is not less than the required capital.518 Therefore, any company that starts 516
POUGOUE (P-) et al, op.cit, P.126. C.A. 2006, Section 16 (i). 518 C.A. 2006, Section 761(2). 517
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business without this certificate shall be liable to a fine. 519 This liability also extends to any officer 0f the company that work in favors of this. A company that enters into business without a certificate and fails to regularize the situation within 21 days, when called upon, shall be liable to indemnify the other party as a result of any damages he must have suffered due to the company’s breach of this Section520. 4.2.2.2.2
Offences linked to the negotiation of Shares
Even though the UA has made it possible for the negotiation of shares in public limited company there are still restrictions attached to this exercise. It is as a result of this that Article 888 of the UA Punishes the negotiation of these categories of shares. These are; -
Registered shares which have not remained in the registered form until they were fully paid; or
-
Initial shares before the expiry of the time limit during which they are not negotiable; or
-
Shares issued for cash for which payments of a quarter of the face value has not been made.
From the foregoing, it is clear that what is forbidden is the negotiability of these shares. Their transfer by other methods such as gifts, wills, or assignment of debts is not forbidden. This offence is an intentional offence so committed when the author acts knowingly. Criminal liabilities of company administrators as seen above starts from the formation of the company and it is mostly felt during the real functioning of the company or when the company is doing real business. 4.2.3
Criminal liability of company administrators during the functioning of the
company. The company after being constituted has to start doing business in order to realise the objective on which it is been constituted. Since the company is a legal person, this can only be realised through the instrumentality of persons who act on behalf of the company. It is during this delicate moment that most of the business crimes are committed by these company administrators. We can conveniently group these offences into three categories; those relating to the management of the company, those relating to the company meetings and those relating to the control of the companies521. 4.2.3.1
Offences relating to company management
519
C.A. 2006, Section 767(2). C.A. 2006, Section 767(2). 521 POUGOUE (P-G.) et al, op. cit. P.127. 520
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Here most of these offences are committed during the constant administration of the company. This can also come about as a result of the wrongful modification of the registered capital of the company. These offences are laid down by Articles 889, 890, 891, 893,894 and 895 of the UA. 4.2.3.1.1
The Distribution of fictitious dividends
This offence is provided by Article 889 of the Uniform Act. According to this Article “any company executive who, in the absence of an inventory or by means of a fraudulent inventory, knowingly share fictitious dividends among shareholders or partners or partner of the company, shall incur a punitive sanction”. From the foregoing, the commission of the offence involves the presence of the actus reus and mens rea. The actus reus is determined by; the payment against an inexistent or fraudulent inventory; fictitious dividends which is dividend that does not correspond to the profit realised by the company at the moment of distribution. It may therefore come out of the capital of the company from reserves or paid in anticipation of existing or future profits; and finally there must be effective distribution of dividend which is deem fictitious. So a mere attempt at distribution does not amount to a crime 522. For the mens rea to exist the author of the offence must have knowledge of the absence or inexactitude of the balance sheet of the company and the fictitious nature of the dividend distributed. So, there must be proof of a fraudulent intention. Under the English Law just as OHADA Law, if an accused can testify that he acted in good faith with no fraudulent intention, then he will not be held guilty523. This offence has been sanctioned by the Cameroonian and Senegalese laws. The Cameroonian law sanctioned this offence under its Article 7 with an imprisonment for from one (1) year to five (5) years and a fine of 1,000,000 francs to 10,000,000francs or one of the sanctions only. We notice here that the legislator has given the latitude to the judge to decide as he thinks fit. Also, it is worthy to note that the legislator attaches more severe sanction to this offence. This might be in line with the attempt to avoid company failures through mismanagement which of recent has become the order of the day. On the other hand, the Senegalese Law of 26 March 1998 in its Article 4 punishes this offence with an imprisonment term as from one (1) year to five (5) years and a fine of from 100,000 5,000,000francs. The two sanctions can be initiated the same time on the offender of this offence.
522 523
POUGOUE (P-G.) et al, op. cit.P.128. Companies Act, Section 387.
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Here again, we noticed the divergent views of the Cameroonian and Senegalese law. This might be because of the economic disparities existing between them. 4.2.3.1.2
The publication and presentation of Summary Financial Statements.
This offence is provided by Article 890 of the UA. This Article is to the effect that; “a company executive who knowingly, even without sharing of dividend, publish or present to shareholders or partners, with a view to hiding the true situation of the company, summary financial statements not showing, for each fiscal year, an accurate picture of the transactions of the year, of the financial situation and of the situation of the estate of the company at the expiry of the said period shall incurs a punitive sanction”. From the above, the UA highly prohibits the publication and presentation of false financial statement of a company by its administrators. The UA has used two methods of communication which are publication and presentation of false financial statements of a company. Publication can be taken to mean all methods used to cause the existence of something to the public. This can either be through writing or oral, of the financial situation and wealth of a company524. Presentation on the other hand, takes place only during the General Meeting of the shareholders. Contrary to presentation which is limited only during the general meeting of shareholders, publication can be invoked a long time after the establishment of untrue financial statement of the company525. The actus reus of this offence consists either in the presentation of this financial statement to shareholders or its publication in a journal empowered to carry legal notices. The mens rea involves knowledge of the inexactitude of the summary financial statement and the desire by the offender to paint an inaccurate image of the transaction of the year coupled with the financial situation and estate of the company. The absence of the distribution of dividends does not influence the commission of this offence in any way. However the legislator use of the word “knowingly” can be interpreted to mean that any company administrator who did the presentation or and publication without any bad faith cannot be held liable. This offence is sanctioned under Article 8 of the Cameroonian Law of 10 th July 2003 on the repression of certain offences with an imprisonment term from one (1) year to five (5) years and a fine of 2,000,000 to 20,000,000francs. In Senegal, the 1998 Law on the repression of certain offences in the UA punishes this offence with an imprisonment term for from one (1) year to five (5) years and a fine of 524
SOCKENG (R.), op. cit. PP. 86-87. SOCKENG (R.), op. cit. P.87.
525
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100,000 to 5,000,000 francs. The judge can inflict this sanction simultaneously to the offender. We notice here again that the Cameroonian law has a different view of this offence as compared to that of her Senegalese counterpart. Even if both legislators are sharing the same view as regard the term of imprisonment, there is still a great disparity between them as regard the financial aspect of the sanction. The minimum in Cameroon is 2,000,000 while in Senegal it is 100,000 francs; the maximum in Cameroon is 20,000,000 and in Senegal it is 5,000,000francs. From the above, we can really affirm that the UA had tangible reason for allowing member states to fix their sanctions taking into consideration the criminal law of their various states. The Cameroonian Law on the other hand, has provided some provisions which are similar to that of the UA. Following Section 386 (2) of the 2006 Companies Act, the directors of the company must keep an adequate financial report of the company. Section 393 of this same Act went on to situate when a company is having an exact financial report. Any company which is able to show and explain its transactions and disclose any financial transaction undertaken by the company is said to be having a satisfactory accounting record. This financial statement which is going to be adopted by the directors and presented to the shareholders must give a true and fair view of the assets, liabilities and loss of the company526. 4.2.3.1.3
The abusive use of the assets or credits of the Company.
The company administrators must at any time during the exercise of their functions as the brain and hands of the company not forget to distinguish between their personal property and that belonging to the company. Because of the enormous powers that the directors have in the administration of the company, they turn to defraud the company of its assets and or credits. Thus the abuse of power is closely related to this offence 527. The UA in it zeal to protect the company assets or credit has made provision in it Article 891 of the UA that; “any manager of a private limited company, directors, chairman and managing director, general manager, managing director or assistant managing director who, in bad faith, use the assets or credit of the company in a way they know is against the interest of the company, for personal, material or moral ends, or in favor of another corporate body in which they have interest directly or indirectly, shall incur a punitive sanction”. From the foregoing, any company administrator that indulges in the abuse of company’s assets or credits shall be sanctioned. Only managers of private limited companies 526 527
Companies Act 2006, Section 393 (2). BRAUD (A.) et al, op.cit. P.40.
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and public limited companies can commit this offence. So managers of SNC and SCS involved in this offence will be charged and tried under the penal code of the different member states528. In Cameroon, they will be charged and tried for misappropriation under Section 318 of the Penal Code. It is worth to note that this offence is new in criminal law. This offence has been classified by Sockeng as an abuse of confidence 529.Abuse of company’s assets has been so rampant nowadays especially with state owned companies. Our worry is to know whether Article 891 applies to these Companies. In this light we affirmed with Professor Paul –Gerald Pougoué that, it will apply only to those state corporations that carry out commercial transaction and at the same time have a legal and economic reality530. For the prosecution to hold the company administrator liable, they must prove two things; the company administrator must have used the assets or credits of the company against the interest of the company; and secondly, the administrator must have jettisoned the company’s interest and acted in his personal interest or in favor of another corporate body in which he has an interest directly or indirectly. By usage of the company’s assets we mean all methods of usage which end up leading to the appropriation or dissipation of the asset. This can also come about when the company administrator unjustifiably borrowed the company’s asset or abusive use of a mobile asset of the company531. The company administrator must not have only used the asset, but must have done that against the company interest. What is called the company’s interest here is still surrounded with so much debate. This is because the French law just as the UA has not yet given a clear definition of a company interest532. It is only when the company interest is known before we can draw a true line between what is normal act of an administrator and an abuse. A company director that received remuneration contrary to what was previewed by the General meeting is said to be against the company’s interest. This offence is directed only against the company directors. So any other person who is not a director cannot be held liable for this offence. Thus the statutory auditors and salary earners are not included. But however, they can be held liable for abuse of confidence or as an accomplice.
528
POUGOUE (P-G.) et al, op.cit. PP.129-130. SOCKENG (R.), op.cit. P.97. 530 POUGOUE (P-G.), «Les sociétés d Etat à l’Epreuve du Droit OHADA »,in Juridis Périodique nº 65, Jan-FevMars, 2006,P.99. 531 For instance where a director uses the company’s vehicle to transport his palm fruits from his plantation. 532 BRAUD (A.) et al, op. cit. P. 41. 529
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Directors susceptible to be held liable for this offence must not only have the intention to use the asset against the company’s interest but must manifest the zeal to go against the company’s interest. The Cameroonian Law punishes any director who abused company’s asset with an imprisonment term for from one (1) year to five (5) years and a fine of 2,000,000 to 20,000,000 francs CFA.533 We notice that the Cameroonian Law has a severe financial sanction as compared to the Senegalese Law534. The position of the Common Law is not very clear as regard the misuse of the company’s property by a director. This not withstanding, both the Common Law and it inspired statutes has provided some sanctions that will properly apply to those directors who misuse the company’s assets or credit. Here we are talking of the duties of directors as enunciated in the 2006 Companies Act. These duties are; the duty to act in the best interest of the company; the duty not to accept any benefit from third parties; the duty to declare interest in proposed transactions or arrangements with the company and the duty to avoid conflict of interest535. The English Law intends here to prevent the directors from using their power at the detriment of the company interest. A director is considered as having acted in bad faith when he acted in his own personal interest or in the interest of another company which is going to be beneficial to him. English judges have considered directors as trustees of the company’s property and so must not temper with it. Directors are not to make personal advantage of their position or of any information or corporate opportunity for if they do so, they must answer to the company536. English judges are much stricter than OHADA Law. This is because bad faith need not proved as compared to the situation under OHADA Business Law. The making of profit is a condition sine qua non for the liability of the director to be engaged. In the case of Industrial Development Consultants Ltd v. Cooley537, it was held that a director who took a contract personally was held accountable for the profit even though it was clear that the other party was not prepared to offer the contract to the company. 4.2.3.1.4
Offences relating to the wrongful modification of the company’s capital.
There is a possibility for the directors of a public limited company to either reduce or increase their capital. But in the process of doing either of these they must respect some rules. 533
See Art.9 of Law No. 2003/08 of 10th July 2003. In Senegal this offence is punishable under Art 6 of the 1998 law with an imprisonment term for from one year (1) to five (5) years and a fine of 100,000 to 5,000,000 francs CFA. 535 See Sections 172, 175, 176 and Section 177 of the Act. 536 Keech v Sandford (1726) Sel castking 61. 537 ([1972] I WLR 443. 534
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It is as a result of this that the UA has provided under Articles 893 to 896 some offences likely to be committed during the modification of the company’s capital. During capital increase in a company, certain conditions must be respected and the preferential rights of the shareholders must be respected. Article 893 states that “ any director, chairman of the board of directors, chairman and managing director, general manager, managing director or assistant managing director of a public limited company who on the occasion of an increase of capital, issue shares or share denomination without respect of some rules relating to this shall incur punitive sanctions”. Some of the wrongful acts may include the following; issuance of new shares before the requisite prior formalities have been carried out before new shares corresponding to the in kind contribution have been fully paid up, issuance of shares before the establishment of the depositary’s certificate; or issue of new shares without one quarter of the face value of the new share have been paid up at the time of subscription. According to Article 894, company administrators who increase company’s capital without respecting the preferential rights of the shareholders shall be punished. Company executives who knowingly give or confirm incorrect information in the report presented to the general meeting summon to decide on the repeal of the pre-emptive right of subscription shall incur a punitive sanction538. Another wrongful act of the company directors can take place during capital reduction of the company. Although it is not prohibited for a company to reduce its capital but it is prohibited for them to do this in disregard of the shareholders equality 539. In order to give more force to this equality between shareholders, the AU made it a criminal offence for any company administrator who knowingly carries out a reduction of capital without respecting the equality of shareholders or without communicating the proposed reduction to auditors within the required time limit540. So the company administrator is going to be liable only in situation where they acted voluntarily following the above article. But we can easily see situation where the administrators acted involuntarily. In such incidence the share holder in question can institute an action for civil claim against the administrator concerned 541 .It is however not an offence if the disfavored shareholder consent that the principle of legality was been disregarded. This offence is sanctioned under the 2003 Cameroonian criminal law in it Article 14. This Article provides that; any company executive who reduces shares without respecting 538
Art. 895. See Articles 366 and 628 UA. 540 Art. 896 UA. 541 POUGOUE (P-G.) et al, op. cit. P.134. 539
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equality between shareholders or without communicating such reduction to the company’s auditors shall be liable for an imprisonment term for from three (3) months to three (3) years and a fine of from 100,000 to 1,000,000 francs CFA, or only one of these. The sanction for offences committed during the increased of capital of the company is the same as that which relate to capital reduction.542 Under the Common Law, it has been a general principle of business law that the capital of a company should be maintained and that funds should not be returned to shareholders once they have subscribed for shares. But circumstances can occur where the company can reduce it capital provided they respect some procedure. Section 48 et seq of the Companies Ordinance is to the effect that; shares can only be reduced in the following conditions; where a company has issued partly paid shares, it may reduce or cancel entirely the liability of shareholders, a company may reduce or cancel entirely its paid-up capital but instead of returning it to shareholders, apply it for some other purpose543. Even if the Common Law has made provision for the reduction and increase544 of company’s capital, it should be borne in mind that the UA is clearer than the Common Law. The reason for these difficulties at Common Law is because of the different rights545. At the level of sanction of this offence, the UA is much more advanced than the Common Law. This is because the UA has made available sanctions to be mated out to defaulters of these offences. At Common Law there was no effective sanction apart from the remedy of injunction. 4.2.3.2
Offences relating to the General Meetings of Companies The right to attend and vote at the company’s meeting is one of the fundamental rights
of all shareholders. It is only through this occasion that the shareholders can know about the state of health of the company. Because of the role which company’s general meetings play in the administration of a company, the UA has provided that whosoever, knowingly prevent a shareholder from participating in a general meeting shall incur punitive sanctions 546. It is the duty of the company administrators to provide the shareholders with the date and agenda of the meeting. So when this is not done, they are likely to face the wrath of the law. For the directors to be held liable, they must have acted intentionally. Even when the directors acted through omission, they can still be liable not in criminal action but in civil action as a result of 542
See Art. II of Law No. 2003/008 of 10 July 2003 relating to the repression of offences in certain Uniform Acts. 543 Companies Ordinance Section 48 (1) (a)-(c). 544 See generally Section 58 et seq of the Companies Ordinance. 545 For example we have Ordinary shares, deferred shares, labour shares etc. 546 Art 892 UA.
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damage suffered by a shareholder due to his lack of participation at the general meeting. In a situation where a resolution is taken in the absence of some shareholders who were not informed about the meeting, they can apply for the resolution to be set aside547. Article 10 of the 2003 law relating to repression of offences contained in some Uniform Acts, punishes any person who knowingly prevents a shareholder from attending an annual general meeting with an imprisonment term for from three (3) months to two (2) years or a fine from 50,000 to 1,000,000 francs, or both such imprisonment and fine. In Senegal, this offence is punishable under the law of 26 March 1998 on Criminal sanctions relating to offences in the UA with an imprisonment term for from three (3) months to two (2) years or a fine from 100,000 to 1,000,000francs CFA or both such fine and imprisonment. We noticed that the Senegalese legislator provide the same sanction as her Cameroonian counterpart. This is in the field of the term of imprisonment. This not withstanding, they differ as regard the amount of fine. 4.2.3.3
Offences relating to the Control of Companies. Like any other organisation, a company must be control if not management is going to
ruin the investment of the shareholders. It is in the light of this that the administration of companies is usually under two types of control. The shareholders have the right to be informed on what is happening in the company. They can also ask to be informed on what is happening in the company. They can also ask to be communicated the documents of the company and during the company’s meeting, they can ask questions on matters they think is not going on in the right way. This type of traditional control is known as internal control since it is only exercised by the shareholders548. There is another technical control exercise by the auditors. This type of control which is external has been of special interest to the African legislator. This is because of the type of person who is eligible to exercise this control is too restrictive. Although both the UA and Common Law has made it an obligation to have an auditor, not every body can be appointed as such.549 So any person who suffers from an incompatibility cannot be appointed as one. These types of persons include administrators, parents or any family member to a director.550 These offences which are likely to be committed in public limited companies and to a certain measure in private limited companies are usually committed by the company 547
The position under Table A, Art 39 of the 1985 Companies Act is to the effect that the resolution can still be uphold if the failure can be proved to be unplanned. 548 SOCKENG (R.), op. cit. P.107. 549 See Art 376 and 694. See also Companies Ordinance Section 119 (iv). 550 See the following; Art. 898 UA, Companies Ordinance Section 119 (3).
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executives or the auditors themselves. But we are going to limit ourselves to the offences committed by the company executives. This is because the essence of this chapter is aimed at showing the limit to the powers of company directors. 4.2.3.1
Offences likely to be committed by the company Executives Some directors and managers may see auditors as an obstacle to their intentions of
exploiting the company in their personal interest. They will therefore do everything possible to prevent the disintegration of auditors or their convocation to different meetings. If they fail at this level they will try to prevent the auditors from carrying out their control mission. These two methods of possible reactions to auditors constitute offences as laid down in Articles 897 and 900 of the Uniform Act. 4.2.3.1.1 Failure to appoint or convene auditors. The appointment of an auditor has been made an obligation under the two systems of study. Public limited companies must have at least one auditor or exceptionally more than one in case they make public call for capital. In a case of private limited company, they must appoint at least one auditor provided they fulfilled certain conditions 551.Although both Laws have made it an obligation to appoint auditors, certain type of persons cannot be appointed as auditors. Under the Uniform Act persons like administrators, guardians, parents or connected persons to a director cannot be appointed as auditor.552 At Common Law, the position of an auditor has been described as a watch dog of the company 553 . So any directors that fail to appoint an auditor is liable for an offence. It is in light of this obligation that the UA in its Article 897 punishes any company executive who fails to have auditors appointed for the company or not to convene them to the general meeting. The failure to convene the auditor is a criminal offence only when it concerns the general meeting. It will not be in relation to the meeting of the board of directors554. The reason for this is because the board meeting is strictly reserved only to members of the board and so the auditor is not bound to attend the board meeting. Failure by the directors to convene the ordinary general meeting which is competent to appoint the auditor or failure to insert the issue of appointment on the agenda of the general meeting is an offence. The directors can be held liable for this offence even if they were negligent. So it is therefore not an intentional offence. 4.2.3.1.2
Obstacle to control by the auditors
551
See Article 376 and 694 of UA, See also Companies Ordinance, Section 119 (i). Art. 898 UA, See also Section 119 (3) of the Companies Ordinance. This section makes mention of persons properly qualified and supervised. But the legislator has not defined these terms. 553 Caparo Industries plc v. Dickman [1989] QB 653, C.A. 554 POUGOUE (P-G.) et al, op.cit. PP.129-137. 552
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Any directors who act as an obstacle to the auditor in performance of his duty are doing so in bad faith. This offence extends to any person in the service of a company. 555 The directors after appointing the auditor must enable them do their work effectively. This is by communicating all the accounting documents to them. They are also bound to provide any document the auditor deems necessary to carry out his function. It is in line with this obligation that Article 900 of the UA provides that any company executive who knowingly obstructs the verification of documents of the company and minutes register shall be punished. The material element will take two forms either: obstruction of verification by auditors, this takes the form of refusal of access to the premise of the company, creation of bottle-necks in the process of handing to the auditor the means necessary for investigation or reticence in furnishing explanations; or refusal to communicate to them on the spot, all the documents needed for the performance of their duty, in particular all contracts, books, accounting documents. This is an offence only when it is done knowingly. The sanctions provided for these offences are found under the Cameroonian Law No. 2003/008 of 10th July 2003 on the repression of offences contained in certain Uniform Acts. Art 15 of this law punishes with imprisonment term for from two (2) years to five (5) years and a fine of from 500,000 to 5,000,000 francs CFA or only one of these punishments, any director who fails to designate or to summon an auditor to the general meeting of shareholders. We notice here again that the UA has given the judge the power to either choose one of the sanctions or both. As regard the offence concerning obstacle to the control of companies by the auditors, the Cameroonian Law has made provision for sanctions which is going to be inflicted both to the directors and any person at the service of the company that was involved in such action. Art. 18 of the 2003 law punishes the directors or any other person at the service of the company with an imprisonment term for from two (2) years to five (5) years and a fine of from 500,000 to 5,000,000 francs CFA or only one of these punishments for their bad faith in preventing the auditors to carry out their functions. It is worthy to note here that, the sanctions for the offence under Art. 897 and 900 of the UA are all the same. 4.2.4
Criminal liability during Companies difficulties. The administration of a company is quite delicate in such a way that if the
management body is not careful, they might run the company into difficulties. The Uniform Act just like the Common Law has provided for offences which are susceptible to be 555
DELMAS-MARTY (M.), Droit pénal des Affaires, PUF, Paris, 1982, P. 408.
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committed during this period. Most of these criminal offences during this period come about at the moment of dissolution of the company. The UACPWD provides for the offence of criminal bankruptcy which can be charged against the company administrators. 4.2.4.1
Offences linked to the dissolution of the company. The aim of the offences here is to protect the information destined to partners and
shareholders on the one hand and third parties on the other hand. This offence also has as objective the protection of the assets of the shareholders and the corporation in the course and after liquidation. The UA just like the Common law has made it an offence for the company administrator who fails to shout out the insolvency of the company. Two classes of persons who are likely to be informed here are the shareholders and the third parties. In this light, Article 901 (1) of the UA punishes any company executive who knowingly fail where the shareholders’ equity capital of the company falls below half the registered capital due to losses recorded in the summary financial statement to have an extraordinary general meeting convened, within a period of four months following the approval of the summary financial statements in which the losses appear to order where necessary, the premature dissolution of the company. The dissolution of a company and consequently liquidation has to be brought to the knowledge of the public. Failure to do this will lead to criminal punishment. Company executives run the risk of punishment if they fail to file at the registry of the court responsible for commercial matters, register in the Trade and Personal Property Credit Register and publish in a news paper empowered to publish legal notices the premature liquidation of the company
556
.So the company executive who fails to register the decision to wind up the
company in a commercial registry and also fails to publish such notice in a legal news paper shall be charged for a criminal offence. Under Common Law, this offence can be classified as wrongful trading. This is a situation where the company executives instead of declaring the insolvency of the company, continue to do business. So failure to declare insolvency under Common Law just as under UA is punishable. Pursuant to Section 214 (2) of the 1986 Insolvency Act, the court shall have power to hold those company executives who were doing business on behalf of the company before winding up to contribute towards the companies debts. English Law, unlike OHADA Law, preferred to classify this offence as a civil case.
556
Art. 901 (2) UA.
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This offence is punishable under Art.19 of the 2003 law with an imprisonment term for from two (2) years to five (5) years and a fine of from 500,000 to 5,000,000francs CFA, or with only one of these sanctions. 4.2.4.2
Criminal Bankruptcy as an offence. The UACPWD treats bankruptcy as a criminal offence in its part V. Chapter 1. The
UA has made a difference between bankruptcy offences, strictly speaking and offences which are similar or related to bankruptcy. Persons who are eligible to be charged for bankruptcy are individual business men and shareholders while the directors are to be charged for offences related to bankruptcy557. Apart from the disparity in the persons who can commit this offence, no major difference can be found between them. The Companies Act
558
just like the
UACPWD have made mention of criminal bankruptcy even though they have preferred to term it Fraudulent Trading. This can be defined as a condition where the company’s business is carried on with the objective to cheat its creditors. This is an offence which is punishable559. We can conveniently grouped criminal bankruptcy into simple and fraudulent bankruptcy. All these are going to be determined by the weight of the offence. The same grouping applies to the offence related to bankruptcy. 4.2.4.2.1
Offences related to simple Bankruptcy
The offences related to simple bankruptcy are those offences committed by directors or their representatives when the company is insolvent. 560 The necessary conditions for the offence to be materialized have been provided by the UACPDW.561 Simple bankruptcy will take place when the person during insolvency of the company has used funds belonging to the company in hazardous or fictitious operations; after the company has become insolvent, paid off one creditor to the detriment of others; concealed or removed his own assets, or has fraudulently acknowledged non-existent debts, with a view to removing some or all of his assets from the scope of any proceedings against him in the context of the proceedings involving the company562. They can also be liable for simple bankruptcy if they have been engaged in the following offences: failed, without any legitimate reason, to declare insolvency within 30 days; prepared incomplete or improper account; has twice been in a situation of insolvency within five years, and the proceedings have been terminated for insufficiency of
557
SOCKENG (R.), op.cit.P.159. Section 332 of the 1985. 559 Section 213 of the 1986 Insolvency Act. 560 MARTOR (B.) et al; op.cit. P.189. 561 See Article 231 and 232. 562 SOCKENG (R.), op.cit, PP.160-161. 558
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assets. For the directors to be charged for this offence, the prosecution needs not prove high level of fraudulent intention, for a simple mistake is sufficient for prosecution. The sanction for this offence is provided under Article 25 of the 2003 Law. Pursuant to this Article, any director or personal representative of a corporate body on the board of directors of a company which has gone into insolvency and who has committed the offence of simple bankruptcy shall be punished with an imprisonment term for from one (1) month to two (2) years. We noticed that the sanction for this offence is only limited to imprisonment term. The UA has not made provision for any fine. Even the imprisonment term is quite small as the maximum is two years. The offender of this offence shall not be punished in Senegal leaving the investor without any solution but frustration. This is because the Senegalese Law till date has limited itself only to sanctions for the offences found in the UA, for they have not yet provided for any sanctions for offences found in the UACPWD. Thus, because of this lacuna, investors might be very reluctant to come and invest in this country. This might also be an obstacle to the objective of the OHADA which was to attract as much investors as possible through harmonized laws on business matters.
4.2.4.2.2
Offences related to fraudulent Bankruptcy
Even if the persons susceptible to be held liable for this offence are the same as that of simple bankruptcy, the sanctions for offences of fraudulent bankruptcy are more severe than those of simple bankruptcy. Directors of the company shall be punished pursuant to Article 233 of the UACPWD for indulging with the following acts during the insolvency of the company: paid off a creditor after the business has become insolvent, to the detriment of the other creditors; exercised a commercial profession as against the refusal of the positive laws of the member states; conceal the accounts of the company; this might be their effort to reduce the company’s debts and liabilities or even to steal some of the company’s assets. Pursuant to Article 299 of the UACPWD, fraudulent bankruptcy will also take place in a situation when the company is not insolvent but is subject to preventive settlement proceedings. The persons in this situation must have presented accounts of the company which is incomplete or inaccurate; or they must have performed certain prohibited acts without authorization from the president of the court563.
563
Article 299 UACPWD.
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For the prosecution to prosecute the directors, it must be proved that they acted in bad faith and had intention of doing that at the time of such acts. The UACPWD have laid down in its Articles 234 to 239 the procedure for the prosecution of this offence and those related to it. Unlike offences related to simple bankruptcy which is prosecuted by the commercial court, that of fraudulent bankruptcy is been prosecuted by the criminal court. Following Article 26 of the 2003 Cameroonian law, any director who is guilty of the offence of fraudulent bankruptcy shall be punished with an imprisonment term for from five (5) years to ten (10) years. 4.3 Enforcement of liabilities. From the above we can say that the powers bestowed on the company administrators is aimed at ensuring good administration of the company and not to abuse it. It is therefore a duty on these directors to respect the duties accorded to them by the law. At any time they failed, what awaits them is nothing apart from their liability either criminal or civil or even both. But even when they have breach these duties, nothing will be done to them if no action is brought in the court of law to redress the situation. The action to enforce the liabilities can either be taken by the shareholders themselves when they suffered some damages or when the company they have invested in is not doing fine due to the actions of the directors. 4.3.1 Individual action Pursuant to Article 162 of the UA, individual action takes place when a third party or a partner suffered damages, which is contrary to that of the company. So this type of action can only be instituted by an individual or third party on conclusion that the damages sustained is personal. Concerning the exercise of an individual action by a third party, each company administrator shall be individually liable to third parties for torts committed in the performance of their duties564. However where several of them are involved in the commission of the tort, they shall be jointly and severally liable to third parties. The commercial court shall then be competent to determine the amount to be paid by each of them at fault, depending on the weight of the fault. Shareholders also have the right to institute an action against the mistakes of the director. The aim of their action here is to repair the damages they have suffered as a result of the director breach of duty. In a situation where the damage is common to all the shareholders, they might elect one of them as their representative. The reason behind this is to avoid the multiplication of actions in the court of law. Even if the damages caused to the company do 564
Art. 161 UA.
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not attract personal action, the UA has made it clear that the institution of personal action shall not prevent the shareholders from instituting an action on behalf of the company 565. Any person that has a claim must exercise such a claim within a particular time limit or else the person shall be bar from doing so. It is in this light that the UA has provided that individual action shall lapse after three years following the commission of the wrong, or following it disclosure where the wrong was hidden. The time limit shall be ten years for felonies566. 4.3.2
Actions on behalf of the Company
When the company suffers damage, a derivative action can be commenced against an administrator or the board. This type of civil action must be initiated by the legal representative of the company: either by the new officers against the former; by a majority of the officers against other officers; or in the case of company’s liquidation by the liquidator. Apart from this principle, one or more shareholders may institute action on behalf of the company, after serving a formal notice to the competent bodies and they failed to respond within the time limit of thirty (30) days567. The shareholders must have a tangible reason before exercising this likely on behalf of the company. Professor Gower568 earlier affirmed this when he says that: “shareholders should not be able to involve the company in litigation without good cause …. Otherwise the company may be “killed by kindness”, or waste money and management time in dealing with unwanted litigation”. So shareholders can only exercise this action when they had a good case to be heard. The cost of this action shall be payable by the company on whose behalf the shareholder is acting. Pursuant to Article 170 of the UA, an action in the interest of the company shall be bar after three (3) years following commission of the tort, or following its disclosure where the tort was hidden. As regard felonies, the prescription shall be ten (10) years. Following the above discussion, we can deduce that the enormous powers bestowed on the directors should be use accordingly in the administration of the company. OHADA law and Common law inspired Companies Ordinance has set up some institutions which are to act as a check on the powers of the directors. Here we are referring to the external control which is been undertaken by the auditors especially in areas of account which are likely to temper the smooth functioning of a company. The obligation to information under the two legal 565
Art. 163 UA. Art. 164 UA. 567 Art. 167 UA. 568 PAUL DAVIES, op.cit, P.672. 566
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systems is another means of limiting the powers of the directors. In the same strength of limiting the powers of the directors, OHADA Law, unlike the English Law has been much more innovative. This is by the introduction of the alert procedure which is under the competence of the statutory auditor and the shareholders. But we should note that this control is more effective than that of the shareholders. This is because the alert procedure has been made an obligation on the auditors as regard shareholders who may or may not carry this procedure569. When the company administrators do not exercise their powers within the confined of the law, they are going to be liable. Both Laws have classified these liabilities into civil and criminal. They have taken on their own initiative to bring out the various acts which can amount to civil and / or criminal liability. OHADA Law has not only defined the acts but has given the latitude to the member states to determine the penalties taken into consideration their various criminal law policies. But this liberalization will turn to do more harm than good since different penalties will exist for the same offence in different countries. An attempt to harmonize it criminal law is much more welcoming. The Common law inspired Companies Ordinance by providing for criminal liability of corporations is much more advance as compare to OHADA Law which has not yet been able to distinguish between the crime of a company and it administrators. Today there has been an uprising crimes committed by corporations and UA should try to catch the train of advancement.
569
POUGOUE (P-G.), « L’impact de l’acte uniforme de l’OHADA relatif au droit des sociétés commerciales et du GIE sur le contrôle et le développement de Entreprise locales », op. cit, P.112.
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GENERAL CONLUSION
This research examines the distribution of power in the administration of a corporate entity with regard to Public Limited Companies (S.A). This has been comparatively and critically done, taking the OHADA Uniform Act on Commercial Companies and Economic Interest Group on the one hand, and on the other hand, the Common Law inspired Companies Ordinance as the two major legislations under study. Beside these, other legal systems from time to time are been referred to. The Common law inspired Companies Ordinance, just like OHADA Law has provided for the structures that hold power in the company administration. Both legal system have recognized the fact that the Board of Directors and the shareholders even the minority at General Meetings are the main organs that struggle to win more powers in the administration of companies. Beside these classic structures, the UA unlike the Common Law inspired Ordinance has brought in an innovation by giving the possibility for the creation and running of a limited company without a Board of Directors. This type of structure is still strange to the Common law inspired Companies. In these types of companies (SA and SARL), the distribution of power will be greatly affected since the sole managing director owns and almost control everything. But if his powers are not well check, it might lead to tyranny in the administration of the company570. In the distribution of power, a situation as to where the chairman of the Board of Directors is at the same time the managing director; the monopolization of powers as Board president and Chief Executive Officer (CEO) makes him a dictator in an organ which can be consider as a spring board for good corporate governance. This situation can lead to abuse of power in the administration of the company. The control or the administration of the company is in the hands of the shareholders at an Annual General Meeting. This is so because the shareholders at the general meeting have the power to appoint or dismiss the directors or managing director as well as the auditors, the general meeting equally has the power to approve or refuse to approve agreement entered into by the company managers, adjudicate on the summary financial statement of the fiscal year and also, the general meetings equally has the power to issue bonds, approve the auditors 570
AYAWA TSAKADI (A.), « Réflexions sur les pouvoirs de l’associe unique », op.cit, P.83.
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report and above all decide on the allocation of income under penalty of any decision to the contrary being declared null and void. All these are evidence to the fact that the control of the company under the two legal systems is in the hands of the shareholders at a general meeting. However, under both legal systems, it has been shown practically that the real power of the administration or control rest not on the shareholders but on the directors and the managing directors. Why we say so is because directors and not the shareholders run the day to day basis, they are the only ones who can give a true statement on the health situation of the company. The general meeting is often convened by the directors who draw up the agenda meeting and ultimately override the decision of the shareholders at the end of the day. Similarly meetings take too much of a time to convene and are always costly and time consuming. The shareholders very much desire profit from their investment and care little about company control, and above all most directors use the technique of share dispersation to limit the number of shareholders attending general meeting. All these explain the reasoning that in practice directors not shareholders have greater power over the company’s business and affairs. This confusion as to who has greater power of control over the company, sometimes create power struggle571 between the shareholders who are the original owners of the company and the company directors who are employed for their expertise and who later join the company and may invest in it. Even if both laws are portraying the directors as having greater power in the administration of the companies, they have at the same time try to avoid the abuse of such power by the directors. The directors have limit to which they can exercise such power. In this light, both laws have instituted the control organ which acts as a check on the enormous powers of the directors. This is been done by the shareholders internally and the statutory auditors in the form of external control. They act as watchdogs on the powers of the directors to make sure that they exercise it according to the norms put in place. To make this control effective, the UA unlike the Common law inspired Companies Ordinance has brought in a preliminary procedure, which is designed to alert the management when it appears that the continuation of the company’s activity is at risk. This major innovation of the UA is at the disposal of the shareholder and the statutory auditors. This innovation of the UA only goes a long way to confirm the words of Mr.Keba Mbaye that;
571
This power struggle has often resulted to many companies failure. A good example is the case of the deformed Amity Bank Cameroon PLC in which there have been a lot of power struggle between the Shareholders and the Directors which have finally lead to the transformation of the bank in to Atlantic Bank of Cameroon by an order of COBAC.
147
“OHADA is a legal tool thought and designed by Africa and for Africa to serve the purpose of regional integration and economic growth on the continent” 572. Both legal systems in order to limit the powers of these company administrators or directors, have introduce certain acts which must not be committed by the directors. In case of commission of these acts, they shall face both civil and criminal liability. However, in this domain of responsibility of company administrators, the UA unlike the Common Law inspired Companies Ordinance has neatly brought together all the offences that are likely to be committed
by the companies directors during the administration of the company.
However, English Law unlike the OHADA Law has made provisions for all penalties alongside each offence. The UA merely states the offence and refers the punitive sanction to the criminal law of the Member States. As a result of this, penalties for the offences of company administration are going to vary from one state to another. Again, the UA unlike the Common Law inspired Companies Ordinance have not yet provided for criminal sanctions or liability of corporations. It has contented itself only with the directors forgetting to know that today Multinationals most often than not are involve in high crime wave.In the face of all these, the Board of Directors still emerged as the most formidable organ of the company threatening the balance of power that suppose to exist within the corporate structure. It is suggested that the General Meetings should also in practice as in theory maintain the highest governing organ position and the inherent powers therein because they are themselves the company if the corporate veil is to be lifted.
572
KEBA MBAYE, « L’histoire et les objectives de l’OHADA », op. cit, P.7.
148
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