By Bamidele Kolawole

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A director can be likened to a captain of the ship who leads the team to ensure stability, management and growth of a company. He or she has to act in good faith in order to promote the objects of the company for the benefit of its members as a whole.

Under the Companies and Allied Matters Act (CAMA) 2020 in Nigeria, directors as the Alter-egos,that is, the human faces of the company,do have various legal obligations to the company and its stakeholders. Key among the obligations include:

1. Duty of care and skill (Section 303): Directors must exercise reasonable care, skill, and diligence.

2. Duty to act in good faith (Section 304): Directors must act in the company’s best interests.

3. Duty to avoid conflicts of interest (Section 306): Directors must disclose personal interests and avoid conflicts.

4. Duty of loyalty (Section 307): Directors must prioritize the company’s interests.

Financial Obligations:

1. Financial reporting (Section 370): Directors must ensure accurate financial reports.

2. Accounting records (Section 372): Directors must maintain proper accounting records.

Other Obligations:

1. Compliance with laws and regulations (Section 26): Directors must ensure company compliance.

2. Shareholder interests (Section 314): Directors must consider shareholder interests.

3. Employee welfare (Section 321): Directors must ensure employee welfare.

4. Environmental and social responsibilities (Section 332): Directors must consider environmental and social impacts.

Liability:

1. Personal liability (Section 303): Directors may be personally liable for breaches.

2. Fines and penalties (Section 305): Directors may face fines and penalties for non-compliance.            

 3.The Directors sees to the day to day activities and Management of the company.

We need be reminded that, the above does not represent an exhaustive list. It is also a legal obligations for directors to familiarize themselves with CAMA 2020’s provisions and Consult a legal professional for specific guidance. 

A director can be likened to a _captain of the ship who leads the team to ensure stability, management and growth of a company. He or she has to act in good faith in order to promote the objects of the company for the benefit of its members as a whole.

However, legal responsibilities such as data protection, corporate governance and ethics should be complied with in the company’s administration.

The directors of a corporate establishment are charged with the responsibility of making desperate corporate decisions while affording a measure of corporate social responsibility of its legal entity. When a director is appointed in a company, they have a crucial role in ensuring compliance with corporate governance, legal standards, and corporate social responsibility (CSR).

Directors are legally bound by fiduciary duties to act in the best interest of the company, including acting without conflict of interest, putting the company’s interests ahead of personal gain, making informed decisions with due diligence, compliance with corporate governance to ensure transparency, accountability, ethical decision-making, well-balanced and independent board, abiding by laws such as the Companies and Allied Matters Act CAMA 2020, Security Regulations, and sector-specific rules, as well as integrating CSR into their operations, covering areas like environmental sustainability, ethical labour and community impact.

Also directors must ensure the company remain solvent and does not incur debts when unable to pay them.

Similarly, directors must disclose any conflicts of interest and abstain from decision-making where they have a personal stake.

Directors are required to ensure the rights of shareholders and other stakeholders, like employees and creditors, are respected.

In the final analysis, it is important for directors to ensure the company complies with local tax, labor, environmental, and aspects of safeguarding the company’s customer data.

Penalties for breach vary from award of significant fines, loss of business, reputational harm, personal risks, insurance liability for legal costs in case of lawsuits, shareholder disputes, and the erosion of investor confidence

In summary, directors must navigate a wide range of legal issues to ensure the company operates within the bounds of the law while balancing the interests of stakeholders. Failure to comply with corporate governance principles or legal duties can result in significant financial and reputational damage, as well as personal liability.

Directors have several key legal obligations, often referred to as fiduciary duties. Some of their  primary duties are:

1. Duty of Care: Directors must act with the care that a reasonably prudent person would take in similar circumstances. This includes making informed decisions and overseeing the company’s activities diligently.

2. Duty of Loyalty: Directors must act in the best interests of the company and its shareholders, avoiding conflicts of interest. They should not use their position for personal gain.

3. Duty of Good Faith: Directors must act honestly and in good faith, with a genuine belief that their actions are in the company’s best interests.

4. Duty to Act Within Power: Directors must act within the powers granted to them by the company’s constitution and must use those powers for their intended purpose.

5. Duty to Promote the Success of the Company: Directors should act in a way that they believe will most likely promote the success of the company for the benefit of its members as a whole.

6. Duty to Exercise Independent Judgment: Directors must make their own decisions and not simply follow the instructions of others.

7. Duty to Avoid Conflicts of Interest: Directors should avoid situations where their personal interests conflict with those of the company.

8. Duty Not to Accept Benefits from Third Parties: Directors should not accept benefits from third parties that could compromise their independence.

9. Duty to Declare Interest in Proposed Transactions or Arrangements: Directors must declare any interest in a proposed transaction or arrangement with the company.

These duties ensure that directors act responsibly and ethically, safeguarding the interests of the company and its shareholders.

A company’s director is subject to various legal responsibilities under company law. These duties are intended to ensure that directors act in the best interests of the company, its shareholders, and other stakeholders. Although the specifics may differ by jurisdiction, the fundamental duties generally include:

 1. Duty to Act Within Powers**

   – Directors must act in line with the company’s constitution (such as its articles of association) and should only use their powers for the purposes for which they were granted.

2. Duty to Promote the Success of the Company

   – Directors must act in good faith and in a manner they believe will best promote the company’s success for the benefit of its shareholders, while considering factors such as:

     – Long-term impact of decisions

     – Employee interests

     – Relationships with suppliers, customers, and others

     – Environmental impact

     – Preserving the company’s reputation

     – Fairness to shareholders

3. Duty to Exercise Independent Judgment

   – Directors must make their own decisions and not simply follow the direction of shareholders or others unless properly authorized to do so.

4. Duty to Exercise Reasonable Care, Skill, and Diligence**

   – Directors must carry out their duties with the care, skill, and diligence that would reasonably be expected of someone in their role. This includes considering both general standards of competence and any specific skills or knowledge the director may have.

 5. Duty to Avoid Conflicts of Interest**

   – Directors must avoid any situation where their personal interests conflict, or may potentially conflict, with those of the company, covering both actual and possible conflicts.

 6. Duty Not to Accept Benefits from Third Parties**

   – Directors must not accept benefits from third parties (such as gifts or bribes) that are offered due to their position, as this could create conflicts of interest.

7. Duty to Declare Interest in Proposed Transactions or Arrangements

   – Directors must declare any direct or indirect interest they have in any proposed transaction or arrangement involving the company to their fellow directors.

8. Fiduciary Duty

   – Directors are required to act in the company’s best interests and not use their position for personal advantage.

9. Compliance with Statutory Requirements

   – Directors must ensure the company complies with legal obligations, including filing accounts, maintaining accurate records, paying taxes, and adhering to employment, health and safety, and environmental laws.

10. Insolvency-Related Duties

   – When a company is insolvent or close to insolvency, directors’ duties shift, prioritizing the interests of creditors over shareholders to avoid wrongful or fraudulent trading.

Failure to meet these obligations can lead to personal liability for directors, potentially resulting in disqualification, fines, or other legal penalties.

   Since a company is an artificial Legal – entity, the management of its affairs is entrusted to a body of persons called ‘Directors’. They are expected to act collectively as a board although the articles of association may also provide for the delegation of extensive powers to smaller committees or individual directors.

   S. 269 (1) CAMA defines a director as persons duly appointed by the company to direct and manage the business of the company.

S. 868 CAMA defines a director as including “any person occupying the position of director by whatever name called; and includes any person in accordance with whose direction or instructions the directors of the company are accustomed to act Shadow Director.

Directors of companies are considered trustees and are primarily responsible for fulfilling fiduciary duties, which include acting with care, skill, and diligence.

Failure to do so may result in legal action for negligence or breach of fiduciary duty. These responsibilities originate from common law and equitable doctrines, requiring directors to act in good faith, avoid conflicts of interest, disclose secret profits, and attend meetings. 

Directors also must not limit their voting discretion. Under the Companies and Allied Matters Act (CAMA), one-third of directors must retire and seek re-election at each Annual General Meeting. These obligations are now considered statutory duties.

Directors can face civil and criminal liabilities for failing to perform their statutory duties unless they have a reasonable defense. If a director fails to address signs of liquidation, they may be required to contribute financially. Directors are also liable for breaches related to health and safety if they neglect their duty of care toward employees and the company.

Directors must disclose any interest in company contracts, with failure to do so being an offense under CAMA, punishable by fines or removal by the general meeting. Breaches involving secret profits, abuse of corporate opportunities, and misuse of information carry strict consequences. Directors must be held accountable for any undue benefits, and the company can sue to recover such profits.

Directors are persons duly appointed by the company to direct and manage its business. Section 269 of CAMA 2020. See Yalaju-Amaye v Arec Ltd (1990) 4 NWLR (Part 145) 422.

Legal Status of Directors (s. 309(1) CAMA 2020)  

1. Directors as Trustees: Directors occupy a position of trust. Hence, they are accountable for all the company’s money and property entrusted to them. They are to exercise their powers in the interest of the company rather than for personal gratification. Section 309(1) provides that “Directors are trustees of the company’s money, properties and their powers, and as such shall account for all the money over which they exercise control, refund any money improperly paid away, and shall exercise their powers honestly in the interest of the company and all the shareholders, and not in their own or sectional interests.”

2. Directors as Agents: Section 309(2) provides that “A director may, when acting within his authority and the powers of the company, be regarded as an agent of the company under Part III of this Act.” Directors can be agents of the company if they represent the company in transactions.

Legal Obligations of Directors Under Company Law 

Directors are in a fiduciary relationship with the company, and all their duties flow from this fiduciary duty (S305(1)).  

1. Utmost Good Faith: Since directors are in a fiduciary relationship with the company, they must always observe utmost good faith towards the company in any transaction with it or on its behalf (S305(1)).

2. Duty to Act in the Best Interest of the Company: A director must separate his personal interests from the interests of the company. The test is subjective and depends on each circumstance, but the director must display faithfulness, diligence, carefulness, and ordinary skill (S305(3)).

3. Duty Not to Fetter Discretion: Discretion is fettered when, for example, the director uses the right to vote for a collateral reason (S305(6)).

4. Duty to Avoid Conflict of Interest: Personal interests must not conflict with duties as a director, especially in the making of secret profits (S306(1) and (2)).

5. Duty to Account: A director is accountable to the company for any secret profit made by him or any benefit derived by him (S306(3)).

6. Duty Not to Misuse Corporate Information: This duty binds a director even after resignation, and he can be bound by injunction not to misuse the information (S306(5)).

7. Duty of Care and Skill: A director must not be negligent in discharging his duties. The director shall exercise his powers and discharge his duties in good faith, in the best interest of the company, and with the care, diligence, and skill that a reasonable, prudent director would exercise in comparable circumstances (S308(1)).

8. Duty to Give Notice: Notice of interest in contracts, loans, and/or shareholding.

9. Duty to Disclose Age and Multiple Directorships in the Case of a Public Company:  

   i. Age: Any person who is appointed, or to his knowledge is proposed to be appointed, as a director of a public company and who is 70 or more years old shall disclose this fact to the members at the general meeting (S278(1)).  

   ii.Multiple Directorships: Any person proposed to be appointed as a director of a public company shall disclose any position he holds as a director in any other public company at the meeting in which he is proposed for appointment as a director (S278(2)).

Directors must ensure that the operation of the company is in line with corporate governance principles and relevant laws. It is the director’s obligation to fix the company’s financial year and ensure that adequate returns are made to the CAC when necessary. Directors shall, in respect of each year of the company, prepare financial statements for that year (S377 CAMA 2020). They must also ensure that the company keeps and maintains proper accounting records. Company meetings should be held to make important decisions for the smooth running of the company’s affairs.

Remedies for Breach of Directors’ Legal Obligations

The following remedies are available to the company against a director for breach of duties:  

1. Accounts of profits  

2. Rescission of contracts  

3. Summary termination of appointment/dismissal of the director  

4. Restoration of the company’s property  

5. Damages/compensation  

Under the Companies and Allied Matters Act (CAMA) 2020 in Nigeria, directors have several legal obligations:

1. Fiduciary Duties: Directors must act in good faith, prioritize the company’s interests, and avoid conflicts of interest.

2. Duty of Care and Skill: They are required to exercise due care, skill, and diligence in their roles, akin to what a reasonably prudent director would demonstrate.

3. Disclosure of Interests: Directors must disclose any personal interests in transactions involving the company.

4. Attendance and Participation: They are obligated to attend board meetings and participate actively in decision-making processes.

5. Re-election Requirement: One-third of directors must retire and seek re-election at each annual general meeting. 

Failure to adhere to these duties can result in civil or criminal liabilities.

Although a company is endowed with legal personality (that is, a body corporate that can sue and be sued), it has directing minds without which it cannot operate independently. One such directing mind of a company is its directors.  

A director of a company is defined in Section 269(1) of the Companies and Allied Matters Act, 2020, as “a person duly appointed by the company to direct and manage the business of the company.”  

However, some of the duties of a director are provided for under Sections 277-278 of the Companies and Allied Matters Act, 2020.  

First and foremost, a director has an obligation to hold a specified share qualification. If a director is not qualified to obtain such shares, they must do so within two months after their appointment to equip themselves and meet the required shareholding qualification. Failure of a director who does not hold shares in the company or fails to acquire such shares or qualification as prescribed by law would result in the loss of their office.  

Such a director, however, would not be capable of reappointment until they have obtained the necessary shareholding qualification.  

The Act further provides in Subsection 5 of the same Section 277 of the Companies and Allied Matters Act (CAMA), 2020, that an unqualified person who acts as a director of the company is liable to pay a penalty as determined by the Corporate Affairs Commission. This penalty is applicable from the date their qualification lapsed until the last date on which it is proven that they acted as a director.  

Secondly, the law places an obligation on a director or prospective director to disclose their age, especially when they are 70 years or older. Section 278 of CAMA requires such disclosure to be made to the members at a General Meeting.  

Thirdly, the law prescribes that a person who is a director or is proposed to be appointed as a director owes a fiduciary duty to disclose any position they hold as a director in any other public company at the meeting in which they are proposed for appointment as a director.  

In the event that such a person fails to disclose their age or multiple directorships as required by Section 278(3) of CAMA, they shall be liable to a penalty as specified by the Corporate Affairs Commission (CAC).  

Furthermore, the law pursuant to Section 279(1) of CAMA stipulates that a director must not be insolvent. If an insolvent director, directly or indirectly, participates in or is involved in the management of any company, they shall be liable to a fine as determined by the court, or imprisonment for a term of at least six months but not more than two years, or both.  

Also, pursuant to Section 289(3), the directors may, alongside the secretary, summon a meeting of directors. In accordance with Subsection 4, they may elect a chairman of their meetings and determine the chairman’s tenure of office. If the chairman is not present within five minutes after the time appointed for the meeting, the directors present may choose one of them to chair the meeting.  

A director is also obliged to execute documents on behalf of the company. Most agreements or memoranda of understanding are usually executed by the director(s) and the company secretary.  

Additionally, pursuant to Section 299(1)(a)-(d) of CAMA, a director owes a fiduciary duty to keep confidential all information relating to the transfer of shares in the company, especially in situations arising from:  

(a) an offer made to the general body of shareholders;  

(b) an offer made by or on behalf of another body corporate with a view to the company becoming its subsidiary or a subsidiary of its holding company;  

(c) an offer made by or on behalf of an individual seeking to obtain the right to exercise or control at least one-third of the voting power at any general meeting of the company; or  

(d) any offer conditional upon acceptance, where payment is made to a director of the company as compensation for loss of office, or as consideration for or in connection with their retirement from office.