THE PROCEDURE FOR REMOVING DIRECTORS – A BALANCING ACT?
Tuesday, December 2nd, 2014By ACE ANAN ANKOMAH·
If a case should arise of injury to a company, for which no adequate remedy remained, … claims of justice would be found superior to any difficulties arising out of technical rules. However, it must not be without reasons of a very urgent character that established rules of law and practice are to be departed from, rules which are founded on general principles of justice and convenience.[1]
I. Introduction
It is recorded that the first person to call a group of persons by the name “persona ficta”, was Sinbald Fieschi who in 1243 became Pope Innocent IV. The earliest development in the establishment of rules on incorporated persons was through associations in which the property of the church was vested and through which its activities were exercised. The church was at the time a large property owner, which property it owned in a corporate capacity. These entities needed to be embodied in some tangible form so as to live and flourish, and Pope Innocent IV’s theory of the personae fictae provided them with the reality they required.
This became the accepted theory of canon law and inevitably affected the common law. Soon, the ‘artificial persons’ were frequently encountered in the common law courts and the theory was applied to other groups such as universities and their colleges, boroughs and indeed to any corporate body or group to which the conception could be profitably applied.
Section 24 of Ghana’s Companies Code, 1963 (Act 179) (the “Code”) gives primary recognition to the effect of incorporation, providing that upon incorporation a company has “all the powers of a natural person of full capacity.” The natural person is known to the law, which makes rules to govern him. However, not all legal rules applicable to natural men are applicable to companies, for the simple reason that the latter is an artificial person. “A corporate body can only act by agents”, proclaimed Lord Cranworth L.C., a 19th Century English Judge.[2] Usually, the natural persons by whom companies act and by whom the business of the company is carried on or superintended are called “directors”. According to section 179 of the Code directors are persons who are tasked with the primary responsibility to “direct” and “administer” the business of companies.
While the Code leaves the members of a company free to determine how and by whom the business of the company should be ‘directed’ and ‘administered’, it regulates the procedure by which a company’s directors may be removed. Section 185 of the Code provides that a simple majority of votes of the company in general meeting is all that is required to remove a director of the company. However, that section provides safeguards to ensure the observance of the audi alteram partem principle, so that the affected director cannot be removed without him being afforded the full opportunity to defend himself. But, can the members of a company remove a director without recourse to the provisions of section 185?
The Code further provides, under section 7, that the rules of equity and common law are applicable to Ghana’s company law, subject to their being consistent with the provisions of the Code. Also, section 216 provides as follows:
The rights, duties and liabilities of officers and agents of companies shall continue to be governed by the rules of the common law and equity relating to principal and agent and master and servant save in so far as such rules are inconsistent with the express provisions of this Code.
The renowned Professor L.C.B. Gower, who drafted Ghana’s Companies Code, justifies the incorporation of the rules of common law and equity into Ghana’s company law on the ground that no statute could hope to be completely all embracing. According to him, section 7 therefore aims at making it clear that the courts could “fill the gaps on the basis of the existing legal doctrines”.[3] In respect of section 216, Professor Gower argues that although the Code contains provisions that deal expressly with rules peculiar to directors and officers of companies, it does not attempt to codify the whole law of principal and agent or master and servant in its relation to companies. Thus, “the normal rules continue to prevail except in so far as they are expressly modified”.[4] But, can a company remove a director, particularly by way of a summary dismissal[5], relying on the rules of common law or the principles of equity instead of the procedure provided under section 185 of the Code?
The Code also forbids the appointment of persons as directors on grounds of incompetence. Section 182 specifically bars five classes of persons from being appointed as directors of companies, and provides that the Regulations of a company may also contain provisions declaring other classes of persons as incompetent to hold directorships in the company. Under what instances can the court be called upon to remove such “incompetent” persons as directors?
Further, the Code provides under section 218 (2) that where a case of “oppression”[6] or “unfair prejudice”[7] has been made out, the High Court (the “Court”)[8] may make any orders as it thinks fit, “with a view to bringing to an end or remedying the matters complained of”. Does this include the power to remove a director?
In this work I will seek to examine the rules in the Code on the removal of the directors of companies from that office, address the questions posed above, and contend as follows:
- the procedure under section 185 of the Code for the removal of directors by the company in general meeting is mandatory;
- the Court may, subject to the Court of Appeal’s caveat in the exercise of such powers carefully and judiciously[9], remove a director from office on the following grounds:
- lack of competence under section 182 (1),
- enforcement of any provisions in the Regulations under sections 182 (4) and 184 (2),
- failure to secure share qualification where that is required under section 183,
- disqualification of a sitting director under section 186,
- in the exercise of the Court’s broad powers under section 218 (2), and
- enforcement of any contractual agreements for the removal of a director; and
- the rules of common law and equity are redundant in respect to the removal of directors from office as directors by the shareholders, and it is only where a matter has arisen that is not covered by the Code, which is unlikely, that the recourse may be had to the rules of common law and equity.
II. Separation of Powers between Directors and Shareholders
Before tackling the rules on the removal of directors, it is important to discuss the status of directors within the corporate structure and the dichotomy of the power arrangements between them (as the managers of the company) and the members (as the investors in the company).
As noted above, under section 179 of the Code, a director is any person who is appointed to direct and administer the business of a company, irrespective of whatever name that person is called. That section also makes so-called ‘de facto’ directors[10], or ‘shadow’ directors[11] subject to the same duties and liabilities as if they have been duly appointed as directors.
Under section 137 of the Code, a company acts primarily through either its members in general meeting or its directors. The Code expects the Regulations of a company to lay down rules on the separation of powers between the members and the directors. Except as provided in the Regulations, the directors manage the business of the company and exercise all powers that are not, under the Code or the Regulations, required to be exercised by the members in general meeting. It is my contention that by this provision, the directors of a company constitute the supreme and original authority in matters of its business management. They are the chief administrators, and the Code delegates to them the power and duty to manage and superintend the business of the company, subject to the provisions of the Regulations. When acting within the scope of this authority, the directors are not bound to obey the instructions or directions of the members in general meeting.[12]
I fully endorse the opinion expressed in the New York Court of Appeals, that:
all powers directly conferred by statute, or impliedly granted, of necessity, must be exercised by the directors who are constituted by law as the agency for the doing of corporate acts. … Within the chartered authority they have the fullest power to regulate the concerns of the [company], according to their best judgment…[13]
I also find instructive, the following parallel view of the English Court of Appeal:
If powers of management are vested in the directors, they, and they alone, can exercise these powers. The only way in which the general body of the shareholders can control the exercise of the powers vested by the articles in the directors is by altering the articles, or … by refusing to re-elect the directors of whose actions they disapprove. They cannot themselves usurp the powers which by the [Regulations] are vested in the directors any more than the directors can usurp the powers vested by the articles in the general body of the shareholders.[14]
An Ohio court has supported this position by stating that:
The individual directors are in no sense the personal representatives of the [shareholders] by whose suffrage they hold office. However much they might be influenced by the wisdom and wishes of the [shareholders], it remains their duty to exercise their own judgment in all final corporate action. If the action of the board of directors does not express the will and wish of the majority of the majority of the shares of stock, the majority has its remedy by retiring the [directors] …[15]
Commenting on section 303 of the 1985 English Companies Act (which section is in pari materia with our section 185), Palmer says that:
While the shareholders have no power, apart from that given them by statute or articles (which, in practice, does not amount to much) to intervene in the management of the company’s affairs, this section was designed to enable them to control the directors by removing them. In English company law, the balance of power is normally with the directors who by the articles are usually authorised to exercise the general powers of the company, and interference with the managerial activities of the directors is not encouraged by statute or articles. But this section enables the shareholders to assert themselves against the directors, if need be, and makes it clear that the ultimate control is in the hands of the proprietors of the company.[16]
It is my opinion, in the light of the above, that subject to the terms under which they are appointed, directors are not servants to obey directions and orders given to them by the shareholders. If the shareholders of a company disapprove of the actions of the directors, they can, in the words of Palmer, “assert themselves against the directors” by the exercise their power of “ultimate control” over the affairs of the company, i.e. remove the directors under section 185 of the Code.[17] Indeed, according to Hayfron-Benjamin J., as he then was, “[t]his section seems to vest in the general meeting of the shareholders the absolute right of determining who should manage the affairs of the company despite any agreement to the contrary.”[18]
I must point out, however, that the Code recognises that directors may represent specific shareholders. A director in such a position may willingly obey directions given by the appointing shareholder or may be removed by that shareholder, based on the terms upon which he was appointed as director. Further, in Ghana, it is common practice to find that the shareholders and directors are the same people. In such cases, the problems associated with the separation of powers between the directors and shareholders are not likely to arise.
It is to a discussion of the rules governing the removal of directors by the company in general meeting that I now turn.
III. Procedure for Removing Directors
Under section 185 (1), a director may be removed from office by an ordinary resolution of the members at a general meeting, notwithstanding any provision to the contrary in the Regulations or any agreement. If the members desire to remove a director, that action can only take place at a general meeting, and so under section 174, a director cannot be removed by written resolution.[19]
The company must circulate notices of the proposed resolution to all the members and the directors concerned, at least 35 days before the meeting, at the same time and in the same manner as the company gives notices for meetings. Where it is “not practicable” to give the 35-day notice, the company may give 21 days’ notice before the meeting. The Code does not define the phrase “not practicable”. I however endorse the definition of the synonymous word “impracticable” (as used under section 162 of the Code) to mean “incapable of being done”.[20]
The proviso to section 185 (2) provides that if a meeting is called after the notice, but prior to the date fixed for the meeting, that notice shall be deemed to have been properly given, and thus the matters contained therein can be discussed and acted upon at that meeting. This prevents attempts by the directors to pre-empt or forestall the meeting called after the notice for the intended removal of the director, by convening a meeting immediately the notice is received.
The director affected shall be heard on the resolution at the meeting and if he so desires, he can send a written statement to the company for circulation to all persons entitled to notice. This gives the affected director an opportunity to make representations to the members before he is removed from office. However, the company need not circulate the statement if:
(i) the statement is received less that 7 days before the meeting, or
(ii) the court makes an order, on an application by the company or any aggrieved person, that the statement is too long or contains defamatory matters.
Whether or not the affected director’s statement is circulated, he has a right, at the meeting, either to be heard orally or (in the absence of the court order) to read a written statement.
The courts in Ghana have had the opportunity to pronounce on the removal of directors, and it is to a discussion of these cases that I now turn.
IV. Re West Coast Dyeing Industry Ltd.; Adams & Another v. Tandoh[21] (the “Adams Case”)
In the Adams Case, Adams (the “Appellant”) was the managing director of Solid Construction Co. Ltd. (“SCC”), a subsidiary of West Coast Group of Companies (“WCGC”), and a director of all the other subsidiaries. Tandoh (the “Respondent”) was the executive chairman of the board of directors and the majority shareholder of WCGC. At an extraordinary general meeting of WCGC, the shareholders passed a resolution summarily dismissing the Appellant as the managing director of SCC and from his directorships in the other companies. The relevant portion of the minutes in question reads as follows:
Removal of Mr. O S Adams as Director:
The shareholders resolved, in view of the very serious and fraudulent nature of Mr. O S Adams’ actions against the company… that Mr. Adams be removed as a director of Solid Construction Co Ltd. and the other companies within the West Coast Group.
The Appellant brought an action under the Code on the ground, inter alia, that the summary dismissal was unlawful because section 185 of the Code had not been complied with. The Respondent argued that the Appellant was guilty of certain fraudulent practices and embezzlement of large funds belonging to SCC, and that it was as a result of these matters that the Appellant was summarily dismissed.
At the trial, there was evidence that the Appellant had been endorsing cheques drawn in favour of SCC and then cashing them for his personal use. The trial judge found that the Appellant was guilty of a criminal offence and fraudulent breach of his duties as a director towards WCGC. The court held that the summary dismissal of the Appellant, in the circumstances of the case, was justified under section 216 of the Code.
The matter went on appeal before the Court of Appeal. In the leading judgment, Abban J.A., as he then was, held that the Appellant, as the managing director of SCC and a director of the other three companies, was an officer of the companies. Accordingly, his relationship with those companies continued to be governed by the common law rules of master and servant, irrespective of section 185 of the code. The learned judge also held that the provisions of section 185 are not in conflict with the common law rules. The company was therefore under no obligation to resort to the procedure under section 185 before the Appellant could be dismissed from his office as a director or as a managing director. The company, in the view of the learned judge, could choose either to adopt the procedure under section 185 or proceed in accordance with the principles of common law and equity as provided by section 216, depending on the circumstances of each case.
His Lordship relied on a statement attributed to Professor Gower, as follows:
It is, however, of considerable importance in the case of other officials of the company and of directors who hold some other office such as that of managing director. So far as their offices are concerned it is clear that, notwithstanding that they may hold long‑term agreements, they can be dismissed immediately if guilty of misconduct. Any breach of their fiduciary duties clearly suffices.[22]
His Lordship also relied on the decision in the case of Boston Deep Sea Fishing and Ice Co v. Ansell.[23] In that case, the defendant, who was the managing director of the plaintiff‑company, contracted on behalf of the company for the construction of certain fishing‑smacks. Without making a disclosure to the company, he took a commission from the shipbuilders. The defendant was also a shareholder in other companies, which paid bonuses to shareholders who, as owners of fishing‑smacks brought business to those companies. The defendant employed these companies for the plaintiff’s smacks but received the bonuses for himself. It was held that the receipt of the commission from the shipbuilding company was a good ground for the dismissal of the defendant from office and that he had to account to the plaintiff‑company for the bonuses received from the ice and fish carrying companies. In the course of his judgment, Bowen L.J. said:
There can be no question that an agent employed by a principal or master to do business with another, who, unknown to that principal or master, takes from that other person a profit arising out of the business which he is employed to transact, is doing a wrongful act inconsistent with his duty towards his master, and the continuance of confidence between them. He does the wrongful act whether such profit be given to him in return for services which he actually performs for the third party, or whether it be given to him for his supposed influence, or whether it be given to him on any other ground at all.[24]
Abban J. A., as he then was, also relied on the dictum of Lord Esher M.R. in Pearce v. Foster[25] thus:
But the question is, whether the breach of duty is a good ground for dismissal. I have never hitherto had any doubt that that is the true proposition of law … Innumerable circumstances have actually occurred which fall within that proposition, and innumerable other circumstances which never have yet occurred, will occur, which also will fall within the proposition. But if a servant is guilty of such a crime outside his service as to make it unsafe for a master to keep him in his employ, the servant may be dismissed by his master; and if the servant’s conduct is so grossly immoral that all reasonable men would say that he cannot be trusted, the master may dismiss him.[26]
His Lordship further referred to the statement by Lopes L.J. in the same case thus:
If a servant conducts himself in a way inconsistent with the faithful discharge of his duty in the service, it is misconduct which justifies immediate dismissal. That misconduct, according to my view, need not be misconduct in the carrying on of the service or the business. It is sufficient if it is conduct which is prejudicial or is likely to be prejudicial to the interests or to the reputation of the master, and the master will be justified, not only if he discovers it at the time, but also if he discovers it afterwards, in dismissing servant.[27]
In the Adams Case, the Court of Appeal concluded that the Appellant, as found by the learned trial judge, had not only breached his fiduciary obligation towards the company as required by section 203 of the Code, but had also committed acts of serious fraud and criminal misconduct in his dealings with the company. The Appellant, in the view of the court, was guilty of immoral and untrustworthy conduct, and that it would have been highly prejudicial to the interests of the company to keep him. Prompt and swift action was therefore required to safeguard the interests of the companies, and immediate summary dismissal was the right answer and that was justified under the common law.
Applying Rules of Common Law and Equity
I respectfully disagree with the decision of Court of Appeal, in respect of the applicability or otherwise of section 185 in such matters. It is my view that notwithstanding any existing rules of common law and equity the power of the company in general meeting to remove a director cannot be lawfully exercised without recourse to section 185.
My contention is that both sections 7 and 216 of the Code state clearly that the rules of common law and equity are applicable only to the extent that they are not “inconsistent with” the provisions of the Code. The Code is silent on how the ‘inconsistency’ is to be determined; but the dictionary definition of the word “inconsistent” is “contrary, the one to the other, so that both cannot stand by the acceptance or establishment of the one implies the abrogation or abandonment of the other”.[28]
There is no question about the mandatory and binding nature of the provisions of the Code. Where such provisions differ or depart from existing rules of common law or equity, latter rules are, in my opinion, rendered redundant in Ghana. Accordingly, the rules of common law and equity, under sections 7 and 216, apply only where the Code is silent on a particular matter. As long as different provisions have expressly been made under the Code on a matter, the rules of common law and equity are redundant.
For instance, there are other provisions in the Code, such as the rules on pre-incorporation contracts,[29] ultra vires transactions[30] and the variation of class rights,[31] which differ from the rules under common law and equity. It is my opinion that a court faced with a decision on any of the above matters cannot ignore the express provisions of the Code, and then apply the pre-existing rules of common law and equity, relying on section 7 of the Code. Those rules of common law and equity are equally redundant.
The same applies to the provisions of section 185 of the Code. I contend that even if common law and equity allow the company in general meeting to summarily dismiss of officers of a company, section 185 is clear that in respect of directors qua directors, the company in general meeting must follow the laid down procedure. To the extent that the section 185 differs from any procedure for the dismissal of a company’s officers under common law and equity, there is an inconsistency; and to the extent of that inconsistency, section 185 must prevail over the rules of common law and equity.
The shareholders in the Adams Case could not rely on rules of common law and equity to effect the removal of a director. They were bound to follow the mandatory procedure under section 185. It is therefore my respectful opinion that the Court of Appeal and the High Court erred upholding the error of the shareholders in that case.
Shareholders’ Resolution
My contention here is that in the absence of provisions in the Regulations or a service agreement that expressly vests power in the company in general meeting to remove a director by any other means, the members are bound to follow the section 185 procedures. It is only where such other provisions exist in the Regulations or relevant service agreement, that the company in general meeting has an option whether to follow the section 185 procedures, on the one hand, or some other provisions of the Regulations or service agreement, on the other hand.
Section 185 (1) of the Code provides as follows:
Subject to the provisions of section 300 of this Code and to the following subsections, a company may by ordinary resolution at any general meeting remove from office all or any of the directors notwithstanding anything in its Regulations or in any agreement with any director. [Emphasis added].
Under section 27 of the Interpretation Act, 1960 (CA 5) the word “may” is generally to be interpreted as “permissive and empowering, and therefore discretionary”, unless where a contrary intention appears in the enactment in question. What this means that the use of the word “may” in a statute only has that general meaning, if it accords with the context of the entire enactment in question. In Sasu v. Amua-Sekyi[32] the general interpretation of the word “may” as “permissive and empowering and therefore discretionary” was held to be a “prima facie presumption,” which could be contradicted; in other words that interpretation is a rebuttable presumption – an inference of law which holds good only to the extent that it is not invalidated by proof or a stronger presumption.[33]
It is my opinion that the very wording of section 185 (1) lends itself to the conclusion that the use of the word “may” was intended by the framers of the Code not to vest in the company a discretion as to procedure, but a discretion as to whether or not to remove a director. What the subsection therefore does is to permit or empower the members in general meeting, or vest in them the discretion, to remove a director (in accordance with the section 185 procedure), in spite of any provision in the Regulations or any agreement with the affected director. However, when the members in general meeting seek to exercise that power, they are bound to proceed in accordance with the section 185 procedures.
I must further point out that section 185 (1) is expressly made “subject to the provisions of section 300[34] and to the [other] subsections” of section 185. The effect of these words is to subsume section 185 (1) to those other subsections.[35] Section 185 (1), therefore, cannot be interpreted on its own without a reference to the whole of section 185, as well as the entire Code. As I have already noted there is in the Code, clear indications that the word “may”, as used in section 185 (1), is not intended to be “permissive” in respect of the procedure, but only empowers the company in general meeting to remove a director notwithstanding any provisions to the contrary in the Regulations or service agreement.
From a close reading of section 185 (2) “a resolution to remove any director shall not be moved at any general meeting”, [Emphasis added] unless (i) the required notices have been given, and (ii) section 185 as a whole has been followed. According to the Interpretation Decree, the word “shall” in any enactment is construed as imperative. The wording of section 185 (1) and (2) therefore have the effect of subjecting the power given by section 185 (1) to the company in general meeting to remove a director, to the section 185 procedures. Therefore whilst section 185 (1) empowers or permits the company in general meeting, or vests in that body the discretion, to remove a director by an ordinary resolution, that power, permission or discretion cannot be exercised to pass that resolution unless the section 185 procedures have been complied with.
From the facts of the Adams Case, the shareholders passed a resolution removing the Appellant as director. Under section 185 (2), such a resolution “shall not be moved”, and should not have been passed at that meeting, without the company complying with the requirements of the entire section 185.
Section 153 of the Code further supports the view that the procedure under section 185 is mandatory where the company in general meeting is seeking to remove a director. Under that section, where a notice of an annual general meeting contains a statement that the purpose of the meeting is to transact “the ordinary business” of an annual general meeting, that notice shall be deemed to be a sufficient specification that the business is to declare dividends, consider directors’ and auditors’ reports and accounts, elect directors, fix the remuneration of auditors, and “if the requirements of [section] … 185 are duly complied with, the removal… of directors.” Section 153 therefore buttresses the point that the company in general meeting unless the section 185 procedures have been followed cannot remove a director.
Section 272 of the Code provides more support for this position by providing that the removal of directors of private companies shall be regulated by the company’s Regulations, subject to section 180 to 185 of the Code, and that absent any contrary provisions in the Regulations, “each of the existing directors shall continue to hold office until he vacates office under section 184 of this Code, or is removed under section 185” [Emphasis Added]. This section shows further that there is no room under the Code for the summary removal of a director under section 216.
The summary removal of the director by way of a shareholders’ resolution in the Adams Case could have been justifiable under section 272 if there were provisions for same in the Regulations or any service agreement with the affected director. Then the company could have had Abban J.A.’s “option” of either following the section 185 procedures or summarily removing the director. The company in the Adams Case could also have relied on ‘deemed termination’ provisions in its Regulations, i.e. where a director is deemed to have been removed from office upon the happening of a certain event. Such provisions would have been valid and could have been applied under section 272 without section 185 necessarily coming into play. However, there was no evidence that any such provisions existed or were applied. The bare facts of the case show that Adams was removed on the authority of a shareholders’ resolution, which the shareholders are entitled to pass under section 185 “notwithstanding anything in [the company’s] Regulations or in any agreement with any director.” But in deciding to remove the director on the authority of a shareholders’ resolution, the shareholders were bound by section 272; and they indeed triggered the provisions of section 185, which meant that that resolution could “not be moved” unless the requirements under that section had been followed. My respectful opinion is that the court erred upholding this mistake of the shareholders.
Misreading of Professor Gower
I further humbly submit that Abban J.A., as he then was, may have been misled in arriving at that conclusion by misreading a statement made by Professor Gower. In arriving at his decision, Abban J.A., as he then was, felt fortified by the following statement made by Professor Gower:
It is, however, of considerable importance in the case of other officials of the company and of directors who hold some other office such as that of managing director. So far as their offices are concerned it is clear that, notwithstanding that they may hold long‑term agreements, they can be dismissed immediately if guilty of misconduct. Any breach of their fiduciary duties clearly suffices.[36] [Emphasis Added]
With due respect to His Lordship he misread this statement and then applied it completely out of context, which, unfortunately, led to a flawed decision. A careful reading of the statement in question reveals that although Professor Gower stated that “other officials of the company” could be summarily dismissed on grounds of misconduct, he clearly qualified the application of such a procedure to directors by saying that it only applied to “directors who hold some other office in the company” i.e. executive directors.[37] Thus all Professor Gower says in that statement is that an executive director (such as a managing director) may be summarily dismissed from his executive position if he is found guilty of misconduct.
Indeed, in the immediately preceding sentences, the learned Professor had clearly argued that this right of a master to dismiss a servant summarily, has no application to a director as such, who may only be
dismissed from his directorship by ordinary resolution subject to compliance with the provisions of section 184. The provisions of this section are mandatory and clearly cannot be dispensed with because it is alleged that the director has been guilty of misconduct.[38] [Emphasis Added]
It was after taking this definite and categorical position that Professor Gower made the statement that the Court of Appeal quoted and relied on. The learned Professor therefore made a clear distinction between directorships per se and the holding of other offices in the company by a director, such as the office of a managing director. He argued that so far as those other offices are concerned, directors could be dismissed immediately if guilty of misconduct. Thus, even in the view of the learned Professor, summary dismissal may only be carried out in respect of the executive positions that such directors may hold, and not in respect of the office of a director. Accordingly, although a company may summarily dismiss a director as managing director or some other executive position, he cannot be summarily removed as director without recourse to the provisions of section 185, which provisions, in Professor Gower’s own words, are “mandatory”.
Power to Dismiss a Managing Director
It is important as this point to clarify the issue of the dismissal of managing directors of companies. Schedule 1, Subject 4 of the Code defines the term “Managing Director” to mean, “a director to whom has been delegated some of the powers of the board of directors to direct and administer the business of the company.” [Emphasis Added]. It is my opinion that generally, the company in general meeting has no power to dismiss a managing director as a manager; that power belongs to the directors.
On the basis of section 137 of the Code, directors exercise, not only the powers expressly vested in them under the Code and the company’s Regulations, but also all powers that are not, under the Code or the Regulations, required to be exercised by the company in general meeting. This is especially the case in respect of matters relating to the company’s business management. The Code does not give shareholders the power to remove the managing director from that office, but in section 193, expressly vests in the directors, the power to appoint and remove a managing director, subject to any provisions to the contrary in the Regulations. The directors, as part of the power to appoint a managing director, confer on the appointee any of their powers on such terms as they deem fit. Subject to the terms of any service agreement, it is the directors who may revoke (summarily or otherwise) the powers granted to the managing director. Indeed under section 12 (1) of the Interpretation Act, it is the person who, under an enactment, has the power to appoint to an office, who has the power to remove the appointee.
Shareholders have no such direct power, and a shareholders’ resolution purporting to remove a managing director as manager, in my opinion, will be either a nullity,[39] or, at best, only a recommendation to the directors under section 137 (4). It is my view that there are, however, four instances in which the shareholders may effect the removal of a managing director. These are where:
(i) the Regulations expressly vest such a power in the shareholders,
(ii) the directors are disqualified from acting,[40]
(iii) there is a deadlock on the board,[41] or
(iv) the shareholders remove the managing director as a director.
Except in any of the above instances, shareholders do not have the power to remove a managing director from that office. For the shareholders in the Adams Case, option (iv) above would have been the proper procedure to adopt (subject to compliance with section 185), because under section 193 (b) of the Code, the appointment as managing director would terminate automatically if the appointee ceases to be a director.
Separate Existence of Parent and Subsidiary Companies
There is yet another intriguing point worth noting, which arises from the Adams Case and raises further questions about the procedure followed by the shareholders in that case. The resolution in question was passed by the shareholders of WCGC who purported to remove the Appellant “as a director of Solid Construction Co. Ltd. and the other companies within the West Coast Group.” There was no evidence that “the other companies in the West Coast Group” also passed respective resolutions to the same effect or had authorised WCGC to perform any such functions in the name of the subsidiaries. It would therefore appear that the shareholders of the parent company, WCGC, took it upon themselves to remove the Appellant as a director of the subsidiary companies at a general meeting of WCGC’s shareholders.
It is my respectful view this step was also flawed. Section 24 of the Code provides that upon incorporation, a company has all the powers of a natural person of full capacity. A company becomes a legal entity, which is separate and distinct from the legal personality of its members. It has its own rights and duties, and it is recognised by law as an entity in its own right.[42] Accordingly, a parent company cannot unilaterally purport to act on behalf of its subsidiaries, unless an express power is given to it to act as such.
All the shareholders of WCGC in general meeting had power to do was to remove the Appellant as a director of WCGC. They had no power to pass a resolution removing him as a director in the subsidiary companies, even if the same persons were the shareholders of all the companies in the group. On this ground as well, the Court of Appeal erred in not striking down that removal from office as being illegal and improper.
Applying the rule in Foss v. Harbottle?
It is arguable that the Court of Appeal could still have upheld the actions of the company in the Adams Case, not on the basis that compliance with section 185 was neither required nor mandatory, but by applying the so-called rule in Foss v. Harbottle[43] to the effect that the courts will not interfere in the internal management of a company because “whilst the court may be declaring the acts complained of to be void… the governing body of proprietors may defeat the decree by lawfully resolving upon the confirmation of the very acts which are the subject of the suit.”[44]
Mellish L.J. expounded this rule in MacDougall v. Gardiner[45] thus:
If the thing complained of is a thing which in substance the majority of the company are entitled to do, or if something has been done irregularly which the majority of the company are entitled to do regularly, or if something has been done illegally which the majority of the company are entitled to do legally, there can be no use in having a litigation about it, the ultimate end of which is only that a meeting has to be called and then ultimately the majority gets its wishes.[46]
This rule has also been upheld in Ghana, in the case of Pinamang v. Abrokwa[47], per Lamptey J. A., as he then was, thus:
… the rule in Foss v. Harbottle … must be observed by the trial court and it must not inquire into matters of internal management or, at the instance of a shareholder, interfere with transactions which though prima facie irregular and detrimental to the company, are capable of being rectified by an ordinary resolution of the company in a general meeting.[48]
In Bentley-Stevens v. Jones[49] the plaintiff had been removed from his directorship by an ordinary resolution passed at an allegedly irregularly convened general meeting. The court refused his application for an injunction, holding that the irregularities were inevitably curable. Indeed, even where a company has been previously restrained on the ground that a director has been improperly removed from office, the court will discharge the injunction and decline to assist the affected director any further by injunction, if, after the grant of the injunction, the shareholders, by resolution declare that they do not wish the particular director to act any longer.[50]
In the Adams case, the Court of Appeal, in my opinion, should have held that the procedure adopted by the shareholders was irregular. Then the Court, on the authority of Foss v. Harbottle, could arguably have rejected Adams’ application on the ground that it was an invitation to the court to regulate the internal matters of the company, and that since his removal was something that the majority was entitled to do (even though it had been done irregularly), the majority would still have its way by simply calling a meeting to regularise the irregularity. Such a holding, in my view, would have been a more acceptable application of the principles of company law as enshrined in the Code and the rules of common law and equity under section 7.
However, the difficulty with this position is that section 217 of the Code contains clear exceptions to the rule in Foss v. Harbottle, as the section seeks to prevent illegality, acts ultra vires the company, infringement of the company’s Regulations and acts that are based on improperly passed resolutions, i.e. resolutions that are not in accordance with this Code and the company’s Regulations. However, this should have presented no difficulty in the Adams Case because it is only members of the company who can only bring an application under section 217; and the court had found that Adams was not a member. He was therefore not competent to make an application under section 217.
In sum, it is my opinion that the decision in the Adams Case on the removal of directors by companies was wrong in law. The company should have complied with the section 185 procedures. It did not. What the Court could arguably have done to uphold the decision of the company was to apply the rule in Foss v. Harbottle to regularise the irregularly passed resolution of the company. It was, respectfully, wrong in law for the Court of Appeal to hold that a company could choose to ignore section 185 in removing a director, in favour of the rules of common law and equity.
- Other Grounds for the Removal of Directors
A director who has validly been appointed by the company, but who is subsequently affected by sections 182 and 186 of the Code can be removed from office. Under the combined effect of those sections the following classes of persons are statutorily barred from being appointed as directors:
- infants,[51]
- bodies corporate,[52]
- persons certified as being of unsound mind by any competent court in or outside Ghana,
- adjudicated bankrupts,
- persons who have been involved in either offences involving fraud, dishonesty, breach of duties in relation to bodies corporate, or offences in connection with the promotion, formation or management of bodies corporate, and
- persons classified as incompetent by the Regulations of the relevant Company.
It is my view that although the court may be called upon to declare as void the purported appointment of any such person as a director, this would not amount to the removal of a director per se since the purported appointment itself was void ab initio. What is of particular relevance for the purpose of this discussion is how to remove from office a person who may have been validly appointed as a director but who subsequently falls foul of the above ‘competency’ rules. This obviously has no application to (i) and (ii) above.
Section 184 (1) of the Code provides that the office of director “shall be vacated” if the director becomes ‘incompetent’ to act as director by virtue of the provisions in section 182. It is unclear whether this provision should be read as that the office ‘shall be deemed to have been vacated’ or that ‘the affected director shall vacate’ the office. I would opt for the latter interpretation so that an affected director would be expected by law to vacate that office voluntarily, and of his own accord cease to direct or administer the affairs of the company. However, if he fails to do so, the company may remove him by resorting to the section 185 procedures or applying to the court for the enforcement of the terms of the resolution passed.
Certified Lunatics
If a person who has been duly appointed as director of a company subsequently suffers from mental illness and is certified by court of competent jurisdiction to be of unsound mind, does not, or cannot, voluntarily vacate the office as is required under section 184 (1), the company, in my view, would have the option of either removing him by recourse to the section 185 procedures or applying to the court for the enforcement of the terms of the resolution passed.
Adjudicated Bankrupts
The disqualification of “adjudicated bankrupts” raises very interesting questions vis-à-vis the fact that this provision was inserted with the obvious expectation that the Insolvency Act, 1962 (Act 153) would be brought into force.[53] That has never happened, for some inexplicable reason. In what circumstances, would the courts remove an adjudicated bankrupt as directors? The Supreme Court had to grapple with this question in the case of Republic v. High Court, Accra; Ex Parte Ploetner[54] where it was urged on the court that only persons adjudicated bankrupts in Ghana and not foreign bankrupts are contemplated by section 182 (1) (e) of the Code. The argument was made, further, that the section 182 (1) (e) of the Code is a dormant legislative provision since Ghana does not have insolvency legislation, and that was that until such legislation was passed in Ghana there could be no bankrupts in Ghana and no question of either restraining bankrupts or removing them as directors would arise.
In the lead judgment of Taylor JSC, the court rejected this argument as being “clearly non sequitur” and “unacceptable” on two grounds. First, although the judiciary has not had bankruptcy jurisdiction reposed in it, a number of cases dealt with by the courts in the decade following the establishment of the Supreme Court in 1876 demonstrated clearly that bankruptcy as a status with its incidents was recognised by Ghana law. The argument therefore ignored the fact that the status of a bankrupt is not unknown to Ghana’s legal system notwithstanding the absence of legislation vesting jurisdiction in bankruptcy in the courts.
Second, section 182 (1) (e) has to be read together with section 186 (1) (b) which gave the High Court jurisdiction inter alia, when “a person is adjudicated bankrupt whether in Ghana or elsewhere” to suo motu restrain him from acting as director without the leave of the court. In the view of the court, the combined effect of these two provisions gave jurisdiction to the court in appropriate circumstances to restrain persons adjudged bankrupt whether in Ghana or outside the jurisdiction of the courts from managing companies in Ghana as directors. Accordingly a person who is adjudged bankrupt outside Ghana is incompetent to act as director of a company in Ghana without the leave of the court. In the instant case, the court held that had the proceedings been regular and had admissible evidence been adduced whether by affidavit or otherwise to establish that Mr. Ploetner was adjudged bankrupt in Germany, he would have been disqualified as a director of the company although no court in Ghana had so adjudged him bankrupt. In the view of the court, a contrary view of this matter would have “the pernicious effect of unleashing foreign bankrupts on Ghana.”
It is my view, from the foregoing, that a duly appointed director who is subsequently adjudged to be bankrupt may be removed in any of three ways:
(i) by the shareholders resorting to the section 185 procedures,
(ii) by the court under section 186, on the application of the Registrar, the Official Trustee, the trustee in bankruptcy or the liquidator of the company, or
(iii) by the court on its own motion in respect of any proceedings before it. The director may nevertheless seek and obtain the leave of the court to continue as a director.[55]
I note that neither company nor the shareholders has/have the capacity to make an application to the court for the removal of an adjudicated bankrupt under section 186. Such a company may have to, first, notify the Registrar of Companies to make the relevant application in court. However, in my view, the company is not limited to this option. I would suggest that a company faced with such a situation should require the affected director to voluntarily vacate his office under section 184 (1) or remove him from office in accordance with section 185. If he refuses to comply with the terms of the resolution, then the company may apply to the court for the enforcement of the terms of the resolution passed.
Fraudulent Persons
Section 186 (1) provides for the disqualification of directors who are guilty of certain offences or misconduct. Under section 186 (1) (a), a disqualification order may be made as a result of a conviction on indictment of any office involving fraud or dishonesty (not necessarily one relating to a company). Any court (whether inside or outside Ghana) may make the conviction that forms the basis of a disqualification order. However, only High Court in Ghana can make the actual disqualification order, and if the person is convicted by the High Court, the court, in making the conviction, can also make the disqualification order.[56] By virtue of section 186 (1) (b) the disqualification order may also be made in respect of misconduct in relation to bodies corporate, and this can be invoked whether or not there has been a conviction.
The court in the Adams Case, on its own motion, invoked the provisions of section 186 of the Code and made a disqualification order against the Appellant, restraining him from having anything to do with the management of any company incorporated in Ghana, for four years, except with the leave of the court. The court took the opportunity to explain that the object of section 186 is to safeguard the interests of persons who invest in or give credit to companies, and to ensure that the assets and investments were managed only by honest persons as directors and not by frauds or persons with criminal propensity. Thus, irrespective of the type of proceedings before the court, the court had the discretion to resort to section 186, and in a fitting case, make an order on its own motion preventing criminals and fraudulent persons from managing companies.
The court further established that section 186 (1) (c) does not require conclusive proof of a criminal offence, and the person concerned need not be convicted of the offence. All that is required is that it should appear to the court that the conduct of the person or the matters complained of amounted to a criminal offence and like the breach of duty or fraud, the crime should have been committed in relation to a body corporate.
I agree with this aspect of the decision in the Adams Case, which, in my view, was a flawless application of section 186 of the Code by the Court. I would however repeat that in a proper case, and particularly because the company does not have capacity to initiate such proceedings on its own, the company may require such a director to voluntarily vacate his office under section 184 (1) or remove him via the section 185 procedures, and where necessary, obtain a court order upholding the relevant resolution.
Failure of obtain share qualification
Section 183 provides that a director who is required by the Regulations to hold a specified share qualification must obtain that within two (2) months of his appointment or other shorter period fixed in the Regulations. The office of a defaulting director “shall be vacated” and the director shall be incapable of being re-appointed unless he obtains the qualification. Similarly, if the company amends its Regulations so as to introduce or increase directors’ share qualification, every existing director will have two (2) months within which to obtain his qualification and shall vacate his office if he fails to meet the qualification.
I would repeat my view that the law expects such a director to vacate that office voluntarily under section 184 (1). If he fails to do so, the company may remove him by resorting to the section 185 procedures and/or apply to the court for the enforcement of the provisions of the Regulations and the Code.
Removal under the Regulations
Section 184 (2) of the Code provides that the Regulations of a company may lawfully provide additional grounds for the termination of office of directors. Accordingly, the Regulations may empower the directors to remove some of their number.[57] Regulations may also contain provisions for the ‘deemed termination’ of office where other directors request a director’s resignation,[58] retirement of directors by rotation, or the directorship being contingent on the nomination of a particular shareholder or the director holding some other office. The removal of a director under any of such provisions in the company’s Regulations is legal, valid and enforceable under section 184, and accordingly does not require the application of the section 185 procedures.
VI. Pinamang v. Abrokwa (the “Pinamang Case”)
Yet another provision of the Code with a bearing on the removal of directors is section 218. Under section 218, a member or debentureholder of a company, or the Registrar may apply to the court for an order that (i) the affairs of the company or the powers of the directors are being exercised in a manner that is oppressive to a member or debentureholder, or in disregard of his proper interest as a member, shareholder, officer or debentureholder, or (ii) some act of the company has been done or threatened, or some resolution passed or proposed that unfairly discriminates against or is unfairly prejudicial to a member or debentureholder.
If the Court makes a finding of oppressive or unfairly prejudicial conduct, section 218 (2) gives it a very wide discretion to make any orders as it thinks fit, “with a view to bringing to an end to or remedying the matters complained of”. However, is it within the ambit of this provision for a court could remove a director on the grounds that that would bring to and end or remedy the matters complained of?
The Pinamang Case provided an opportunity for the Court of Appeal to pronounce on this issue. The applicants brought an action under section 218, claiming that as shareholders, the defendant was conducting the affairs of the company in a manner oppressive of them and in disregard of their interests. One of the consequential reliefs sought by the applicants was formulated as follows:
an order that the current chairman of the board of directors of the company be removed from the board.
The Court of Appeal unanimously rejected the application. In the words of Lamptey, J. A., as he then was:
The first observation I wish to make is that Act 179 specifically provided for the procedure and the mode for the removal of a director of a limited liability company under section 185. Prima facie, to remove a director of a company from the office of a director, the procedure spelt out under section 185 of Act 179 must be followed by the company. It seems to me that the applicants must satisfy the court that resort to section 218 of Act 179 had become necessary as a final and last resort. In other words, the affidavits of the applicants must on the face of it show that the applicants resorted to section 185 without avail and without success. That as a last resort, the almighty power of the court must of necessity be called in aid of the applicants. There was no evidence to show that the applicants had unsuccessfully attempted to remove the named director chairman pursuant to section 185 of Act 179. It is only after this unsuccessful exercise pursuant to section 185 of Act 179 that resort to section 218 of Act 179 could be justified. The lower court, in my opinion, had no jurisdiction to hear and determine the relief sought under head (b) of the reliefs. The complaint made under head (b) is not one envisaged by section 218 of Act 179 and should have been refused and dismissed in limine by the learned trial judge.
The effect of this statement is that once the Code had made specific provision for the procedure for the removal of a director under section 185, it is the view of the court that prima facie, that procedure spelt must be followed by the company, to remove a director of a company from the office of a director. The applicant had to satisfy the court that resort to section 218 had become required only as a final and last resort, having resorted to section 185 without success. Thus until an applicant has exhausted the section 185 procedures, the court would have no jurisdiction to hear and determine the relief sought.
Comments
The decision of the Court of Appeal in the Pinamang Case would appear to contradict the earlier decision of the High Court in Vambaris v. Altuna,[59] where the court considered whether it could make an order setting aside the improper appointment of a director on an application made under section 218. In that case, two foreign businessmen, Vambaris and Altuna, had sought professional advice from two lawyers, Kuma and Okudjeto, leading to the formation of a company, with the businessmen and Kuma as shareholders and directors, and Okudjeto as a paid Secretary-Solicitor. Subsequently, Kuma suggested that Okudjeto be made a director, which was done. Vambaris later applied to the court under section 218 of the Code, complaining, inter alia, that the manner in which Okudjeto was made a director was oppressive.
Hayfron-Benjamin J., as he then was, held that by virtue of the relationship between solicitors and clients being a fiduciary one, it imposed special obligations on the solicitor. In his dealings with his client, a solicitor was to exercise the utmost good faith, and transactions between him and his client should not be upheld unless it could be established that they were effected by the exercise of the client’s will without influence on the part of the solicitor. Since Okudjeto’s appointment was on the advice of a solicitor who was also a director of the company, the advice could not be independent legal advice given without influence. In the circumstances His Lordship held that the appointment was improper and constituted oppressive conduct. His Lordship then stated as follows:
The only question remaining is whether this court can make an order setting aside an improper appointment as a director … on an application made under section 218 of the Companies Code … The section gives the court wide judicial discretion to make such order as it thinks fit with a view to bringing to an end the matters complained of. Pennycuick J. in In re Jermyn Street Turkish Baths Ltd. [1970] 1 W.L.R. 1194 at p. 1208 said the judicial discretion given in a similar section under the English Companies Act, 1948 (11 & 12 Geo. 6, c. 38), is unlimited. Our Code definitely gives power to the court to direct or prohibit any act or cancel or vary any transaction or resolution: see section 218 (2).[60]
The court further held that being the solicitor to the parties and to the company, Mr. Okudjeto should not have become a director in the circumstances since it was his own senior partner in law practice who suggested him for the directorship. Consequently, the court ordered Mr. Okudjeto to file an account of all sums he has received as a director of the company, and sums found to have been obtained by him as a result of his directorship was to be paid by him to the company.
It would appear that the effect of this decision by the High Court was that the court, under section 218, could remove a person as a director if his appointment is found to be improper and oppressive. I however think that from a close reading of the case, taking into consideration the consequential orders made by the court, the holding of the court was, rather, that Mr. Okudjeto’s appointment was improper and should not have been made in the first place. So that Mr. Okudjeto was, technically, not being removed from office. The legal validity of the appointment itself was being disputed; and it has been established that provisions such as section 185 do not apply where the appointment of a person as a director is itself being disputed.[61] What the court did in Vambaris v. Altuna was to set aside the ‘appointment’ to the extent possible, by for instance, ordering Mr. Okudjeto to account for and refund any financial gain that he may have made. That, respectfully, is different from a situation where the director who has been duly and properly appointed under section 179 is being removed from office.
It is in respect of the latter position that the Court of Appeal in Pinamang has set important boundaries on the power of the court to remove directors, within and outside the scope of its powers under section 218, and from which I have drawn the following significant conclusions:
- primarily, the court has the power to remove a director from office but will exercise this “almighty power of the court” with extreme caution; and
- recourse to the section 185 procedures is mandatory in seeking to remove a director from office, and is a condition precedent to any application to remove a duly appointed director.
The latter conclusion also directly contradicts the decision of the same court (albeit differently constituted) in the Adams Case. It is interesting to note that although the Court of Appeal in the Pinamang Case made reference to the Adams Case, the court did not comment on the application of section 185 in the Adams Case and the views of Abban J. A., as he then was, in that case that the procedure under section 185 was not mandatory. Rather, what the Court did was to subtly express a different view that section 185 “must be followed” by the company if it seeks to remove a director from the office. I cannot argue that Abban J.A.’s views on section 185 in the Adams Case have been overruled in the Pinamang Case. However it is my view that the decision in the Pinamang Case is a proper and obviously a more cautious application of section 185, which ought to be followed by our courts, and not the decision in Adams Case, which in my view, is flawed for all the reasons already stated.
I concede that in provisions such as section 218 the Court is called upon to exercise its discretionary powers, and must consider each case on its own merits. Nevertheless, the Court of Appeal’s caveat in Pinamang is a welcome guide, and it is desirable that any court that is faced with an application that has the effect of seeking the removal of a director, must exercise its discretion with much caution, especially where the applicant has not complied with section 185. Directors, to all intents and purposes, hold office at the pleasure of the majority of the shareholders. If the majority is unwilling to remove a person as a director, the Court ought to be very circumspect in overturning its wishes. As was also stated in the Pinamang Case, the Court ought to ensure that the application is being made with the genuine object of obtaining the relief claimed and not for exerting pressure in order to achieve the collateral purpose of removing a director.
In as much as I agree with this decision of the Court of Appeal in the Pinamang Case, it is my contention that the court’s pronouncement on the mandatory nature of the section 185 procedures should be limited to what it was intended to be, i.e. to govern the removal of directors by the company in general meeting. My concern is that section 185 is not a condition precedent to each and every removal of a director from office. As has been pointed out above, the Regulations and service agreements with directors may contain provisions, which would effectively remove a director from office, although these do not preclude a recourse to section 185 by the company in general meeting. If an application were made to the court for the enforcement of any such provision in the relevant service agreement or Regulations, which would also mean effectively removing the affected director, recourse to section 185 would not be a condition precedent.
Further, a court may also enforce section 183 of the Code, and remove a director who fails to obtain share qualification (where that is required), notwithstanding the fact that the shareholders may not have taken steps to remove the director through the section 185 procedures.
It is arguable, although largely unforeseeable and remote, that a court may even order the removal of a director on grounds of equity, where a wrong has been committed that calls for his removal, and which is not covered by any of the provisions of the Code. This is because “equity will not suffer a wrong to be without a remedy”, and the scope of this maxim is that no wrong should be allowed to go un-redressed if it is capable of being remedied by courts of justice. The effect of such orders by the Court would be to remove a director from office. It is my view that an applicant in such matters will not have to show that he has exhausted the section 185 procedures before making an application to enforce these provisions of the Code.
However, it is important that the courts do not encourage persons who may seek the removal of directors, but are unwilling to comply with the democratic procedure in section 185. Applications by such persons to the court must be rejected as an abuse of the powers of the court.
VII. Conclusions
It is not my intention to insist on a strict doctrinaire application of technical rules even in the face of obvious injustice. If a director commits a wrong to a company, there are adequate provisions in the Code to remedy the situation. The rules on the removal of directors in accordance with the provisions of the Code have obvious foundations in general principles of justice and convenience. It should therefore be for only very urgent and vital reasons that the Court must depart from the established rules under the Code, because, after all “equity follows the law”; so that where a statute is direct and governs the case with all its circumstances or the particular point, a court of equity is bound to follow it. It is only where there is some important matter disregarded by the statute that equity would interfere.[62] It is my respectful opinion that there was nothing in the Adams Case both to support a departure from the rules under the Code and to ground a reliance on equity.
Thus, on the application of section 185, the Adams Case was wrongly decided. As noted, the procedure laid down by the Code for the removal of directors by shareholders was not shown in that case to be inadequate to deal with the matter facing the company. It appears from the case that all the shareholders were in agreement that the offending director should be removed. There was therefore no justification for the company avoiding section 185, which maintains a balance between the right of the majority to remove a director and affording the director an opportunity to be heard in his defence, even if he fails to take advantage of that opportunity.
In conclusion, if a company in general meeting seeks to remove a director from that office, it must follow the procedure under section 185 of the Code. It cannot effect the removal by way of a summary dismissal, in a purported reliance on the rules common law and equity, under section 216, and completely disregard section 185. The rules of common law and equity are applicable under section 216 only to fill the gaps, where the Code is silent on a matter. Thus, it is only in situations that are not covered by the Code, that the court may rely on the rules of equity and do that which it considers to be just and equitable under the circumstances, including the removal of the director.
Further, and in respect of the power of the Court to remove directors, I would recommend that the power of the Court to remove a director, where such a power exists, should be exercised with much caution. Admittedly, equity frees the Court from the fetters of strictly applying technical legal considerations and confers on the Court power to do what appears to be ‘just and equitable’. Where a statute vests a matter within the discretion of the court, it calls into play the good sense and judgment of the court. However, in exercising that discretion, the court would have to be guided by law. The discretion, therefore, means sound discretion guided by law, not vague, arbitrary and fanciful action.[63] The individual judge cannot just disregard existing rules and do whatever he happens to think fair.
It would be appropriate to end this discussion with the statement of Warner J. in Re J.E. Cade & Son Ltd. [1992] B.C.L.C. 213 at 217 that a court may have a very wide discretion, “but it does not sit under a palm tree.”
The ‘just and equitable’ provision does not … entitle one party to disregard the obligation he assumes by entering a company, nor the court to dispense him from it. It does, as equity always does, enable the court to subject the exercise of legal rights to equitable considerations; considerations … which may make it unjust, or inequitable to insist on legal rights, or to exercise them in a particular way.[64]
- Senior Lecturer, Ghana School of Law, Accra; Partner, Bentsi-Enchill, Letsa & Ankomah, Legal Practitioners, Accra; Former Lecturer, University of Ghana, Legon. This was originally presented as a paper at the Ghana Bar Association Continuing Legal Education programme on 22nd April 2004. I am very grateful to my friends and colleagues, Kojo Bentsi-Enchill, Janet Kabiru, Hannah Opoku and Kwakyewaa Cantamantu-Koomson, for reading over and commenting on the original script. I am responsible for any errors in this work.
[1] Foss v. Harbottle (1843) 67 E.R. 189, 2 Hare 461.
[2] Aberdeen Rail Co. v. Blaikie Brothers [1843-60] All E.R. 249 at 252.
[3] Final Report of the Commission of Enquiry into the Working and Administration of the present Company Law of Ghana (“Gower’s Report”), p. 25.
[4] id., p. 159.
[5] A person is summarily removed from an office, where he is removed “without ceremony or delay”. See Black’s Law Dictionary, (4th ed.) (West Publishing Co., St Paul Minn., 1951), p. 1604.
[6] This term is defined as “burdensome, harsh and wrongful”; see Re H.R. Harmer Ltd. [1958] 3 All E.R. 689 and per Fred Apaloo, J.A., as he then was, delivering the judgment of the Court of Appeal in the case of Mahama v. Soli [1977] 1 G.L.R. 215.
[7] See Re A Company [1983] 2 All E. R. 36 and O’Neill v. Phillips [1999] 2 All E.R. 961.
[8] The High Court has the jurisdiction to deal with matters arising under the Code. See Schedule 1, clause 2 of the Code and Dolphyne (No. 3) v. Speedline Stevedoring Co., Ltd. [1996-97] SCGLR 514 at 519, per Hayfron-Benjamin, J.S.C.
[9] Pinamang v. Abrokwa [1991] 2 G.L.R. 384, per Lamptey J.A., as he then was.
[10] These are persons who have not been duly appointed as directors but who hold themselves out or knowingly allow themselves to be held out as directors. See Commodore v. Fruit Supply (Ghana) Limited [1977] 1 G.L.R. 241, per Lassey, Jiagge and Kingsley-Nyinah JJ.A.
[11] These are persons who have not been duly appointed as directors but on whose instructions or directions the duly appointed directors are accustomed to act. See Australian Securities Commission v. AS Nominees Ltd (1995) 133 A.L.R. 1 at 52-53.
[12] See Automatic Self-Cleansing Filter Syndicate Co. v. Cuninghame [1906] 2 Ch. 34, and Quin & Axtens v. Salmon [1909] 1 Ch. 311.
[13] Beveridge v. New York El. R. CO., 112 N.Y. 1, 19 N.E. 489.
[14] Per Greer, L.J. in Shaw & Sons (Salford) Ltd. v. Shaw [1935] 2 K.B. 113 at 134.
[15] Lamb v. Lehmann 110 Ohio St. 59, 143 N.E. 276.
[16] Palmer’s Company Law, Vol. 2 (Sweet & Maxwell, London), paragraph 8.302, at p. 8030.
[17] Gower, Principles of Modern Company Law (5th ed.) (Sweet & Maxwell, London, 1992), p. 153.
[18] Okudjeto v. Irani Brothers [1974] 1 G.L.R. 374 at 385.
[19] This is a resolution in writing, and signed by all the members entitled to exercise so-called ‘section 31 powers’, i.e. the power to attend, speak and vote at a general meeting. This mode of passing resolutions appears to have evolved from the so-called ‘doctrine of unanimous consent’ which provides that if all the members who could have attended and voted on any resolution in some way indicate their consent to the proposal, all procedural requirements under the statute would be deemed to have been complied with. A written resolution, however, cannot be used to remove a director or an auditor, since the absence of a meeting will deny the affected party the full opportunity of being heard, in breach of the procedures set out under sections 185 and 135 respectively.
[20] Per Richard Apaloo J. in Adryx Mining and Metals Limited v. Ashanti Goldfields Company Limited (Unreported, Suit No. Misc. 32/2000, 9th February 2000).
[21] [1984‑86] 2 G.L.R. 561.
[22] Gower, Principles of Modern Company Law (3rd ed.) (Stevens & Sons, London, 1969), p. 557.
[23] (1888) 39 Ch.D. 339.
[24] id., pp. 363-364.
[25] (1886) 17 Q.B.D. 536.
[26] id., pp. 539-540.
[27] id., p. 542.
[28] Black’s Law Dictionary (supra. note 5), at p. 907.
[29] Compare section 13 of the Code with e.g. Kelner v. Baxter [1866] LR 2 CP 174 and Newborne v. Sensolid [1954] 1 Q.B. 45.
[30] Compare sections 24 and 25 of the Code with e.g. Re Jon Beaufort (London) Ltd. [1953] Ch. 131 and Ashbury Railway Carriage and Iron Co. v. Riche 33 L.T. 450.
[31] Compare section 47 of the Code with e.g. Greenhalgh v. Ardenne Cinemas Ltd. [1946] 1 All E.R. 512, White v. Bristol [1953] Ch. 65, and Re Mackenzie & Co. [1916] 2 Ch. 450.
[32] [1987-88] 2 G.L.R. 307 at 310.
[33] Black’s Law Dictionary (supra. note 5), at p. 1349.
[34] Section 300 generally provides the procedure for the cumulative voting of directors of a public company, and makes provision to prevent a simple majority from removing directors appointed by the minority. Section 185 (1) is inapplicable in such a case.
[35] See Adryx Metal and Mining Limited v. Ashanti Goldfields Limited, (supra. note 20.)
[36] Gower, Principles of Modern Company Law (supra. note 22), at p. 557.
[37] Section 192 of the Code provides the legal basis for the appointment of so-called ‘Executive Directors’, i.e. directors who are appointed to executive posts in the company.
[38] id. Section 184 of the 1948 English Companies Act, re-enacted as section 303 of the 1985 English Companies Act, is the equivalent of section 185 of the Code.
[39] See Scott v. Scott [1943] 1 All E.R. 582.
[40] See Foster v. Foster [1916] 1 Ch. 532 and Irvine v. Union Bank of Australia (1877) 2 App. Cas. 366.
[41] See Barron v. Potter [1914] 1 Ch. 895.
[42] See the discussion and application of this principle in the cases of Salomon v. Salomon & Co. [1897] A.C. 22, Lee v. Lee’s Air Farming Ltd. [1960] 3 All E.R. 420, Owusu v. R. N. Thorne Ltd. [1966] G.L.R. 90 (per Boison J.) and Barclays Bank v. Lartey [1978] G.L.R. 282 (per Edward Wiredu J., as he then was).
[43] supra., note 1.
[44] id., at pp. 203-204.
[45] (1875) 1 Ch.D. 13.
[46] id., at 25.
[47] supra., note 9.
[48] id., at 388.
[49] [1974] 1 W.L.R. 638.
[50] See the cases of Bainbridge v. Smith (1889) 41 Ch.D. 462 at 456, and Read v. Astoria [1952] Ch. 637.
[51] Under Clause 4 of Schedule 1 to the Code, the term infant applies “any natural person under the age of twenty-one years or such other age as may from time to time be declared by any enactment to be full age for legal purposes.” According to Professor Gower, he found “general agreement for the view that it was objectionable that infants should act as directors” of companies in Ghana (See Gower’s Report, p. 130. See also section 32 of the Interpretation Act and section 1 of the Children’s Act, 1998 (Act 560), which support the view that “on the whole, the age of majority [in Ghana] differs from statute to statute, depending on the purpose for which it is stipulated.” See Dowuona-Hammond, C., “Towards a Uniform Age of Majority in Ghana: Rethinking the Contractual Capacity of Minors”, (1996-99) XX University of Ghana Law Journal 62 at 64.
[52] Professor Gower argues that this is because corporate bodies cannot be entrusted with any tasks involving personal duties of good faith and discretion. (See Gower’s Report, p. 131) Thus, while it is usual for directors to be appointed by bodies corporate with interest in or control over a company, technically, such persons serve in their personal capacities. However, on account of the statutory liability imposed on ‘shadow directors’ under section 179 (2) (b) of the Code, it may not be possible for such corporate bodies to escape liability by hiding behind their appointees to the Board, especially on the basis of the level of influence and control that that corporate body exercises over its appointees to the Board.
[53] Gower’s Report, p. 131.
[54] [1984-86] 2 G.L.R. 107.
[55] See Re Barings plc & Others (No. 3); Secretary of State for Trade and Industry v. Baker & Others [1999] 1 All E.R. 1017, where the applicant who had been disqualified from acting as a director for a period of four (4) years, applied for leave to continue as director of three companies, under section 17 of the English Company Directors Disqualification Act of 1986. In granting the application, the court held that when considering whether or not to grant leave under the Act, a court has to balance the importance of protecting the public from the conduct that led to the disqualification order in the first place, with the need that the applicant should be able to act as a director of a particular company. The court should, in particular, pay attention to the nature of the matters that led to the disqualification order and ask itself whether, if leave were granted, a situation might arise in which there would be a recurrence of those matters.
[56] Gower’s Report, p. 134.
[57] In Bersel Manufacturing Co. Ltd. v. Berry [1968] 2 All E.R. 552, the English House of Lords upheld a provision in the articles of association of a company that its permanent life directors “shall have power to terminate forthwith the directorship of any of the ordinary directors by notice in writing.”
[58] See Samuel Tak Lee v. Chou Wen Hsien [1984] 1 W.L.R. 1202.
[59] [1973] 2 G.L.R. 41.
[60] id., pp. 46-47.
[61] See Currie v. Cowdenbeath Football Club Ltd. [1992] B.C.L.C. 1029
[62] Story on Equity (3rd Ed., 1920), p. 34.
[63] See Achiampong v. Achiampong [1982-83] G. L. R. 1072.
[64] Per Lord Wilberforce in Re Westbourne Galleries Ltd. [1973] A.C. 360 at 379.