Berkeley Legal | Duties and Liabilities of Directors Under Nigerian Company Law
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23 Jun Duties and Liabilities of Directors Under Nigerian Company Law

A Director is a member of the board of people that manages and oversees the affairs of a business. A Director is entrusted with the responsibility of determining and implementing a company’s policy.

The Companies and Allied Matters Act, 2004 (CAMA), in Section 244, defines a Director as:

‘a person duly appointed by the company to direct and manage the business of the company’.

STATUTORY DUTIES

The management of a company is the responsibility of Directors therefore their duties, to the company, are non-exhaustive. The Directors can be called upon at any time to represent the company and at such time, they are expected to reflect the duties required of them.

The statutory duties of Directors are enumerated under CAMA.  For the purposes of this article, the following will be discussed:

  • Duty to promote the success of the company
  • Fiduciary duty/relationship
  • Duty of care and skill
  • Duty not to accept secret benefits
  • Conflict of interest
  1. Duty to promote the success of the company
  •  A Director is required to always carry out this duty in good faith. It is the mandate of a Director to promote the success of the company he/she represents. In so doing, the Director needs to take into consideration the relationship the company has with its shareholders, employees, suppliers and clients. 
  1. Fiduciary duty/relationship
  •  A fiduciary duty is the highest standard of care. It is an obligation of one party to act in the best interest of another. The obligated party is typically a fiduciary i.e. a person who has been charged with the care of money or property.
  • In this regard, a Director has a fiduciary duty towards the company in the dispensation of his/her duties. A fiduciary relationship exists between a Director and the company causing a Director to always act in the best interest of the company.
  • In Section 279 of CAMA, it is stated that,

‘a Director of a company stands in a fiduciary relationship towards the company and shall observe the utmost good faith towards the company in any transaction with it or on its behalf’.

  1. Duty of care and skill
  • This duty emanates from the manner in which a Director is expected to execute his obligations. Every Director must exercise a degree of care, diligence and skill which a reasonably prudent Director would exercise in comparable circumstances.
  • In determining the reasonableness of a Director, CAMA presupposes the reasonable man test wherein it is implied that every Director should owe a duty to behave as a reasonable person would or higher given their status.
  • Failure to take reasonable care in accordance with the above may be grounds for an action for negligence and breach of duty. This is a potential liability for Directors and we will discuss same in further detail below.
  1. Duty not to accept secret benefits
  •  Section 287 of CAMA prohibits a Director from accepting bribe, gift or commission, in cash or kind, from any person in relation to transactions the Director has performed on behalf of the company. A Director in breach of the above provision commits a breach of duty and the company can recover the actual gift from the said Director and sue him/her for damages sustained.
  1. Conflict of Interest
  • A conflict of interest arises where an individual or corporation is vested in multiple interests whether financial or otherwise which could possibly pervert the motivation or decision making of that individual or corporation.
  • There is an equitable principle and common law duty for directors to avoid conflicts of duty and interest so as to not allow his/her personal interest interfere with the performance of his/her duties.
  • There are certain circumstances where a conflict of interest may arise including but not limited to where a Director:

i. Is a Director of two or more competing companies; or

ii. Uses property, opportunity or confidential information contained in the course of the management of one company for the benefit of the other company or to his own or other person’s advantage;

iii. Will receive a personal benefit/profit i.e. has significant shareholdings in the company that they are directors or a competing company;

iv. Deciding their remuneration.

  • As soon as a Director is aware that there is a possible conflict of interest between his/her personal interests and the interests of the company , it is the duty of that director to immediately declare his/her interests to the company.
  • Disclosure by Directors of interests is discussed in Section 277 of CAMA which states, “it shall be the duty of a director who is in any way directly or indirectly interested in a contract or proposed contract with the company to declare the nature of his interest at a meeting of the directors of the company”.

The Code of Corporate Governance, 2016 outlines further duties and responsibilities of Board of Directors of a company. It reemphasises the provisions of CAMA and it also highlights that it is the primary task of Directors to ensure good corporate governance within a company.

LIABILITIES OF A DIRECTOR

  • Directors are personally liable for any breach of duty or negligent act occurring in the discharge of his/her duties as a director.
  • The company can sue the Director for any misconduct. CAMA provides that a duty imposed by the company on any given Director shall be enforceable against the Director by the company (Section 279 (9)).
  • The Act also makes provisions for others to bring actions on behalf of the company in the event the action is of the interest of the director i.e. shareholders and/or creditors, Derivative Action or Class Action.
  • There is no limit on directors liabilities under Nigerian law save for where CAMA or any other applicable rules/laws prescribe particular punishments. Where a company prefers that a Director’s liability be limited, it is required to state so in its memorandum.
  • Joint Liability – the duty of care and skill is a collective duty of board members. Consequently, every Director is personally responsible for all actions taken by the board to which he/she is a member. Unless his/her absence is justified, he/she is not relieved of his/her liabilities.

CONCLUSION

In conclusion, Directors are individuals who are appointed to manage, promote and protect the interest of a company. They are the pillars of a company therefore it is mandatory for each Director to be conversant with what is required of them.

The Firm is able to provide advice regarding the appointment of Directors and Proxy, remuneration system, duration of a Director within a Board and any other corporate matter as it pertains to the Nigerian company law.


The content of this document is solely for information purposes only and should not in any way be construed as a legal opinion. If you require specific legal advice on any of the matters covered in this article please contact info@berkeleylegal.com.ng