All persons who are directors of companies may be removed from office by an ordinary resolution of members of the company at a general meeting regardless of what the constitution governing the company says. And although the mode of removal of a director may be in accordance with the constitution of the company, the default procedure by the Companies Act, 2019 (Act 992) (‘the Companies Act’) does not require reasons to be stated in removing a director. However, rules are founded on the general principles of justice and fairness. So, this article begs the question of whether or not reasons should be stated for removal of directors of companies.
Who is a director?
According to the Companies Act, ‘directors’ means persons, by whatever name called, who are appointed to direct and administer the business of the company.
From the above definition, a person can only and lawfully be a director if he is appointed. Otherwise, for the purpose of imposing liability and duty, a person not validly appointed (holding out) can only be deemed a de facto director.
How is a director appointed?
The Act requires that the process of appointing a director must be stated in the constitution of the company. Nonetheless, certain conditions are to be satisfied before a person is appointed a director.
Under the Companies Act, the person to be appointed a director must provide:
- Statutory declaration: A declaration to the effect that he has not within the preceding five years of the application been:
- charged with or convicted of a criminal offence involving fraud or dishonesty,
- charged with or convicted of a criminal offence relating to the promotion, incorporation or management of a company or
- a director or senior manager of a company that has become insolvent.
- Written consent: The Act requires that the person consents in writing to be a director and files the consent within twenty-eight (28) days.
In a court decided case, the court held that a letter of consent must be submitted before the person is appointed a director. That is, the appointment of a director of a company is not made oral.
Who can appoint a director?
The Act requires certain category of persons who can appoint a director. Thus, where the constitution is silent, the Act provides a default position that members, continuing directors and the court can appoint a director.
- Members: The members of a company can appoint a director for private or public companies.
- Continuing directors: Where there is a casual vacancy, continuing directors can appoint a director.
- Court: The Companies Act gives the court the power to appoint directors of a company.
Types of directors
There are two broad categories of directors: executive directors and non-executive directors.
Under the Act, where a person becomes a director and an employee of the company, he is an executive director, otherwise he is a non-executive director. This is in view of the fact that directors are not employees.
Removal of directors
The Companies Act provides that members of a company can always by law remove a director of a company.
Also the Companies Act provides that any person named in the constitution as a person who has power to appoint or to remove, that power is enforceable by that person although that person is not a member or officer of the company.
Procedure for removal of directors
As I have indicated earlier, a company may by ordinary resolution at a general meeting remove from office directors of a company.
Thus, for removal of a director to be effective members must strictly comply with the procedure outlined by the Companies Act, and they are:
- Notice of intention to remove the director must be given to the company 35 clear days before the meeting at which the resolution is to be moved.
- If after notice of the intention to move the resolution is given to the company, a meeting is called 35 days or less for the resolution to be moved.
- Response can be sent as soon as notice is given as a written response. This must be circulated the same manner as the notice was served to the member.
- Also, in accordance with the principle of natural justice (right to be heard), the director must be heard at the meeting, and also have a statement read at the meeting.
Comment: The findings of the court have generally been that there is no burden on members to give reasons to remove a director. Thus, once the requirements are complied with, no court suit can properly be instituted to set aside the removal of a director. On the other hand, it stands to also mean that members are not proscribed from stating reasons in the notice of intention to remove a director.
Review of decisions of the court
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 would like to further proceed:
Pinamang v. Abrokwa [1991] 2 GLR 384
Pinamang (the ‘appellant’) was the majority shareholder and managing director of the company. Abrokwa (the ‘respondents’) in their capacities as shareholders, claimed that the appellant was conducting the affairs of the company in a manner oppressive and in disregard of their interests, and so they sued him in court seeking that the appellant be made to pay all moneys found due from him to the company after proper account had been taken of the affairs of the company. Further, they sought that the appellant should be removed from the board of directors of the company. The High Court dismissed the suit. So they appealed the decision and it was also dismissed.
The court held that Companies Act specifically provides for the procedure and mode for the removal of the director of a limited liability company as stated above. The High Court had no jurisdiction in this cause. The court further stated once a resolution has been passed by majority of members of the company the trial court must not inquire into matters of internal management or, at the instance of a shareholder, interfere with transactions of the company although it may be irregular and detrimental to the company (somethings which are capable of being rectified by an ordinary resolution of the company in a general meeting).
Comment: It is in respect of the position of the court in this case that it has set boundaries on the power of the members to remove directors. Thus, it can only interfere with the removal of a director when the requirements in the procedure is defective. However, that does not mean the court cannot remove a director when his appointment was wrong.
Asafu-Adjaye v. Agyekum [1984-86] 1 GLR 382
Asafu-Adjaye (the ‘appellant’) and Agyekum (the ‘respondent’) are all directors of a company. Upon incorporation of the company, they agreed all the founding shareholders will hold the same number of shares.
The respondent was further appointed an executive director. An argument ensued between the appellants and the respondent regarding the management of the company’s funds which the respondent accused the appellants of diverting for their personal use. The respondent also accused the appellants of reducing his shares contrary to their verbal agreement and purportedly holding a meeting to remove him as director, and acting in an oppressive manner against him.
The respondent sued the appellant, seeking the court to declare the reduction of his shares invalid, order the appellants to refund the monies taken, and an injunction restraining the appellants from holding the meeting to remove him. The orders were granted to the respondent, but it was appealed. The Court of Appeal reversed the decision of the High Court on disallowing the removal of the respondent as director of the company.
The reason given by the court was that when a company complies with Companies Act as to the requisite notice of 35 days to remove a director, apart from the mandatory requirement to call an annual general meeting, nothing else is mandated. Therefore, the removal of the respondent as director of the company was proper.
Comment: There are remedies such as compensation and damages for a director (executive directive) to seek for his wrongful removal. Therefore, it should be for only very crucial and vital reasons that the Court must depart from the rules provided by the Companies Act, because, in any case “equity follows the law”. Thus, 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.
Heinrich Koch v. Horteng Limited (2004)
In this case the decision of the court is that notice of an intention to remove a director must specify that a director is going to be removed, and it is necessary to state the grounds for his removal. The director concerned must be given a right to be heard in his defence to any charges that may be preferred against him.
No stage during the trial did the company tender the statutory notice required. Only the removal letter was tendered, not the notices to attend the meeting or its proof of service. Consequently, the removal breached the rules of natural justice of fair hearing. So the removal of Heinrich was declared null and void for breach of the Companies Act.
Comment: My understanding is that the requirement to give notice of intention to remove a director as well as the right to be heard is mandatory. However, in the case of the requirement to state the reasons for his removal in the notice, to the court, it was held to be necessary but not mandatory.
Conclusion
To re-iterate my introduction, all persons who are directors of a company may be removed from office by an ordinary resolution of members of the company at a general meeting regardless of what the constitution governing the company says. And although the mode of removal of a director may be in accordance with the constitution of the company, the default procedure of the Companies Act does not require reasons to be stated in removing a director. However, rules are founded on the general principles of justice and fairness.
Let us remember as well that we are now in the age of modern purposive approach to interpretation. As long as the statutory requirement in the Companies Act provides session for a director to be given an opportunity to be heard, we should know the direction in which the law is thinking. Thus, the court is likely to presume that reasons should be given for removal of directors.
However, it is my considered opinion that it should be for only very crucial and vital reasons that the Court must depart from the rules provided by the Companies Act, because in any case “equity follows the law”. Thus, 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.
Moreover, the understanding is that the requirement to give notice of intention to remove a director as well as his right to be heard at a general meeting is mandatory. However, in the case of the requirement to state the reasons for his removal in the notice, as the court has held, is necessary not mandatory.
The writer is a Professional Law Student at Ghana School of Law
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