Is the mandatory auditor-rotation provision in the Companies Act unconstitutional?


Section 139(11) of Ghana’s Companies Act, 2019 (Act 992) says: “An auditor shall hold office for a term of not more than six years and is eligible for appointment after a cooling-off period of not less than six years”. This provision, based on the Supreme Court’s recent decision in Ezuame Mannan v Attorney-General & Speaker of Parliament (No. J1/11/2021) of 27 July 2022 (“Ezuame case”), may be unconstitutional.

Details of the Ezuame case

The Ezuame case is on the constitutionality of Section 43 of the Narcotic Control Commission Act, 2020 (Act 1019). The plaintiff raised two main complaints, but only one is of interest to this article: Section 43 of Act 1019 offends Article 106(6) of the 1992 Constitution of Ghana as it breaches the procedural limitations imposed on Parliament’s law-making powers.

Section 43 of Act 1019 provides that the Minister of the Interior, relying on the recommendation of the Narcotic Control Commission, may grant a license under certain circumstances for the cultivation of cannabis whose THC content does not exceed 0.3 percent. The plaintiff said the procedure used by Parliament to insert this provision into the law is unconstitutional.

The procedural breach is that the Memorandum to the Bill that was submitted to Parliament by the government did not contain anything about this licensing regime. Neither did the main clauses of the bill itself contain such a licensing arrangement. Article 106(2)(a) of the Constitution requires a bill like the Narcotic Control Commission Bill to contain an explanatory Memorandum that sets out the “policy and principles of the bill, the defects of the existing law, the remedies proposed to deal with those defects, and the necessity for its introduction”. So clearly, the government did not make any policy decision to include the licensing regime.

Article 106(6) of the constitution requires Parliament to debate a bill using the report of an appropriate committee and the Memorandum to the Bill. Thereafter, Parliament can pass the bill with or without any amendment or reject it completely. The next matter the plaintiff raised was that Parliament barely spared a thought on Section 43. This provision was hurriedly inserted and was not debated at all.

Four out of seven of the justices of the Supreme Court who heard this matter believe that Parliament breached some constitutional procedures when inserting this provision. While the procedure used by Parliament is not unusual, and is in line with its Standing Orders, the majority of the panel felt Ghanaians deserved better. The majority asked several questions as its test:

Could it be said that the explanatory memorandum placed before Parliament set out in detail the defects of the existing law that required the policy change brought about by Section 43?

Could it be said that the policies and principles of Section 43 were explained before it was passed into law?

Could it be said that the manner in which the provisions set out by Section 43 would remedy the defects of the existing law were detailed in the memorandum to the law?

Was the public, the sovereign, given notice of this impending radical policy change, and the opportunity to relay comments, concerns, and even queries to their members of parliament on the provision?

In the end, was there debate/deliberations in Parliament as intended by the framers of the Constitution on the amendment before it metamorphosed into law?

Having regard to the explanatory memorandum, did the Ghanaian people know that they were being ushered by their elected representatives into a narcotic control regime that will license the commercial cultivation of cannabis “which has not more than 0.3 percent THC content on a dry weight basis for industrial purposes for obtaining fibre or seed or for medicinal purposes”?

Can the mode of passage resorted to by Parliament be said to be in accordance with the letter and the spirit of the Constitution?

The emphatic answer the Court gave to all these questions was: “We think not”. The Court then said: “In particular, the lack of debate on section 43 of Act 1019 amounts to not only a direct violation of the letter of Article 106 of the Constitution, but also a violation of the spirit of the law. There was conspicuously no debate over such a critical shift in policy by Parliament. Needless to say, this conduct and mode of law-making defeats transparency and accountability enjoined by the Constitution. The dictates of constitutional fidelity, in our view, require that such a shift in policy, which is intended to result in a novel exception, ought to be debated to satisfy the purpose of Article 106. Failing this, the process adopted by Parliament offends the letter and the spirit of the Constitution.”

Aside from not notifying the public about this major change in policy, the Court condemns the lack of parliamentary debate on the policy. It is not clear what the Court’s view of a parliamentary debate is, and what form it must take. It must be noted that a parliamentary debate ends in a vote. The debates themselves do not amount to a decision. Further, not everyone gets to speak on a matter during a debate.

It must be stressed that the test adopted in this decision will fail so many amendments and insertions Parliament has made since 1992, and equally make them unconstitutional. The court’s expectation that every clause must be debated whether there are differing views or not is remarkable. There are so many talking points and concerns on this decision, but this article does not have the space for them. This decision yearns for a full academic article that touches on the history of Parliament’s legislative powers, essence of gazetting a bill, purpose of a debate and how Parliament can amend a bill.

The current process in Parliament is that after the relevant committee considers a bill that was referred to it, it submits a report. The report is laid by the chairperson of the committee when they rise to second the motion for the Second Reading of the Bill. This then generates a debate only on the principles of the Bill. The debate culminates in a vote on whether the motion for the Second Reading should be adopted. After the adoption, the Bill moves to the Consideration Stage. This stage enables Parliament to go through every clause in the Bill and vote on each of them. This is where amendments can be made. These amendments also require votes.

The Consideration stage occasionally generates debates, particularly when Parliament is about to take a decision on a clause or proposed amendment. So, the processes described in the Constitution have been split by the rules in Parliament. The outcome, however, is that the MPs can debate the principles of the Bill and speak on clauses if they wish. The procedure in Parliament was borrowed from the British House of Commons from the pre-independence era, and has evolved over the years. Aside from the 1979 Constitution of Ghana, which contained the same text of Article 106(6) in the 1992 Constitution, previous constitutions always left parliamentary procedure on amendments and debates on a bill to the Standing Orders. It can be argued that the constitutional provision was and is only a codification of the existing practice and not meant to usher in a new system of law-making.

Case of Act 992

Looking at Section 139(11) of Act 992, the Government did not design a policy to limit tenure of auditors for all companies. That Section was not in the Companies Bill, 2018 that the Government submitted to Parliament. Parliament inserted it on its own. There was nothing in the Memorandum setting out why that provision was needed or what defect this provision was curing. Parliament did not also debate it. Ghanaians were indeed caught by surprise.

That is why on 2nd May, 2019, some MPs attempted to move for a recission of the decision to insert this provision, which failed in a bizarre way. The records from Parliament show that there was no deep thought given to this major policy decision taken by Parliament. This is because senior MPs, some of whom were members of the committee, were those trying to move for the recission. The Institute of Chartered Accountants, Ghana (ICAG), the regulator of public audit practice in Ghana, was not consulted.

Some commentators have referenced the banking crises as an ex-post facto justification for this provision. Not only is it inaccurate that auditors share a blame in the crisis by failing to adhere to International Standards on Auditing, the Banks and Specialised Deposit-Taking Institutions Act, 2016 (Act 930) already provides for mandatory auditor rotation for banks and specialised deposit-taking institutions. A similar provision exists for issuers of public securities or persons licensed under the Securities Industry Act, 2016 (Act 929). So, banks and other financial institutions already have this provision.

It is understandable why these provisions exist in those two laws since those companies are public-interest entities. These companies either take people’s deposits, keep people’s properties, or are involved in assisting other entities that undertake these activities. Why a private company whose shares are not traded must have this provision too is lost on Parliament itself. From the Hansard of 2nd May 2019, the experts who assisted the Parliamentary Committee that worked on the Companies Bill influenced this provision and the chairperson of the committee could not defend it when some MPs called for a recission. Rather, the chairperson said upon consultation with the experts, the tenure for the auditors should be extended and the tenure for private and public companies should be different. For private companies, the experts wanted the tenure to be 10 years, with a cooling period of five years. Auditors of public companies were to be in office for seven years with a cooling period of three years. This shows the lack of stakeholder engagement on this policy since there doesn’t seem to be any science with the numbers that the experts were providing to Parliament. They first mentioned 6 years. Then they wanted 7; and made room for 10.

From the records on this matter, Parliament did not at any point explain why rotation of auditors needed to be made a law. There are more submissions on why this is a bad policy than we have for its introduction. The MPs who tried to reverse this situation explained how the ICAG ensures quality audits and how shareholders can easily change the auditor at an Annual General Meeting.

Using the Ezuame test, there was no notice of this auditor-rotation provision in the Memorandum to the Bill – the public, the sovereign, was not given a chance to submit comments on this provision, there was no debate on it, and Ghanaians did not know they were being ushered into such a regime. For completeness, we state that the parliamentary committee invited public comments on the original Bill and held stakeholder discussions. Since this provision was not in the original Bill, there was no opportunity for comments to be made on them.


The decision in the Ezuame case sets a dangerous precedent which is likely to affect several laws. Unless it is reversed on review, anyone can go to the Supreme Court to strike down an amendment inserted by Parliament using the usual procedures.

Although the majority of the Court did not seem to appreciate the procedures Parliament uses in passing Bills, Parliament needs to take notice of this decision to avoid several challenges to laws it passes.

The comments above are the author’s personal views.

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