Execution is generally the process of enforcing a judgment or order of a competent Court by a party in whose favour such judgment or order was made. It is normally done at the instance of the victorious party to the action without which such judgment or order in his favour would be fruitless.
Generally, under Ghanaian law, a judgment does not become effective on the day of pronouncement. A judgment creditor (i.e. the winning party) is mandated to file and serve an entry of judgment on the execution debtor (i.e. losing party) if he is to have any first chance, if any at all, to realise the fruits of the judgment or order
Thereafter, the execution process is commenced by means of the execution creditor issuing execution against the execution debtor. The Supreme Court of Ghana in the case of Martin Alamisi Amidu v The Attorney General, Waterville Holdings (BVI) Limited and Alfred Agbesi Woyome Civil Motion J8/102/2017 re-emphasised the fact that shares in a body corporate are amenable to processes of execution.
This Article will focus on the execution of shares under Ghanaian law by recounting the process involved. It will further consider the legal effect of an execution of shares amid a supposed restriction on the transferability of shares contained in the constitution of a Company as made allowable by the Companies Act, 2019 (Act 992).
Legal Nature of Shares
A share is an interest of a shareholder in a company measured by a sum of money, for the purpose of liability in the first place and of interest in the second; but also consisting of a series of mutual covenants entered into by all the shareholders among themselves.
Thus, a share is not a sum of money but an interest measured by a sum of money and made up of various rights contained in the contract; including the right to a sum of money of a more or less amount. The juridical nature of shares is that shareholders are not regarded as having equitable interests in the Company’s assets. They are not in the eyes of the law part-owners of the undertaking.
They fundamentally share certain rights and privileges in respect of dividends, return of capital on a winding-up, voting and the like. A shareholder is thus not deemed a creditor of the Company in which (s)he holds shares. The financial interest in the Company, as explained above, is in the prospects of future dividends and distributions upon winding-up; thus not necessarily giving the shareholder any form of direct financial or legal interest in the property of the Company.
Execution of shares
Shares as part of their juridical nature are classified as property and thus can be the subject of an execution process in a Court action. One of the commonest forms of execution for the realisation of judgment debts arising from a valid judgment is by means of the writ of fieri facias (fi fa).
This involves the attachment of the property of the judgment debtor. This property when attached is sold, so much of which will satisfy the judgment debt and costs of execution plus interest from the date of the judgment. Once the judgment debt including costs and interests awarded and the expenses of execution are realised, any sale in the execution must stop. Generally, all properties owned by the execution debtor including shares in a body corporate may be attached and sold in satisfaction of a judgment debt.
Practically, a writ of fi fa is put into force by attaching, seizing and removing the property from the control of the judgment debtor and placing it in the custody of the law for the benefit of the execution creditor, although title would not vest in the execution creditor.
The shares in the body corporate may be seized by serving on the manager, secretary or proper officer of the Company a written order signed by the Registrar prohibiting the holder from transferring them or receiving dividends, and prohibiting the manager, secretary or other proper officer from making any such payment until further order.
Once the execution is levied by attachment or seizure, any alienation without leave of the Court or payment of any debt, dividends or shares to the judgment debtor would be invalid, and the person making such alienation or payment liable to committal for contempt of Court. Once there is a failure to pay the judgment debt, the property seized must be put on sale and not handed over to the execution creditor.
The sale is made under the express direction of the Registrar, and is conducted in accordance with such orders as the Court may make on the application of any party. Unless the Court directs otherwise, such sale is made by means of a public auction through the leadership of a licenced auctioneer and in accordance with the laws in force.
Once the sale is effected, the Court will on the application of the purchaser make an order prohibiting the registered owner from transferring them or dividends received to any other person other than the purchaser. The Court may also restrain the manager, secretary or other proper officer of the body corporate from permitting any transfer or payment to any person other than the purchaser.
Restrictions on transferability of shares
In Ghana, generally, shares in a limited liability Company incorporated under the Companies Act are freely transferrable by statute without any need for authority or permission to be stated in the Company’s constitution.
However, of great importance to this Article is the question which may arise when the Company’s constitution imposes restrictions on the freedom of transferability of its shares. In most instances, directors of the Company are empowered to refuse to register transfers and frequently will be accompanied by provisions affording the other shareholders of the Company rights of pre-emption, first-refusal or even compulsory acquisition. These provisions tend to restrict transfers, especially to non-members or in a larger context to dispositions or sale of any type.
Thus, in such a case the constitution specifies that the directors are empowered to refuse to register the transfer of shares, howsoever; or that the pre-emption provisions will apply strictly on any purported transfer or both; and in fact any entries in the register of members are acts of the Company, which may only be made with the approval of the directors or of all of the members.
Most times, the constitution empowers the directors to refuse to register based on certain specific grounds; mostly that the sale was not done by taking cognisance of the existing shareholders’ rights of pre-emption or first-refusal.
With respect to the restrictions relating to pre-emptive rights or rights of first-refusal, the basic principle is that shareholders should be able to protect their proportion of the total equity by having the opportunity to acquire or purchase any shares that are being transferred or sold. The main reason for this includes the fact that shareholders do not want to easily allow their influence in the Company to reduce as a result of holding a relatively small number of shares.
Thus, this right of pre-emption or first-refusal operates as a potential limit on the freedom of the directors or a shareholder to effect a shift in the balance of control in the Company. It must be noted that this is of much importance, since in Ghana a transfer of the legal title to shares in any Company needs to be registered in the register of members of the Company followed by an issue of share certificates in order to be legally effective.
Thus, by law, if a person is named in the register of members of a Company as the owner of a share in the Company, then the Company is entitled to treat that person as the only person interested in the shares and to ignore the claims of anyone who is not named on the register even if made aware of those claims. Amid the prevalence of such restrictive provisions in the constitution of a Company, it is argued by this writer that the legal and beneficial interest in the shares may not be transferred through the judicial execution process without compliance with the above provisions.
It is clear that a problem of ownership arises where the constitution of the Company places a restriction on the free transfer of shares in a Company. This restriction applies to transfers arising as a result of a judicial execution process. It is advocated that during such an execution process, the constitution of the Company be reviewed first so as to ensure that the process is conducted in accordance with provisions of the constitution of the Company as relates to pre-emptive rights and rights of first-refusal in favour of existing shareholders.
Similarly, it is advised that practitioners in drafting of such provisions in the constitution do so carefully and with much precision, specifying the detailed rules relating to the sale and acquisition of Company shares under any circumstance – especially through the judicial execution process.
Lastly, it is advocated that Parliament reconsiders amending the law and introducing robust provisions in the law in order to bring certainty on this issue; especially as a result of execution of shares through the judicial process.
>>>The writer is a Barrister and Solicitor of Ghana working with the Civil Division of the Office of the Attorney-General, Accra. He possesses an LLM Degree from Harvard Law School (USA); a Qualifying Certificate in Law from the Ghana School of Law and an LLB Degree (First Class Honours) from Kwame Nkrumah University of Science and Technology (KNUST). His goal is to contribute to re-envisioning the way effective lawyering can be done in today’s world. He can be reached on [email protected] and or + 233 207 335 956.