Companies Act 2019 (Act 992): supporting good governance and boardroom practices

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Professor Douglas BOATENG

Insights into Directorships and the Boardroom

In August 2019, President Nana Akufo-Addo announced accepting the much-anticipated revised Ghana Companies Act into law.

Companies Act 2019 (Act 992) was introduced to help meet the rapidly changing local and international business landscape needs.  It is armed with over 380 sections and was passed to overhaul the previous Companies Act of 1963 (Act 179).  Act 992 draws from Mauritius, South Africa, New Zealand, and the United Kingdom. It has introduced more significant corporate governance standards for companies situated and operating in Ghana.

As rightly pointed out by the Oxford Business Group, the timing of the revised Act could not have been better. To them, “The new Companies Act promotes prudence in management, effective boardroom practice, and shareholder activism. The timing of this new law is ideal as 2018 saw a string of collapsed banks, many of which experienced a breakdown in their corporate governance regime. ”

The changes concerned the basic structure of the law governing directors’ duties. Until enacting the Companies Act 2019, the direction in this area had been determined primarily by the courts, acting in line with – and over the years developing – established principles.  The Companies Act 2019 makes a significant breakthrough in that it takes common law principles and sets them down in legislation. In so doing, it has simplified the law and made it more accessible and digestible for all.

According to Botchway N., the new “Companies Act includes general provisions relating to the organizational framework of all companies, both public and private, concerning invitations to the public for the acquisition or disposal of listed securities, standards for financial reporting, procedures for appointing directors, among other things.”

Some of the core changes made to the Act were put in place to encourage a broader focus on corporate governance. In particular, the corporate governance requirements for directors were enhanced.

To Ghartey K., the revised Act now “places a greater reliance on specific rules while maintaining the usual principle-based regulatory technique adopted for regulating director conduct under Act 179″. The overall tenor of the framework of director’s duty under the new Act points to a firmer legislative view of the severe consequences of reckless director conduct”. According to the Act, directors are “those persons, by whatever name called, who are appointed to direct and administer the company’s business.”

While there is widespread agreement on the responsibilities of directors, the Companies Act highlights several duties that directors of companies, organisations, or institutions operating within Ghana are required to fulfill. These include:

  • “A director of a company stands in a fiduciary relationship towards the company and shall observe the utmost good faith towards the company in a transaction with or on behalf of the company.
  • A director shall always act in what the director believes is the best interest of the company as a whole to preserve the assets, further the business, and promote the purposes for which the company was formed, in the manner that a faithful, diligent, careful and ordinarily skillful director would act in the circumstances.”

In addition to this, the Act states:

“A director of a company shall (a) act in accordance with the constitution of a company, and (b) only exercise powers for the purposes for which the powers are conferred.”

Section 192 of the Act, as posited by Situ K., is explicit on the need to disclose the nature and extent of the interest held by directors. To further bolster the elimination of potential conflict areas between the individual interests of directors and the company’s wellbeing, the law strictly prohibits advancing loans to directors of public companies.

The law categorically stipulates: “A public company shall not grant a loan to a person who is a director or a director of an associated company or enter into a guarantee or provide a security in connection with a loan made to that person by any other person” (Section 328 (1) of Act 992). This restriction is somewhat relaxed for private companies, who only need to specify the fact in the note to the company’s financial statements.

To align more strongly with these requirements, the new Act introduced the crimialisation of situations where a person who has previously been disqualified from acting as a director or does not have the required qualifications is appointed or works in the capacity of a director.

The Company’s Act requires that any previously disqualified directors disclose this disqualification.  The criteria for disqualification as a director is explained by Audrey Naa Dei Kotey as follows:

A person is disqualified from holding the position of director of a company if:

  • “the person is convicted of an offense involving fraud or dishonesty;
  • it appears that the person may have been guilty of a criminal offence whether they were convicted or not;
  • the person commits or is convicted of an offence related to insider dealing or any other offence which is not a misdemeanor;
  • a person is adjudged bankrupt;
  • the person has been disbarred from being part of a recognized professional body as a result of disciplinary action;
  • there is an ongoing criminal investigation in which the person is involved.”

In addition to this, the Act directly highlights the following:

“A person is automatically disqualified for appointment as director or to act as a director of a company for five years if that person has:

  • been convicted within the last five years of an offense involving fraud or dishonesty, or relating to the promotion, formation, or running of a company,
  • has been a director or senior executive of a company that has become insolvent within the last five years on account of or partly as a result of the culpable activities of that director, or
  • has been disqualified from acting as Company Secretary, receiver, manager or liquidator of a company.”

Like specific changes around director duties and enhanced corporate governance, the new Act also made room for particular requirements for Company Secretaries.

In the past, almost anyone could be appointed as a Company Secretary.

Now, in Ghana, to be appointed as a Company Secretary, specific requirements need to be met.

Audrey Naa Dei Kotey points out that: “a company secretary is at the fundamental level required to have a comprehensive knowledge of company law and legislation and have the ability to guide the Board of Directors and the Company in their decision making. In more specific terms, the Company Secretary is required to effectively navigate the complex corporate governance framework and ensure that the companies they work for are up-to-date and compliant with their obligations under the law.”

Related to this, the Act notes that “directors shall not appoint a person as a Company Secretary unless that person:

  • has obtained a professional qualification or a tertiary level qualification that enables that person to have the requisite knowledge and experience to perform the functions of a Company Secretary;
  • has held office, before the appointment, as a Company Secretary trainee or has been articled under the supervision of a qualified Company Secretary for at least three years,
  • is a member in good standing of the Institute of Chartered Secretaries and Administrators, or the Institute of Chartered Accountants, Ghana; or
  • is in good standing as a barrister or solicitor in the Republic, or by virtue of an academic qualification, or as a member of a professional body, appears to the directors as capable of performing the functions of secretary of the company.”

These critical changes to the Companies Act, which speak directly to the director and secretary requirements, lead to a greater focus on good governance and help guide businesses as they navigate the diverse business environment in Ghana and across Africa.

Act 2019 has thus simplified the guiding principles that had remained since 1963 and consolidated the conflicting state of various legislations. Thus making it more relevant to the current business conditions.

To summed up, the fiduciary duties of office bearers of registered entities in Ghana have been generally captured in Act 992. These include the obligations to report disqualification (section 178), as well as the duty of directors (section190), disclosure of conflict of interest (section 192).

Sections 199-201 also explain how members of entities and other third parties may approach the courts for relief where office bearers have failed to comply with their fiduciary duties. Other, more general, corporate governance issues dealt with in the Act include restraining fraudulent persons from managing companies (section 177) and limitations of the powers of directors (section 189)

A key benefit of Companies Act 2019 (Act 992), as summed up by Adu-Asamoah M., is “its inherent strict requirements that seek to improve corporate governance going forward in its implementation.”

Currently;

  • Ghanaian companies and directors are subject to an Act and their articles of association.
  • There is a Ghanaian law for judging the conduct of directors
  • There is a set of clear guidelines which must be followed by all wishing to do business in Ghana.

In conclusion, there are no more ambiguities around the need for directors to act in the best interests of a company to preserve the company’s assets, further the business, and promote the purposes for which the company was formed.

>>the writer is an international chartered director and Africa’s first-ever appointed Professor Extraordinaire for Industrialisation and Supply Chain Governance. Independently recognised as one of the vertical specific global strategic thinkers on industrialization, supply and value chain governance and development, he continues to play leading academic and industrial roles in sectorial reforms both in Africa, and around the world. He is the CEO of PanAvest International and the founding non-executive chairman of MY-future YOUR-Future and OUR-Future (MYO) and the highly popular daily Nyansa Kasa series. For more information on COVID-19 updates and Nyansakasa visit www.myoglobal.org.

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