Types of Directors (part 3)

SHADOW, SUBSTITUTE&
ALTERNATE DIRECTORS

Shadow director

The shadow director, as the name suggests, is a director

lurking in the shadows. You may not see him, but he
plays a critical role in the decision-making process of
the company.

Section 170(2)(b) of the Companies Act defines a

shadow director as “a person, not being duly appointed
director of a company, on whose directions or
instructions the duly appointed directors are
accustomed to act.” The Companies Act makes it clear
that the shadow director is subject to the same duties
and liabilities of a director as if that person were a duly
appointed director of the company.

The various decisions of the court point to the fact that

the main reason for roping in shadow directors and
fixing them with liability is to make those who exercise
real decision-making power responsible for their actions
and not create a situation where they use the board of
directors as a smokescreen.

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There is an endless list of persons who can be
considered as shadow directors. It is always a
question of fact whether a person is indeed a shadow
director or not. The court often considers the position
of the individual involved and the real role that the
person has played or continues to play in the
decision-making process of the company. It is
important to note that a person does not become a
shadow director simply because the directors of a
company often act on the advice given by that person
in a professional way. In the case of Republic v
Ibrahim Adam & Anor (FT/MISC 2/2000), Afreh
JSC (as he then was) described former President Mills
as a shadow director of the Quality Grain Rice
Company. In the words the court: “From the
evidence, including the Professor’s own evidence, I do
not have any doubt that Prof. Mills often intervened
in and even ran the affairs of the Quality Grain
Company. He was in effect, what in company law is
called a ‘shadow director’… Such a director is subject
to the same duties and liabilities as if he were a duly
appointed director of the company.” The Court went
on to stress that the existence of a shadow director
does not relieve the duly appointed directors of their
obligations to the company.
Substitute director
A substitute director is a director who is appointed to
act to act as a deputy for another named director and
as the substitute in the absence of the director. A
close reading of section 180 of the Companies’ Act
suggests that the position of the substitute director is
a permanent one. The exact wording is “a company
may appoint substitute directors.”
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It is important to note that the substitute director is
not counted as a director for the purposes of the
official count of the number of directors that a
company has. So if in the constitution of a Company
A, a company cannot have more than five directors,
the substitute director is not counted for the purpose
of determining the minimum and the maximum
number of directors of the company.
The Companies Act considers the substitute director
as being one and the same as the substantive director.
In other words, the office of the substitute director
does not have an independent standing. Rather, it is
merely an appendage of the main director. So if by
mere happenstance, the substantive director and the
substitute director are present at the same meeting,
the substitute director shall not be counted for the
purposes of the meeting of any quorum requirement.
Also, a substitute director cannot vote at a meeting of
directors or committee of directors at which the
director for whom the substitute director represents is
present. It is worth pointing out that in the absence of
a substantive director, the substitute director is
considered as a full director and is to be appointed
and removed in the same way as a director of a
company. The Companies’ Act points out that a
substitute director does not stop being a substitute
director simply because the substantive director has
ceased to be a director. This point is another
confirmation of the fact that the position of the
substitute director is permanent.
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Alternate director

The Companies Act provides that except as otherwise provided in the constitution of the company,
a director may appoint another director or any other person approved by a resolution of the board
of directors as an alternate director. The distinctive thing about the alternate director’s position is
that it is for a limited period. To be more specific, the alternate director cannot act beyond six
months. Thus whiles in the case of a substitute director, no time limit are imposed on how long the
substitute director may act, that is not the case with respect to the alternate director. Another
distinctive thing about the position of the alternate director is that he or she is meant to take over
when a director is absent from the republic or unable for a reason to act as a director. The
alternate director is also a full director for the duration of his appointment. The alternate director
is not an agent of his appointor but rather an officer of the company. The alternate director is
excused from meeting any shareholding requirement even if the company’s constitution insists on
directors meeting any shareholding requirement. The alternate director is himself not entitled to
appoint another alternate director and is also not counted as a director for the purpose of meeting
any quorum requirement. since the alternate director stands in the stead of the main director, the
constitution of the company may provide that the main director’s salary is paid to the alternate
director. The alternate director’s appointment shall end with the expiration of the period for which
the appointment was made.