UPSA LAW SCHOOL

COMPANY LAW II

WEEK 3: DIRECTORS (Duties, Liabilities and Removal)

Lecturers: Godwin Adagewine, Richard Dua-Ansah and Gertrude Amorkor Amarh 1

 Outline
• Duties of Directors
• Liabilities of Directors
• Enforcement of Directors’ Duties
• Removal of Directors

Lecturers: Godwin Adagewine, Richard Dua-Ansah and Gertrude Amorkor Amarh 2

 Duties of Directors
• These are the things the law requires a director to either do or not do.
• According to section 190 of Act 992, a director of a company stands in a
fiduciary relationship towards the company. As a result, he shall observe the
utmost good faith towards the company in either a transaction with the company
or on its behalf.
• A fiduciary relationship is a relationship in which a person undertakes or is
deemed to undertake to act in the interest of another person.
• In Breen v. Williams, a fiduciary relationship was explained as one in which one
person comes under a duty to act in another person’s interest.

Lecturers: Godwin Adagewine, Richard Dua-Ansah and Gertrude Amorkor Amarh 3

 Duties of Directors
• 1. DUTY TO ACT IN THE UTMOST GOOD FAITH s 190
• To act in good faith means to act bona fide, meaning acting sincerely, honestly,
fairly, faithfully and loyally.
• This obligation to act in good faith arises from the nature of the relationship
between a director and the company. The director undertakes to act in the
interest of the company while the company relies on the director to be managed
well.
• There is therefore an element of trust and confidence between the company and
the director.
• Any conduct by a director either on behalf of the company or with the company
that shows bad faith or dishonesty constitutes a breach of the duty to act in
good faith. If the company suffers any loss as a result of such conduct by the
director, the director is liable to compensate the company for such loss.

Lecturers: Godwin Adagewine, Richard Dua-Ansah and Gertrude Amorkor Amarh 4

 Duties of Directors (2)
• If the director benefits personally from such conduct, the company will be
entitled to recover that benefit from him.
• The company may also rescind any transaction entered into between it and the
director who fails to act in good faith.
• 2. DUTY TO ACT IN THE BEST INTEREST OF THE COMPANY; s 190 (2) A
director is to act at all time in what he believes to be the best interest of the
company so as to preserve its assets, further its business and promote the
purpose for which it is formed.
• In doing so, he is required to act in a manner that a faithful, diligent, careful and
ordinarily skillful director will act in the circumstances in which the director finds
himself. This means that it is the directors honest judgement of the best interests
of the company that counts.
Lecturers: Godwin Adagewine, Richard Dua-Ansah and Gertrude Amorkor Amarh 5
 Duties of Directors (3)
• Also, in acting in what he believes to be the best interest of the company, he
shall have regard to:
• The likely consequences of any decision in the long term
• The impact of the operations of the company on the community and the environment
and;
• The desirability of the company maintaining a reputation for high standards of business
conduct.
• In considering whether the transaction or a course of action is in the best
interest of the company as a whole, section 190 (3) states that a director may
consider the interest of employees as well as members of the company. If that
director was appointed by a special class of members or employees or
creditors, he may give special but not exclusive consideration to that class.

Lecturers: Godwin Adagewine, Richard Dua-Ansah and Gertrude Amorkor Amarh 6

 Duties of Directors (4)
• The law does not impose an obligation on a director to consider these interests
but rather permits him to do so , depending on the circumstances of the
transaction.
• 3. DUTY NOT TO EXCEED POWERS; s 191 The Companies Act and the
constitution of a company confer various powers on directors and at the same
time impose limits on those powers. It is a duty of a director to act within the
limits of his powers and not to exceed his powers.
• When he acts beyond the limits on his powers in the Companies Act, that act is
ultra vires the Act. Similarly, when he acts beyond the limits imposed on him by
the constitution, that act is ultra vires the constitution.
• 4. Duty Not to Exercise the powers of director for an improper purpose – section
191. see Howard Smith v. Ampol Petroleum
Lecturers: Godwin Adagewine, Richard Dua-Ansah and Gertrude Amorkor Amarh 7
 Duties of Directors (5)
• S 191 provides that directors shall not without the approval of an ordinary
resolution of the company, exceed the powers conferred on the directors by the
Act, and the constitution of a company, or exercise those powers for a purpose
different from that which the powers were conferred.
• 5. DUTY TO AVOID CONFLICT OF DUTY AND INTEREST; Conflict may arise in
many ways; where a director has a personal interest in a matter, transaction or
contract in which the company also has the same interest.
• Also, where a director owes a duty to another person whose interests in a matter
conflicts with the directors duty to the company.
• A director must not place himself in a position in which his personal interest or
the interest of other persons may conflict with his duty to the company of which
he is the director.
Lecturers: Godwin Adagewine, Richard Dua-Ansah and Gertrude Amorkor Amarh 8
 Duties of Directors (6)
• The position of a director is not one of personal interest but one in which the
director pledges to undertake the best interest of the company. A director must
therefore, not personally benefit from his position as a director without the
consent of the company.
• In Commodore v. Fruit Supply Limited, a director of a company received money
meant for the company from a customer and deposited it in the accounts of his
private firm without accounting for it to the company.
• The CA held that his conduct was in violation of his duty to avoid conflict of
interest in his dealings as a director. A director who enters into a contract for the
company cannot derive any personal benefit from it without the consent of the
company.

Lecturers: Godwin Adagewine, Richard Dua-Ansah and Gertrude Amorkor Amarh 9

 Duties of Directors (7)
• 6. DUTY NOT TO USE CONFIDENTIAL INFORMATION OR SPECIAL KNOWLEDGE FOR
PERSONAL BENEFIT.
• 7. DUTY NOT TO COMPETE AGAINST THE COMPANY; Competing against a company
of which one is a director is inconsistent with the duty to pursue the best interest of the
company.
• Asafu-Adjaye v. Agyekum; A director of a company formed a new company with others
to carry on business which was in competition with that of the company he was director.
• The CA held that his conduct constitutes a breach of trust and contrary to the duties
imposed on directors to act in the best interest of the company.
• 8. DUTY TO DISCLOSE INTEREST IN A CONTRACT WITH THE COMPANY; Unless
otherwise provided for in the constitution of a company, a director of a company is
entitled to enter into a contract with the company on condition that he declares the
nature and extent of his interest in the contract to the company through its BOD.
• 9. DUTY NOT TO VOTE IN A MATTER IN WHICH A DIRECTOR HAS PERSONAL
INTEREST

Lecturers: Godwin Adagewine, Richard Dua-Ansah and Gertrude Amorkor Amarh 10

 Liabilities of Directors – s.199
• Liability in this context means the responsibility of directors to the law for
breaching their duties as directors.
• There are a number of civil liabilities imposed on Directors by the Companies
Act.
• LIABILITY TO COMPENSATE THE COMPANY FOR ANY LOSS SUFFERED BY THE
COMPANY AS A RESULT OF HIS BREACH OF HIS DUTIES
• LIABILITY TO ACCOUNT TO THE COMPANY
• ABILITY OF THE COMPANY TO RESCIND ANY TRANSACTION ENTERED INTO
BETWEEN A DIRECTOR AND THE COMPANY IN BREACH OF HIS DUTIES.

Lecturers: Godwin Adagewine, Richard Dua-Ansah and Gertrude Amorkor Amarh 11

 Enforcement of Directors Duties – s. 200
• The various processes by which directors are held responsible for breaching the
duties imposed on them by law.
• A member of the company or the company itself can institute legal action or other
proceedings to restrain a threatened breach by a director of his duties.
• Legal action may also be to recover from a director property of the company in his
possession.
• The action by a member must however be in a representative capacity under s 205
or by derivative action under s 201.
• Proceedings may be instituted by the company on the authority of the Board of
Directors or a receiver and manager or liquidator or
• an ordinary resolution of the company which shall either have been agreed to by all
members of the company entitled to attend and vote at a GM or have been passed
at a GM.
• After the investigations of the affairs of the company, proceedings may be instituted
by the Registrar in the name of the company.

Lecturers: Godwin Adagewine, Richard Dua-Ansah and Gertrude Amorkor Amarh 12

 Removal of Director
• A company may by ordinary resolution at any general meeting remove from
office all or any of the directors notwithstanding anything in its constitution or
in any agreement with any director.
• Section 176 regulates the removal of directors, and the procedure is
mandatory, in the absence of which the removal may be declared as invalid –
see Pinaman v. Abrokwaa
• See also the case of Adams v. Tandoh
• The procedure requires that 35 days notice of intention to remove be given,
and the usual minimum of 21 days notice of meeting is also applicable. The
affected director is also to be given opportunity to clear himself
• Different procedure for removal of Managing Director. They are removed by
the Board of Directors and not the general meeting. Section 192 and 193
Lecturers: Godwin Adagewine, Richard Dua-Ansah and Gertrude Amorkor Amarh 13
Lecturers: Godwin Adagewine, Richard Dua-Ansah and
14
Gertrude Amorkor Amarh