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Legal Test for a Valid Board of Directors’ Resolution under Nigerian Law
The Board of Directors (“the Board”) is a group of individuals, elected by the shareholders or the Directors themselves with a mandate to establish policies for corporate governance and management of the company.
It is the decision making arm of the company which ensures that resolutions of the shareholders are executed. The Board carries out oversight of the company and executes its functions through its resolutions reached in meetings convened as provided by the law or the company’s articles of association (“the articles”).
The provisions of Nigerian Companies and Allied Matters Act (“the CAMA”) envisages that every company, whether private or public must have a Board of Directors (“Board”). This is why the CAMA provides that every company must have at least 2 (two) directors. In order for Board resolutions to be valid it must pass the legal test as provided under the CAMA. The legal test includes;
(a) Notice of Meetings
Section 266 of the CAMA provides that every director shall be entitled to receive notice of director’s meeting, unless he is disqualified by any reason under the CAMA or at the material time the director was absent from Nigeria and has not provided an address in Nigeria for service of the notice on him.
Directors are entitled to a 14 days’ notice in writing of a meeting except the articles provides otherwise. Failure to give notice of a director’s meeting invalidates the meeting and the resolutions reached at the meeting.
In the case of Longe v FBN (2010) (Pt. 1189) 1 SC, the Nigerian Supreme Court held that further to Section 266 of the CAMA, the removal of a Managing Director of the Bank was unlawful because he was not given notice of the Board meeting in which he was removed.
(b) Written Board Resolution
Section 263 (8) of the CAMA provides that a resolution in writing signed by all the directors entitled to notice shall be valid and effective as if it was passed at a meeting of directors duly convened and held.
This means a written resolution of the Board which is not signed by all the directors entitled to receive notice of Board meetings is invalid.
(c) Lack of Quorum
Section 264 of the CAMA provides that except the articles states otherwise, the quorum necessary for the transaction of directors shall be 2 (two) where there are not more than 6 (six) directors, but where there are more than 6 (six) directors, the quorum shall be one third of the number of directors and where the numbers of directors is not a multiple of 3 (three), then the quorum shall be one-third to the nearest number.
A Board resolution reached in a meeting without the requisite quorum stipulated in the CAMA or the company’s articles is invalid.
(d) Acting without Authority
The import of Section 66 (1) of the CAMA is that acts of a director are not deemed to be that of the company if he acted without the express or implied authority of the Board of directors. However, the Board of directors may ratify the acts done by the director without prior authorization.
A director is personally liable for actions done without Board’s authority or ratification.
(e) Breach of Fiduciary
Section 282 of the CAMA provides that directors are trustees of the company’s moneys, properties and powers. They shall exercise their powers honestly in the interest of the company and all shareholders and not in their own sectional interests.
A director opens up itself to litigation and personal liability if he acts for his own interest against the interests of the company or its shareholders.
(f) Improper Resolution
The CAMA provides instances where the Board would carry out its functions by an ordinary resolution or by special resolution. The Board’s business would be invalid if it passes an ordinary resolution for a business which requires special resolution and vice versa.
Article supplied by Fred-young & Evans LP