This feature sheds light on Directorship of Companies under the New Companies’ Act, 2019 (Act 992).
The high spate of recent bank failures, and the historic low shelf life of Ghanaian businesses has thrown into sharp focus the role of individuals and agents in these failures. The need to hold these individuals accountable and cause them to act more responsibly and in the best interest of the company is one of the themes in the new Companies’ Act 2019 (Act 992).
So my question to you is: Do you manage a company or an SME? Are you a director? Have you ever been a director of a company that has gone insolvent ? If you answer yes to any of these, then I’ve got news for you.
Definition of a Director
First, Section 170(1) of the new Companies’ Act 2019, defines directors as a persons who have been appointed to direct and administer the business of the Company. In spite of the requirement in Section 170 (1) that a director must be “appointed”, Act 992 extends the director tag to also include a person who holds himself out as being a director of a company. To that extent, the “un-appointed director” is also subject to the same duties and liabilities as if that person was appointed as a director of the company.
At this point, it is worth mentioning that there is a growing practice of companies giving out “directorship roles” to persons who are not necessarily directors and do not sit on the board of directors. Example of such fancy designations include “director of transport”; “director of external relations” and “director of investments”. Companies must understand that these designations may come with consequences and implications for the company and for the individuals to whom these honors are extended.
Two Directors
Secondly, in the new Companies’ Act 2019, every company should have at least two (2) directors. All the directors must not necessarily be resident in Ghana. The law simply requires that one (1) of the directors must be ordinarily resident in Ghana. It is therefore an offence for a company to carry on business with less than two (2) directors, for more than four (4) weeks.
If this happens, the company, the director and each member of the company will be fined an administrative penalty of twenty-five (25) penalty units (GHS 300) for each day during which the company carries on business without having at least two (2) directors. Further, each director and every member of the company who is aware that the company is carrying on business with less than two (2) directors would be jointly and severally liable for any debts or liabilities of the company incurred during that period.
What does it take to become a director?
Having dealt with who a director is and the number of directors a company must have (and the consequences of not complying with the minimum number of directors’ requirement), the next question is – what does it take to become a director? And the answer is simple – a whole lot.
Pre-Appointment formalities
Before a person is appointed as a director, that person must go through some pre-appointment formalities. First, the person has to make a statutory declaration (what many people erroneously refer to as an affidavit). In the statutory declaration, the person to be appointment must make a number of declarations. These declarations include a statement to the effect that he or she during the last five (5) years before the incorporation of the company, has not:
- been charged or convicted of an offense involving dishonesty or fraud
- charged or convicted of a criminal offence relating to the promotion, incorporation of management of a company
- been a director or a manager of a company that has become insolvent or if the person has been, the date of the insolvency and the particular company
- consented to act as a director and filed the consent within twenty eight (28) days of appointment
A copy of the statutory declaration must be first placed with the company and subsequently with the Registrar of Companies. It is worth mentioning that directors not required to be members or shareholders of the companies on whose boards they act.
What do directors do?
The director of a company stands in a fiduciary relationship with the company. This means that the director hold a position of trust and confidence and as a result, the director is under an obligation to act solely in the company’s interest. By extension, the director must (a) act in utmost good faith in relation to the company at all times and (b) always act in what he believes to be the best interest of the company. In more specific terms, the directors should act in order to preserve the company’s assets , further the business and promote the purposes for which the company was formed in a manner that a faithful, diligent, careful and ordinary skilled director would act in the circumstances. Also in the new Companies’ Act 2019, a director is prohibited from taking the assets of the company for their personal use or benefit.
According to the new Companies’ Act 2019, Directors should avoid all conflict of interest situation; and where that is not possible, the directors must disclose all such interests in the company that is likely to create a conflict of interest between the directors role and the company.
Who cannot be a director?
Act 992 (like its predecessor the Companies Act, 1963 (Act 179) has a relatively long list of disqualification criteria. For instance, a person cannot hold office as a director of a company, if:
- the person is convicted of an offence involving fraud or dishonesty;
- the person is convicted of an offence in connection with the promotion, formation or management of a body corporate
- it appears that the person may have been guilty of a criminal offence whether they were convicted of one 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 a disciplinary action;
- there is an ongoing criminal investigation in which the person is involved
Note that with the criteria under (c), one does not need to be convicted of a criminal offense. It appears that the mere implication or appearance of a person commiting an offence (irrespective of the outcome of a criminal trial) is enough to disqualify a person as a director.
Further, an individual is also automatically disqualified from acting as a director where the individual;
- has been convicted within the last five (5) years of an offence involving dishonesty, fraud or relating to the promotion, formation and running of a company;
- has been the director or a senior executive of a company that became insolvent within the past five (5) years on account of or partly as a result of the culpable activities of that director; or
- has been disqualified to act as Company Secretary, receiver, manager or liquidator of a company.
A Convicted Person
In the case of a person convicted for an offence involving dishonesty or fraud in relation to the incorporation, formation or running of a company, when such a person is convicted for a second time, the person is automatically disqualified from acting as a director or senior manager for a period of ten (10) years. A third conviction results in a permanent disqualification.
It is important to note that a person previously disqualified from acting as a director may seek leave of court to act in the role as a director (S 177(9)) before the expiration of the disqualification period.
Interestingly, a person who is disqualified from acting as a director should disclose his disqualification to the Boards and the Company Secretary in writing or may be liable on summary conviction to a fine between 500 penalty units (6000ghs) and 1000 penalty units (12,000 ghs) or a term of imprisonment of not less than two (2) years.
Directors Involved in Contract – An Interests Register
A common issue which comes up in corporate governance is what do to about situations where directors and senior management of companies partake in contracts which involve the companies whom they serve. In the new Companies’ Act 2019, Act 992, directors should declare the nature and extent of all interests they may have in contracts involving the company. This should be in a meeting of directors and to be neither present or vote in a matter in which the director is interested. This requirement to disclose the interests of a director in contracts involving the company would go a long way to reduce losses made by companies in respect of contracts entered into with directors and other related parties.
Act 992 further requires companies to maintain an “Interests Register” which contains all directors’ interests in the company and in contracts involving the company. The Interests Register is to be available for inspection at least two (2) hours each day and also during company meetings. Failure of a director to declare and register their interests in the affairs of a company would amount to a criminal offense punishable upon summary conviction to a fine between 250 penalty units (GHS 3000) and 500 hundred penalty units (GHS 6000).
Conclusion
From the above discussion, we can safely draw the following conclusions: (a) directors play a critical role in the success of a business; (b) Act 992 recognizes this significant role played by directors; (c) in view of the crucial role that directors play, there is recognition of the need to hold them to a high level degree of accountability; (d) only men and women of high integrity can bear the tag of directors; and (e) Act 922 aims at shining the torch on every conduct of the director in order to ensure that transparency is the order of the day.
Disclaimer: While we have made every effort to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer. An earlier version of this publication was published on www.ghanatalksbusiness.com
- Audrey is a qualified lawyer, and the managing partner of AudreyGrey, a legal, tax and compliance firm in Accra. A member of the Ghana Bar Association, her areas of expertise are corporate and commercial law, taxation, labour and insolvency law. She has previously worked as an associate at PricewaterhouseCoopers (Gh) Ltd and a law firm N Dowuona and Co in Accra. She is a member of and serves as the legal advisor to the Ghana Association of Restructuring and Insolvency Advisors (GARIA) where she assisted with drafting and policy formulation for the new Companies Act and Corporate Insolvency Bill. An experienced Chartered Accountant and a member of the Association of Chartered Certified Accountants, ACCA (UK) and the Institute of Chartered Accountants, Ghana (ICAG). She is currently pursuing the Chartered Institute of Taxation (CIT) certification.
Contact : Tel: 0302913994, 0244631938, Email : info@audreygrey.co
Web : www.audreygrey.co
