5-Directors of A Co

CHAPTER FIVE: Company Directors (PART VIII)
5.1Appointment
 S. 162(2) - a registered (public) company must have a minimum of

3 directors but no maximum specified.
 A private company may have at least one director – s162(1)
 The penalty for carrying on business with less than the required
number of directors
(i) : s163 – must comply with directions of the Registrar
not later than 3 months from issuing of the said
directions
(ii) Every officer and the company will be liable to a fine in
accordance with the prevailing schedule of penalties;
 First directors are usually appointed by the subscribers to the memo.

 Appointment of additional directors may be left to the board of
directors (but the G.M. still maintains the power to appoint and
dismiss).
 Normally, the articles will provide that all first directors should retire at
the company’s first AGM and that one third of them must also vacate
their posts at every subsequent AGM. The retired directors can be re-
elected.
Definition of director: .
S158 under the New Act
Eligibility for Appointment (s164)

The following are ineligible:
1. A body corporate (can be a member though), except in the
case of a state owned company
2. Infant/Minors (below 18)
3. Person under Legal disability (is of unsound mind)
4. Prohibited from being a promoter or director or to be
concerned with management of the company
5. Persons over the age of 70 (subject to s169 – a person may
be appointed or re-appointed as director of a public company
to hold office until the next annual meeting);
COMPANY LAW for PAEC students BYALLAN HANS MUHOME LLB (HONS) MW 48
Lecturer in Law Courses
6. Disqualified in terms of provisions in the company’s
constitution
7. An undischarged bankrupt
Any such person prohibited from being appointed as director

but acts as such, shall be deemed to be a director for the
purposes of those sections that impose a duty or an obligation
on a director
Shareholders or creditors of a company may apply to court for

appointment of directors where it is not possible or
impracticable to do so in terms of the company’s constitution, or
where there are no directors or the number falls below the
number necessary to form a quorum for a Board meeting – s167
A director must consent to the appointment in writing, and

certify that he is not disqualified from being appointed or
holding office as a director in terms of the Act (s165).
Residential requirements (s162)

A company shall have at least one director ordinarily resident in
Malawi.
Share Qualification
 As a general rule, there is no need for a director to hold a
share in the company. However, if articles require a director
to hold a certain number of shares, he must acquire them
within 2 months of his appointment.
 If he fails to do so, he must vacate his office and cannot be
re-appointed.
 Where the share is required to be held in the director’s own
right he does not become a director until his name is
registered in the register of members.
5.2Types of directors
1. Directors (Real/Actual) those properly appointed in the GM
2. Alternate Directors
S.147 (1) (alternate directors provided for in s158 of New Act)
allows a director (if not prohibited by AOA) to appoint another
person (or a fellow director) as an alternate director. An alternate
director acts when the director (appointor) is outside Malawi or
is unable to act for whatever reason
An alternate director acts as an officer of the company and not

as an agent of his appointor. However:
- he cannot himself appoint an alternate director;
- Nor is he required to hold shares in the company.
The company cannot pay remuneration to both the alternate

director and his appointor.
3. Casual Directors – fill a casual vacancy that arises between

General Meetings because of death or resignation of a director.
4. Shadow Directors – these are persons in accordance with whose

instructions the directors are accustomed to act. They exert “real
influence” over the company’s affairs. Professional advisers acting
in that capacity are exempt from being shadow directors.
5.3Register of directors (s.174)
A company must keep a register of directors, excluding alternate

directors, and secretaries at the registered office.
Contents (but not limited to these)

1. present names of the director;
2. former names of the director;
3. residential and postal address;
4. business occupation, if any.
A company and any of its officers in default of any of the

provisions in regard to such a register, shall be liable to a fine
5.4Director’s powers of management and their limits
A. Powers of Management
It is usual that powers of management will be restricted to
directors and the GM will not be allowed to exercise that power
or instruct directors on how to exercise it. (Article 53 of Table A).
John Shaw & Sons Ltd vs Shaw [1935]
General power of the company’s management had been
delegated by the articles to the directors. The GM passed a
resolution stopping certain Court proceedings instituted by the
directors in the company’s name. Held a company is an entity
distinct alike from its shareholders and its directors; some of its
powers may, according to its Articles, be exercised by directors;
certain other powers may be reserved for the shareholders in
GM’s. If powers of management are vested in the directors, they
and they alone can exercise these powers.
Powers of management for directors are extensive under the

Companies Act but below are specific examples:-
1. borrow money, issue debentures and charge company

property as security for the loan;
2. determine how negotiable instruments and receipts for
money paid to the company are to be executed;
3. appoint other directors;
4. pay interim dividends;
5. appoint the managing director;
6. ensure that accounting records are kept and that accounts
are prepared and laid before the company in a GM;
7. delegate their powers to committees of directors or the
managing director;
8. issue shares and determine the rights and restrictions
which may be attached to them;
9. convene general meetings.
B. Limits on Director’s Powers
Can be statutory limits or those under the common law.
(i) Directors powers are subject to the Companies Act and

its Articles;
For instance, issuing of shares is subject to the Act and
any resolutions of the company.
Directors cannot do any of the following without the
sanction of an ordinary resolution of the company:-
a. sell or lease the whole of or substantial part of the

company’s business or property;
b. issue new or unissued shares in the company;
c. create or grant any right or option which entitles
the holder to acquire any class of shares in the
company.
(ii) Common Law

(a) If directors exercise their powers in an unfair way,
those who are adversely affected can sue.
(b) Directors’ powers of management are conferred on

the directors collectively as a board. This means that
the powers will be exercisable at board meetings of
which appropriate notice has been given and at
which a quorum is present.
Metalimpex vs AG Leventis & Co. Ltd

The company’s board of directors had power to
indorse and deal with bills of exchange. A single
director indorsed a bill of exchange which the
company failed to pay. The Plaintiff sued the
company for the failure to pay. Held that powers
were given to the board and not a single or group of
directors – company therefore not liable. (NB the
director could be sued directly).
(c) The company in general meetings has the residuary

power to exercise director’s powers of management if
they are unable or unwilling to exercise the powers.
Barron vs Potter [1914]

Company’s articles gave the board of directors power
to appoint an additional director. However, because
of personal differences between existing directors, the
board could not meet to make the appointment,
consequently, the company in a general meeting
appointed the director. Held that the appointment
was valid.
NB. The company through the General Meeting maintains ultimate control
over directors coz of its power over their tenure of office (it is the GM that
appoints and dismisses the directors – even all at once).
5.5Duties of directors (s176-182)
A Duty to act within powers

This is the duty requiring the director to act in accordance with the
company’s constitution and to exercise his powers for the purposes for
which they were conferred.
B Duty to promote the success of the company

He must act in good faith and in a way that will benefit the company
and its members. Decisions taken must aim at fostering good
relationships with customers, suppliers, etc and also to promote
fairness between members of the company. However, this duty is
subject to any law requiring the company, in certain instances, to act in
the best interests of creditors.
C Duty to exercise independent judgement

This duty will not be infringed where the director is acting in
accordance with an agreement entered into by the company that
restricts the future exercise of discretion by the director.
D Duty to exercise reasonable care, skill and diligence

Under this duty the skill, knowledge and skill reasonably expected of a
person carrying out the duties of a director, as well as the actual
knowledge, skill and experience that the director in question, are taken
into account to judge if this duty has been fulfilled.
E Duty to avoid conflict of interest

This duty does in apply in the following in the case of a conflict of
interest arising in the case of a transaction or arrangement between the
director and the company.
The duty is not infringed in the following instances:
i. The situation cannot reasonably be regarded as one likely to
give rise to a conflict of interest
ii. The matter has been authorised by the directors
F Duty not to accept benefits from third parties

A director should not receive any benefits from third parties (i.e. people
in no way associated with the company) by virtue of being a director or
his doing or not doing anything as a director.
Benefits received by directors will not be in breach of this duty if they
cannot reasonably be regarded as likely to give rise to a conflict of
interest or duties.
G Duty to declare interest in a proposed transaction or arrangement

Before entering into such a transaction or arrangement, any such
director must declare his interest if it is likely to give rise to a conflict
of interests. Such declaration must be accurate and truthful; it can be
done either at a meeting of directors or by way of a notification in
writing.
He need not declare an interest that the other directors are aware of or
of which they may reasonably be deemed to be aware of.
H Duty to comply with the prescribed code of corporate governance

in Malawi
Such code is only directory in nature, but courts or the Registrar may
have regard to it in the application of any of the provisions under the
Act
S.140 imposes several duties on directors and those who hold themselves out
as directors. The duties are threefold;
(a) The duty of care and skill
(b) Fiduciary duties
(c) Duty to act in conformity with the articles and memo.
A. The Duty of Care and Skill

Per Romer J. Re City Equitable Fire Insurance Co. Ltd [1901]
1. A director will not be in breach of this duty for mere error of

Judgement.
In the performance of his functions, a director need not exhibit a
greater degree of skill than may reasonably be expected from a
person of his own knowledge and experience. For instance if an
accountant /lawyer to exhibit skills of an average
accountant/lawyer of his experience.
Re Brazilian Rubber Plantations & Estate Ltd

A company was formed with the object of purchasing rubber
estates. Its directors knew nothing about rubber estates though
they were informed that statements made about an estate which
they intended to buy were untrue. They still went ahead to
purchase the estate. They were sued when the company was
wound up. Held that the directors were not liable for the breach.
They did not have special knowledge on rubber estates therefore
they could not be expected to show skills of an “expert”.
2. A director is not bound to give continuous attention to the

affairs of his company. His duties are of an intermittent nature to
be performed at periodical board meeting (except the managing
director)
3. In the absence of grounds of suspicion, a director is justified in

trusting management to perform functions which, having regard
to the exigencies of business and the company’s articles, may
properly be left to them, and in accepting the information which
they provide, as long as they appear to be honest and
competent.
Dovey vs Cory [1901]

A director of a bank agreed to payment of dividends relying on
the information and advice of the company’s chairman and
general manager. Held not liable in negligence for assenting to
the irregularities because his reliance on these 2 persons was
reasonable.
B. Fiduciary Duties
Who is a fiduciary? One who acts for the benefit of another.
I. Directors must display utmost good faith towards the
company as a whole.
II. Powers must be exercised for the purpose for which they
were conferred and bona fide for the benefit of the company
as a whole.
(Cases on points I and II)

Re W & M Roith Ltd [1967]
A shareholder and director entered into a contract whereby on
his death his wife would be entitled to a pension for life. Held
the contract was not in the interest of the company as a whole
(sole object was to provide for the widow therefore agreement
not binding on the company)
Howard Smith Ltd vs Ampol Petroleum Ltd

- A majority shareholder rejected a takeover bid;
- The directors honestly believed that the takeover was in
the interest of the company;
- They allotted new shares to individuals who favoured the
bid so that the majority should change.
Held directors used their power over the company’s shares

purely for the purpose of destroying an existing majority or
creating a new majority which did not previously exist, the
allotment was void.
III. A director must not let his personal interest conflict with the
interest of the company; he must therefore declare any personal
interest. Consequences;
1. No secret profit
Boston Deep Sea Fishing Co. Ltd vs Ansell [1888]
A director was paid a secret commission for entering into
a contract on behalf of a company. Held he must account
to the company for the commission.
2. A director must disclose his interest in a contract

A director must account for the opportunity, profit or
property he obtains for himself behind the back of the
company.
Industrial Development Consultants Ltd vs Cooley
[1972]
A director resigned in order to clinch a contract for
himself for the supply of gas to the company from which
he resigned. He got the contract. Held he should account
for the benefit made under the contract to the company.
 Where a director discloses his interest, the contract is

voidable. (void – of no effect) (voidable – company
has option of cancelling the contract)
 S.150 (5) – after disclosure the director should not
take part in the vote (unless the Articles allow the
same.)
Re Greymouth Point Elizabeth Railway & Coal Co.

Two directors advanced money to their company. A
meeting was arranged to decide whether to issue
debentures in their favour. The meeting was attended by
the 2 directors and another director and they issued the
debentures. Held there was no quorum – resolution
invalid. Director not to vote if interested.
3. Rule against inside dealings - directors must not

exploit information which they have on the Company’s
debentures and shares for their benefit. Diamond vs
Oreamuno [1969] – US Realising that their company’s
profit had fallen drastically, directors sold their shares on
the market at $28 a share, before the fall was made
public. Subsequently, the value of the shares dropped to
$11 per share. Held although the company had suffered
no loss from the directors’ conduct, they were liable to
account to it the difference between $28 and $11 per
share (i.e. $17).
NB. Further, under the Capital Market Development Act

1990 company directors are prohibited from abusing
information.
Summary of the rule against inside dealing
If a director has got inside information on his company’s
securities (shares, debentures, bonds, stocks), he must
disclose that information to the purchaser or seller of the
securities, if he initiates the purchase or sale of the
securities. However, if the securities are traded publicly on
the stock market, he cannot buy or sell them until the
information is made public.
C. The duty to act in conformity with the articles & memorandum

S.22 (1) prohibits a company from carrying on any business or
exercise any power which the company is restricted by its articles
or memo. Directors, in their management must abide by the
memo and the articles. See - later- Royal British Bank vs
Turquand [1856] [Turquands Case]
Directors could borrow money after authorisation by the GM.
The directors borrowed money from the Plaintiff bank without
authority. Held clearly what the directors did was inconsistent
with the constitution of the company but for other reasons the
company was held to be bound to repay the loan (reasons later).
5.6 Directors’ remuneration
 Directors are not employees of the company and so they are not
entitled to a salary like the employees;
 Directors are managers and controllers – they are entitled to
remuneration as decided from time to time by the General Meeting
(if no decision is made, they are not entitled to anything)
 Company not under legal obligation to disclose directors
remuneration in its annual financial accounts, instead a note is
attached to the accounts indicating the aggregate amount of the
director’s emoluments and pensions. The aggregate should include
fees, expenses, allowances, salaries, interests and sums paid under
pension.
Other payments to directors

(i) Payments for loss of office
Where there is a service agreement between the company
and the director, the director is entitled to compensation
for loss of his directorship.
(ii) Payments in connection with take-over bids
Where there is an offer for the acquisition of a company’s
shares and payment is made to directors or shareholders
this must be disclosed otherwise the law will treat it as a
secret profit.
5.7Remedies against directors
Where a director breaches any of the above duties:

1. he may be ordered to account for the profit [section 150 (1)];
2. he may be ordered to indemnify the company [section 151(5)];
3. if the breach involves sale of shares, the buyer or seller who is
victimised may rescind (cancel) the contract [section 152 (1)];
4. the company may obtain an injunction against the director’s
breach
5. the director be ordered to pay a fine/imprisonment
NB- The company cannot through its constitution, exempt its director’s
(auditor’s) from liability or take out an insurance policy to cover their
liabilities. (why?)
5.8Loans to directors
General rule under S.151 (1) –it is unlawful for a company

(a) to lend money to its directors;
(b) to guarantee or give security for a loan in favour of a director;
(c) lend money to other companies.
Exceptions:
(i) a company may grant a loan to its subsidiary or holding
company;
(ii) a company in the business of lending money can lend money
to its directors (e.g. commercial banks);
(iii) any company can lend money to its directors to meet
expenses incurred by them for the purposes of the company
but this must be approved by the GM.
5.9 The board of directors

As discussed powers of management are conferred to the directors as
a board and not individually. (See: Metalimpex vs AG Leventis & Co.
Ltd on ‘limits on directors powers of management’).
(a) Conduct of Board Meetings

Each company provides regulations under its AOA subject to the
following rules:-
(1) Every director can summon a board meeting at any time;
(2) It is unnecessary to give notice to a director who is absent
from Malawi;
(3) Decisions are arrived at by a simple majority;
(4) The chairman holds the casting vote;
(5) Quorum is 2 directors unless increased.
NB. Where directors are unable to meet, for whatever reasons, the
company secretary may prepare a resolution in lieu of a meeting.
(see chapter 4 for conditions)
(b) Chairperson
 the board elects a chairperson for a specific period;
 If the chairperson is absent and 5 minutes elapse, any
director can be chosen to chair the meet.
(c) The Managing Director

 Directors may appoint a managing director from their
group and set conditions of his appointment (he is both a
director and an employee);
 Not subject to retirement by rotation (later);
 Directors may delegate their duties to the managing
director
5.10 Termination of appointment

(Cessation/ vacation of office)
1. Removal from Office by the company (GM)

S.146 (1) allows a company to remove from office all or any of its
directors. This means that despite any provision in the articles or
service agreement e.g. for a director to serve for a certain period,
the company can still more remove him from office before the
expiry of that period. However, where the removal breaches a
service agreement the director is entitled to compensation. The
removal must be sanctioned by an ordinary resolution.
Procedure:
(a) Special notice of such resolution must be given to the
company 35 days before the meet;
(b) A copy of the notice must be given to the director
concerned;
(c) The director must be allowed to speak at the GM or
make written representations i.e. defend himself – right
to be heard;
(d) no weighted voting is allowed (i.e. giving the director
more votes on a share. This is prohibited by the Act).
2. Removal from Office by the court- removal from an office of trust

on account of misconduct (S. 145)
3. Removal from Office by the court- where the director is adjudged

bankrupt (S. 145)
4. Insanity- Where the director becomes insane (S. 145)
5. Retirement
a. All 1st directors must retire at the company’s first General
Meeting (why?)
b. A 3rd of them must retire at every AGM (managing director
excluded). This is called retirement by rotation; the retired
directors are however eligible for re-appointment.
c. Through S.144 – if a director does not hold the specified
number or shares after appointment within 2 months;
6. Resignation.
CHAPTER FIVE: Company Directors
(A selection of non-factual past questions)
-----------------------------------------------------------------------------------
1. Who is a director? (4 marks- Dec 2003, Dec 2006 & Dec 2007)
2. Describe the duties of a director. (10 marks- Dec 2006)
3. What is the position of directors in relation to the company? (5 marks-
Dec 2002 & Dec 2004)
4. Outline the nature and extent of the common law duties that a director
of a company owes to a company as outlined in the case of Re City
Equitable Fire Insurance Co. (8 marks- June 2001)
5. Outline the three most important fiduciary duties of a director (6
marks- June 2005)
6. Mention four categories of persons that are not eligible for
appointment as directors of a company (4 marks- June 2001, Dec 2003,
June 2005, Dec 2006 & June 2007)
7. State two circumstances under which a director of a company may
cease to hold the office of a director. (2 marks- Dec 2003, Dec 2006)
8. Under what circumstances would a person be disqualified from acting
as a director (4 marks- Dec 2001)
9. How can a director of a company be removed from office? (2 marks-
June 2001 & June 2007)
10. What procedure is to be followed in removing a director? (8 marks-
June 2004, Dec 2004, Dec 2005, Dec2006 & June 2007)
11. Explain by giving four examples how the law provides for remedies for
directors’ breach of duty to the company (4 marks- Dec 2000, June
2005)
12. What is the position of the managing director in relation to the
company? (4 marks- Dec 2001)
13. What distinguishes a managing director from the other directors? (June
2009)
14. Define the following
(i) Casual Director (4 marks- Dec 2002, Dec 2004 & June 2009)
(ii) Alternate Director (4 marks- Dec 2002, Dec 2004 & June
2009)
(iii) Shadow Director (4 marks- Dec 2002, Dec 2004 & June 2009)
15. What is the prescribed minimum number of directors a company may
have? (5 marks- Dec 2002, Dec 2004, June 2007 & June 2009)
16. What is the penalty stipulated for carrying on a business with less than
the statutory minimum number of directors (1.5 marks- Dec 2007)

5-Directors of A Co

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CHAPTER FIVE: Company Directors (PART VIII)

 S. 162(2) - a registered (public) company must have a minimum of

 First directors are usually appointed by the subscribers to the memo.

S158 under the New Act

Eligibility for Appointment (s164)

Any such person prohibited from being appointed as director

Shareholders or creditors of a company may apply to court for

A director must consent to the appointment in writing, and

Residential requirements (s162)

1. Directors (Real/Actual) those properly appointed in the GM

An alternate director acts as an officer of the company and not

The company cannot pay remuneration to both the alternate

3. Casual Directors – fill a casual vacancy that arises between

4. Shadow Directors – these are persons in accordance with whose

5.3Register of directors (s.174)

A company must keep a register of directors, excluding alternate

Contents (but not limited to these)

A company and any of its officers in default of any of the

5.4Director’s powers of management and their limits

Powers of management for directors are extensive under the

1. borrow money, issue debentures and charge company

B. Limits on Director’s Powers

Can be statutory limits or those under the common law.

(i) Directors powers are subject to the Companies Act and

a. sell or lease the whole of or substantial part of the

(ii) Common Law

(b) Directors’ powers of management are conferred on

Metalimpex vs AG Leventis & Co. Ltd

(c) The company in general meetings has the residuary

Barron vs Potter [1914]

5.5Duties of directors (s176-182)

A Duty to act within powers

B Duty to promote the success of the company

C Duty to exercise independent judgement

D Duty to exercise reasonable care, skill and diligence

E Duty to avoid conflict of interest

F Duty not to accept benefits from third parties

G Duty to declare interest in a proposed transaction or arrangement

H Duty to comply with the prescribed code of corporate governance

A. The Duty of Care and Skill

1. A director will not be in breach of this duty for mere error of

Re Brazilian Rubber Plantations & Estate Ltd

2. A director is not bound to give continuous attention to the

3. In the absence of grounds of suspicion, a director is justified in

Dovey vs Cory [1901]

(Cases on points I and II)

Howard Smith Ltd vs Ampol Petroleum Ltd

Held directors used their power over the company’s shares

2. A director must disclose his interest in a contract

 Where a director discloses his interest, the contract is

Re Greymouth Point Elizabeth Railway & Coal Co.

3. Rule against inside dealings - directors must not

NB. Further, under the Capital Market Development Act

Summary of the rule against inside dealing

C. The duty to act in conformity with the articles & memorandum

5.6 Directors’ remuneration

Other payments to directors

5.7Remedies against directors

Where a director breaches any of the above duties:

General rule under S.151 (1) –it is unlawful for a company

5.9 The board of directors

(a) Conduct of Board Meetings

(c) The Managing Director