Company Law Past Questions and Answers

COMPANY LAW PAST QUESTIONS AND ANSWERS
1. (a) Following the recent Central Bank of Nigeria directive on capitalization of Banks, so
many Banks have moved into the Capital market, selling shares to the Public. Briefly explain
the nature of such shares and the shareholders’ interest in the Banks.
(b) OPEC Bank Ltd, Uturu Bank Ltd, Oil Bank Ltd and 2 other Banks are engaged in talks to
pull together resources together to meet the N 25 Billion new capital base required. In the
process of reconciliation of records and account, it was discovered
(i) That OPEC Bank Ltd (OBL) has only one Director, Hussien a Lebanese, whose shares in
the Bank entitles him to 2 votes per share during meetings. This has been the position since
1990 when the Nigerian Director, Odumodu died.
(ii) That Ogbuoge who claims to be a shareholder of OBL, does not have his name on the
Register of members. The Director refused to register a transfer to Ogbuoge from
Odumodu’s children.
(iii) That Uturu Bank Ltd, through her Director Mallam Gusan donated N 1 million to a
political party during the last elections.
(iv) That Oil Bank Plc since incorporation in 2001 has not held any general meeting because
it has no Company Secretary.
(v) That the Directors of Oil Bank had subscribed for all the shares of its subsidiary, Oil
Insurance Ltd to raise capital for the Bank. The Directors now want to sell part of these
shares to the proposed new Directors at N 5.00 per share. They bought the shares at the
rate of N 1.00 per share.
Advice the parties
ANSWER
(A)A share by Section 567 of CAMA Cap C20 LFN 2004 is defined as “the interest in a company’s
share capital of a member who is entitled to share in the capital of such company; and except where
a distinction between stock and shares is expressed or implied, includes stock.”
Farwell J. in Borland’s Trustees vs. Steel Bros Co Ltd earlier provided the classical definition of
shares as follows: “a share may be described as the legal interest of a shareholder in the
authorized and issued capital of a company measured by a sum of money for the purpose of liability
in the first place, and of participation in the second place.”
A share in a company is the expression of a proprietary relationship. The shareholder is a

proportionate owner of the company although he does not own the company’s assets, the company
being a distinct and independent legal entity.
A share is a chose in action, it is personal and not real property, akin to money or goods and is a
property transferable as provided in the articles of association (Section 115). See the case of
Okoya v. Santili.
The assets of the company are owned by the company. The members do not have a legal or equitable
interest in them (Macaura v. Northern Assurance) and although share capital is in a sense a
liability, it is not in the nature of a debt owned by the company, and on winding up, the shareholders
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will receive what is left, if anything, after the payment of the company’s debts and liabilities.
Shares are personal estates and not real estates. They are therefore in the same category of
money or goods.
Section 114 of CAMA stipulates that the rights and liabilities attaching to shares of a company
depend on the terms of issue and of the company’s articles, but that notwithstanding anything to
the contrary in the terms or in the articles, the rights will include that of attending any general
meeting of the company and voting at the meeting. In other words this is the most important right
attached to shares and cannot be derogated from. This is possibly what Farwell J. described as
“right of participation” in his classical definition of shares in Borland’s Trustees.
The definition of shares as we have seen is in terms of interests. This means that the shareholders
are entitled to a bundle of rights and also limited by implied liabilities. The rights of shareholders
generally include:
(a) The right to dividends Section 385 CAMA.

(b) The right to attend and vote at meetings Sections 114, 227.
(c) The right to participate in distribution of company’s assets upon winding up.
(d) The right to receive notice of general meetings Section 219.
(e) The right to inspect obtain copies of minutes of general meetings.
(f) The right to receive copies of memorandum of association and articles of association and of
every balance sheet to be laid before the general meeting.
(g) The right to petition for winding up.
(B) The fact of the case above borders on the Reconstruction and Merger of Companies. This
procedure is regulated by the Investments and Securities Act and entails external reorganization
of a company by way of amalgamation of two or more companies through a scheme of arrangement
and compromise. One of the incidences of mergers is the transfer of properties and liabilities of
the transferor companies. What follows is a consideration of the companies’ acts to highlight
possible areas of violation of the provisions of CAMA and the resultant liabilities attached thereto.
(i) The issue involved here is the minimum number of Directors required in a company and the
consequences of a violation of the provision.
Section 246 of the CAMA provides that every company registered on or after the commencement
of the Act shall have at least two Directors and every company registered before that date shall
before the expiration of six months from the commencement of the Act, have at least two
Directors.
By Subsections (2) & (3) of Section 246, where the number of Directors falls below two, the
company shall within one month of its so falling, appoint new Directors and shall not carry on
business after the expiration of one month, unless such new Directors are appointed and a Director
or member who knows that a Company carries on business after the number of Directors have fallen
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below two for more than sixty days shall be liable for all liabilities incurred by the Company during
that period when the company so carried on business.
In the case above, Hussien a Lebanese has been the only Director of the Company since 1990 when
the other Nigerian Director, Odumodu died. Hussein as a Lebanese, although an alien, has the right
to form a Company (Section 20 (4) CAMA) subject to such provisions as Section 8 of the
Immigration Act and the Nigerian Investment Promotion Commission Act but he contravened
Section 246 CAMA in carrying on the affairs of the Company as the sole Director and he is thus
liable for all liabilities and incurred by the Company during that period when the company so carried
on business.
Secondly, Hussien’s shares in the Bank hitherto entitled him to 2 votes per share during meetings.
Section 116 CAMA prohibits the issue of non-voting and weighted shares. Weighted shares refer to
shares with different classes with different number of votes attached.
Under Section 116, all shares shall carry the right on a poll at a general meeting of the company to
one vote in respect of each share and no company may by its articles or otherwise authorize the
issue of shares which carry more than one vote in respect of each share or which do not carry any
right to vote [Section 116 (1) (a)], and where at the commencement of the Act, any share carries
more than one vote or does not carry any vote at a general meeting, such a share shall be deemed,
as from the appointed day, to carry one vote only [Section 116 (1) (b)]. A company that fails to
comply with these provisions is liable to a daily default fine and any resolution purportedly passed
by the company in contravention of this section while the default continues is void [Section 116 (2)].
It is instructive to note however that Section 116 (3) CAMA provides that nothing in the Section
shall affect any right attached to a preference share under Section 143 of the CAMA. In other
words, the prohibition of issue of non-voting or weighted shares does not derogate from the right
of a company to issue different classes of shares with the resultant variation in the rights and
liabilities that attach to such classes of rights.
(ii)The next issue is that of Ogbuoge who claims to be a Shareholder of OBL but whose name is not
on the Register of members, because the Director, Hussien refused to register the transfer of
shares to him from Odumodu’s children.
Under Section 79 of CAMA the procedure for becoming a member of a company shall be by
agreement to become a member and the entry of one’s name on the register of members. A member
can agree to become a member by subscribing the Memorandum of Association during the company’s
incorporation (Section 79 (1) CAMA) and subsequently by allotment of shares and registration, by
transfer or transmission of a share following registration (Section 151 & 152 CAMA) or by signing
and delivering to the Registrar an undertaking for Director’s qualification share.
In all the above instances, the entry of the prospective member’s name in the registry of members
is a sine qua non in the acquisition of membership. See Odumodu v. Tech Ent. Nig Ltd v.
Mohammed; Starcola v. Adeniji.
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One of the nature of shares is its transferability. In other words shares can be transferred or
transmitted from one person to another. Section 151. In fact the right to transfer shares, subject
to the restrictions imposed on private companies by Section 22 (2) CAMA, is one of the rights of a
shareholder Section 115 CAMA. In Lindlar’s case, the Courts held that
In the absence of restriction in the articles, the shareholder has, by

virtue of the statute, the right to transfer his shares without the
consent of anybody, to the transferee, even though he be a man of
straw, provided it is a bonafide transaction…… that the transferor
bonafide divests himself of all benefit.
While the transfer of shares must be by means of an instrument of transfer, transmission of

shares is by operation of law and does not require an instrument of transfer. Tika Torres v.
Albina.
In the case under consideration, on the death of Odumodu in 1990, his shares transmitted to his
children by operation of law. They are thus the owners of his shares and accordingly are entitled to
transfer the said shares to any person, including Ogbuoge. However, as earlier expressed, such
transfer is only complete upon the entry of the transferee’s name in the register of members by
the Director, in this case Hussein. Until that is done, the shares remain the property of Odumodu’s
children.
As regards the propriety of Hussein’s refusal to register the transfer, it has been stated earlier
that one feature of private companies is the restriction in the transfer of shares. One common
example of such restriction is by pre-emption clauses. The articles of a private company may
provide that no share shall be transferred to a non-member unless no member can be found to
purchase them at a fair price. In other words, members of the company have a right of ‘first
refusal’ to those shares and can therefore validly refuse to register the transfer to a non member
unless it can be proven that it was first offered to a member(s).
Also, the articles of a company may also confer on the Director the power to refuse transfers, but
such Directors are required to act in good faith and in the company’s interest. See Ferris George &
Sons Ltd v. Khoury.
In view of the foregoing, it may be legally difficult if not impossible to compel Hussein to recognize
or register the transfer of shares from Odumodu’s children to Ogbuoge. And as regards the right
of Ogbuobe who may have furnished consideration for the transfer of the shares, he obtains a
beneficial interest in the shares which takes priority over a judgment debt but is not a shareholder,
the shares still belonging to Odumodu’s children, for until the name of the transferee is entered in
the register of members, the transferor shall be deemed to remain the holder of the shares.
Section 152 (2) CAMA.
(iii)The issue here is the propriety or otherwise of the donation of the sum of N 1 Million made by
the company to a political party. Section 38 CAMA provides that except to the extent that the
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company’s memorandum or any enactment otherwise provides, every company shall have all the
powers and functions of a natural person of full capacity.
Subsection 2 of the same Section 38 provides further
A company shall not have or exercise power directly or indirectly to

make a donation or gift of any of its property or funds to a political
party or political association, or for any political purpose; and if any
company in breach of this subsection makes a donation or gift of any of
its property to a political party or political association, or for any
political purpose; the officers in default and any member who voted for
the breach shall be jointly and severally liable to refund to the company
the sum or value of the donation or gift and in addition, the company
and every such officer or member shall be guilty of an offence and be
liable to a fine equal to the amount or value of the donation or gift
(emphasis supplied).
It therefore follows that Mallam Gusan, together all the members who voted in favour of the
donation is guilty of an offence and liable not just to refund the company the sum of N 1 Million but
also together with the company, liable to pay a fine equal to the said amount. It is not a defence
that the company did not make the donation or that the donation was made through Mallam Gusan
as the provision of Section 38 (2) says directly or indirectly. Furthermore, under Section 65 CAMA,
acts of Directors when authorized are deemed acts of the Company.
(iv)One of the rights that accrue to members of a company is the right to attend and participate in
meetings. Accordingly, a company is required to hold regular or at least periodic meetings.
Section 213 CAMA provides that every company shall in each year hold a general meeting as its
annual general meeting in addition to any other meetings in that year and that not more than fifteen
months shall elapse between the date of one annual general meeting of a company and that of the
next. By Section 213 (5), a company that fails to hold such annual general meeting shall be guilty of
an offence and liable to a fine of N500.
Further more, the name “Plc” by virtue of Section 29 (2) CAMA shows that Oil Bank Plc is a Public
Company limited by shares. Accordingly, in addition to the general requirement of holding annual
general meetings, Oil Bank is required to have held a Statutory General Meeting of its members
within six months of incorporation. Section 211 CAMA. A contravention of this provision renders the
company guilty of an offence and liable to a fine of N 50 daily from the date the default begun and
every day that the default continues.
The reason given for the inability of Oil Bank Plc to hold a general meeting since incorporation is
because it has no company secretary.
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Section 293(1) CAMA provides that every company shall have a company secretary. And in the event
of a vacancy in the office, the acts of a company secretary shall be performed by any Assistant or
Deputy Secretary or in the absence of any, by any officer of the company authorized generally or
specifically in that regard. To that end, the absence of a company Secretary in Oil Bank Plc is not a
justification for not holding an annual general meeting, if anything, it is on its own a contravention
of the provisions of CAMA. See Wimpey (Nig) Ltd v. Alhaji Balogun.
(v)The Directors constitute of the organs of the company that act for and on behalf of the
company since the company cannot act on its own. The Directors do not act individually but as a
board and their acts shall be treated as acts of the company. (Section 65 CAMA)
Directors of the company by virtue of their special positions, as agents and trustees of the
company, owe a fiduciary duty to the company and are expected to exercise their power honestly in
the interest of the company and all the shareholders and not in their own or sectional interest
Section 279 CAMA. Directors are expected to act bona fide in the best interest of the company
and should exercise their powers for a proper purpose, they also have a duty to avoid conflict of
duty and interest Section 280 CAMA.
One of the incidence of the above provision is that a director must not while conducting the affairs
of the company or utilizing its property, make any secret profit or achieve other unnecessary
benefits from knowledge and opportunity they gained as Directors of the company. A Director who
does derive any secret profit shall be accountable to the company.
In Regal Hastings Ltd v. Gulliver, the Regal Company was unable due to lack of funds to subscribe
for the shares of a subsidiary company formed to enable them buy two cinemas. To raise the
required capital, the Directors decided to subscribe for the shares in the subsidiary company.
Eventually, the subsidiary company was sold at a substantial profit. The new controllers of the Regal
company brought an action to recover the profit made. The House of Lords held that the Directors
were liable to account for the profit made. In arriving at the decision, the Court found that it was
through the knowledge and opportunity the directors gained of that company that they were able to
obtain the shares and consequently make the profit. The Court held that Directors were liable to
account to the company once it was established that what the directors did was so related to the
company that it could properly be said to have been done in the course of their management and in
the utilization of their opportunities and special knowledge as Directors and that what they did
resulted in profit to themselves.
The case is on all fours with the facts of the instant case except that the sale of the shares has
not been effected. Nevertheless, the Directors intend to sell the shares which were bought at
N1.00, for N5.00, meaning that they are going to make substantial profit. The position of the law
therefore is that the Directors would be accountable to account to the Company for the profit
made.
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2.(a) Who is a Company Director?

(b) With the aid of statutory of and case law authorities, briefly explain the nature and standard of
the duty of care and skill imposed by the Act on a Company Director.
ANSWER
(A)The question of who is a Director of a company under the CAMA is answered by a conflated
reading of mutually related provisions of the Act.
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To start with Section 244(1) defines Directors of a company as persons duly appointed by the
company to direct and manage the business of the company. Here the emphasis is on ‘duly appointed’
and the purpose of the appointment which is to direct and manage the business of the company.
The Act however doesn’t stop there as it further provides in Section 245(1) that “………. Director
shall include any person on whose instructions and directions the (duly appointed) Directors are
accustomed to act. This provision relates to shadow directors who are not expressly appointed as
Directors but who nevertheless command the influence of the Directors as to affect the running of
the company, thus it was considered prudent to also make them liable as the duly appointed
Directors.
The most elaborate definition of Director under the Act is contained in Section 567 which provides
“director” includes any person occupying the position of a director by

whatever name called, and includes any person in accordance with whose
directions or instructions the directors of the company are accustomed
to act.
(B)The Director occupies a special position as an agent and trustee of the company, and thus owes
several duties and responsibilities to the company and to other shareholders like the fiduciary duty
which entails the exercise of their power honestly in the interest of the company and the
shareholders.
One of the major duties owed by a Director to the company is the duty of skill and care. The rule
which was laid down under the Common law by Romer J. in Re City Equitable Fire Insurance
Company Ltd was to the effect that the Director was merely required by law to exhibit a
reasonable degree of care and skill of an ordinary man in the same circumstances. He is neither
liable for an error of judgment nor is he bound to give continuous attention to the affairs of the
company, his duties are of intermittent nature to be performed at periodic board meetings, and at
meetings of any committee of the board upon which he happens to be placed and when he is
expected to rely on other officers, he is not bound to personally monitor their conduct except
where he suspects fraud. Thus under the common law, a Director was only liable for gross
negligence and not for ordinary negligence.
Over the years Romer J’s propositions became considered as too lax and unsuitable to the modern
company director. According to Romer J, the degree of care and skill required is that of an
ordinary man in the same circumstances, and a director need not exhibit a greater skill than is
reasonably expected of a person of his knowledge and experience. In other words, if the company
appointed a moron as its director, then it could only expect the standard of a moron. Re Brazilian
Rubber Plantations & Estate Ltd.
Accordingly, under the CAMA 2004, a higher standard of duty of skill and care is now required.
Section 282 (1) provides interalia that a Director shall exercise the degree of care, diligence and
skill which a reasonably prudent Director would exercise in comparable circumstances. And under
Section 282 (2) the failure to observe that degree of care and diligence, would ground an action for
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negligence and breach of duty. Furthermore, each Director is individually responsible for the
actions of the board in which he participated and the absence from the board’s deliberation, unless
justified, shall not relieve a Director from such responsibility. Section 282 (3). See Coleman v.
Myers.
Thus while under the common law per Romer J., the test is a subjective test, under the Act, the
test is an objective test i.e. the test of a reasonable man. It is also instructive to note that under
the Act, the same standard of care is required of both executive and non executive directors.
Section 282 (4) Furthermore, this duty above is now owed not just to the Company but to also to
the shareholders individually. Prudential Assurance Co Ltd v. Newman Industries Ltd.
3.Briefly discuss the nature of a floating charge and explain under what circumstances it could
become a fixed equitable charge.
A charge can be defined as an encumbrance, a lien or a claim on a property. Under the CAMA,
charge relates basically to debentures.
A debenture on its part denotes,
An instrument issued by the company, normally but not necessarily

called on the face of it, a debenture and providing for the payment of,
or acknowledging the indebtedness in a specified sum… at a fixed date,
with interest there on. It usually but not necessarily gives a charge by
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way of security and is often though not invariably expressed to be one

of a series of like debentures.
There are several types of debentures one of which is secured or unsecured debenture. Section
173 CAMA provides for this distinction when it provides that debenture may be either secured by
a charge over the company’s property or may be unsecured by charge. Although it is possible to
create an unsecured or naked debenture, the normal mode of creating a debenture is by charging
the property of the company through the debenture or the trust deed or both. Such debentures
may be secured on fixed assets or the floating charges or even both. Where the charge is secured
on fixed assets, it is a fixed or specific charge, and where it is secured over floating charges, it is a
floating charge.
Floating charge is an equitable charge over the whole or a specified part of the undertaking or
assets of a Company including cash and uncalled capital of the company both present and future.
Section 178 (1) CAMA.
One feature of a floating charges is that they do not preclude the Company from dealing with such
assets charged, until the happening of certain events when the charge will be said to have
crystallized into a fixed charge.
In the case of Re Government Stock & Other Securities Invst. Co. Lord McNaughten vividly
described a floating charge thus
A floating charge is an equitable charge on the assets for the time

being of a going concern. It attaches to the subject charge in the
varying condition in which it happens to be from time to time. But it is
of the essence of such a charge that it remains dormant until the
person in whose favour the charge is created intervenes. His right to
intervene may of course be suspended by agreement, but if there is no
such agreement for suspension, he may exercise his right whenever he
pleases after default.
Similarly the Court in Illingsworth v. Houlsworth even more poignantly described a floating charge
as follows
While a specific charge fastens on ascertained and definite property,

capable of being ascertained and definite, a floating charge is said to be
ambulatory and shifting in nature, hovering over and so to speak floating
with the property which it is intended to affect until some event occurs
or some act is done which causes it to settle and fasten on the subject
of the charge within its reach and grasp.
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Section 178 (1) (a) (b) & (c) provides circumstances under which a floating charge could become a
fixed equitable charge.
The section provides that the
………. The charge shall not preclude the company from dealing with such assets until
(a)The security becomes enforceable and the holder thereof pursuant to a power in that behalf in
the debenture or deed securing same appoints a receiver or manager or enters into possession.
(b)The Court appoints a receiver or manager of such assets on the application of the holder, or
(c)The Company goes into liquidation.
By Section 178 (2) on the happening of any of the events mentioned in Subsection (1) the charge
shall be deemed to have crystallized and to become a fixed equitable charge.
4. ”An action that is brought to enforce a Company’s rights is an exception to the rule in Foss v.
Harbottle.” -------------- Ladejobi v. Odutola Holdings Ltd.
Briefly explain the rule as codified and discuss the nature of company’s rights enforcement as
exceptions under CAMA.
ANSWER
It was held in the case of Ladejobi v. Odutola Holdings Ltd that, ”an action that is brought to
enforce a Company’s rights is an exception to the rule in Foss v. Harbottle.” What follows is a
brief elucidation of the rule and the nature of company’s rights enforceable as an exception to the
rule.
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The Rule in Foss V Harbottle is to the effect that if an actionable wrong has been done to a
company whether arising from statute, contract, tort or the fiduciary position of the party in
breach, the company is the proper person to seek a remedy for the breach and also where an
irregularity has been committed in the course of a company’s affairs, only the company can ratify
the irregular conduct.
The basis for the rule is
i. The principle of corporate sovereignty is such that the Courts will not interfere in the internal
affairs of a company, because it should be within the competence of most of the shareholders to
determine their company's course and direction and thereby preserves the principle of Majority
Rule.
ii. It is the logical consequence of the fact that a company is a separate legal person. It is the
company, a legal person, that has suffered the wrong, therefore it is the company which should
seek a remedy.
iii. It prevents multiple and futile actions. If each shareholder were permitted to sue, the company
might be subjected to many lawsuits started by numerous plaintiffs.
iv. If the wrong can be ratified by the company in general meeting, it would be futile to have
litigation about it. The Courts are loathe to render orders that can ultimately be made ineffective.
Section 299 CAMA provides that subject to the provisions of the Act, where irregularity has been
committed in the course of a company’s affairs or any wrong has been done to the Company, only the
Company can ratify the irregular conduct and only the Company can sue to remedy the wrong.
The section is thus a restatement of the rule as applicable under the common law. Furthermore, the
Act in preceding Sections, also provide elaborate circumstances where the rule can be
circumvented.
One of the exceptions to the application of the rule is where there is Fraud on the Minority or on
the Company. Section 300(d).
In Parke v. Daily News the Court upheld the right of the minority to seek order of injunction or
declaration to stop or set aside an act that is set to defraud him or the company:
Examples of fraud on the Company that have successfully ground actions at the instance of the
minority include
The misappropriation or expropriation of company’s property Sparks Electronic v. Ponmile;

Omisade v. Akande.
Where the Directors diverted to themselves a contract which should have gone to the Company and
later purported to ratify their act at a general meeting. Cook v. Deeks [1916] 1 A.C. 554
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Where the Directors and controlling shareholders made ill motivated gifts of company’s property to
others. Parke v. Daily News
Where the majority fraudulently or negligently benefited themselves at the expense of the
minority or the company. Daniels v. Daniels.
In all the instances above, where the fraud is on the minority or if on the company and the
Directors or majority shareholders decline to institute an action to redress the wrong or to correct
the irregularity, a minority member will be entitled to institute a personal, derivative or
representative action as the case may be to enforce the company’s rights and this would operate as
an exception to the Rule in Foss v. Harbottle.
In instituting derivative actions, the plaintiff's right of action derives from that of the company
and any benefit obtained will accrue to the company, accordingly no gain or damages can be
recovered but rather only injunction or declaratory relief to enforce the Company’s rights.
Section 301(3).
5. (a) Critically analyze the nature of a share and the shareholder’s interest in a company.
ANSWER
See Question 1(a) above.
(b) Koko, Bekee and Debo are all Shareholders and Directors of Wayo Ltd, a private company
incorporated in 1980 with over 100 shareholders. At incorporation, Bekee had 35% of the issued
shares of the Company with each share conferring on him 3 votes during meetings. Following an
event in 1990, Bekee decided to sell off his shares but insisted on having in return 35% of the value
of the Company. In fact he had secured his fellow Lebanese Oyibo who was prepared to pay that
much. However, Koko and Debo who both have a combined share value of 50% said that Oyibo cant
buy, they insisted on buying at the market value. The matter has been taken to court. To frustrate
Bekee to succumb, Koko and Debo have consistently used their combined voting powers to stop the
payment of dividends while making gratuitous gifts to their friends and families. During the next
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AGM of which notice is to come out today and scheduled to hold in 21 days time, Koko and Debo
today decided to include on the agenda the removal of Bekee as a Director.
Advice all the parties.
ANSWER
The issues in the case above bother on several areas of the Nigerian Company Law including the
number of shareholders of a company, the nature of shares, transferability of shares, restriction
to the transfer of shares especially in the case of private companies, the right of aliens to
participate in formation of a company, duties of Directors to a Company as well as the procedure
for removal of a Director.
Section 22 CAMA provides the meaning of a private company, and that such companies shall by its
memo restrict the transfer of its shares and in Subsection (3), restricts the number of members
to fifty.
A share is a chose in action, it is personal property, akin to money or goods and is a property
transferable as provided in the articles of association (Section 115). See the case of Okoya v.
Santili.
Section 116 CAMA prohibits the issue of non-voting and weighted shares. Weighted shares refer to
shares with different classes with different number of votes attached. The prohibition was aimed
at remedying the situation whereby the device of classes of shares was used inexorably to defeat
the government’s efforts of giving more control of business to Nigerians through the Nigerian
Enterprises Promotions Act.
Under Section 116, all shares shall carry the right on a poll at a general meeting of the company to
one vote in respect of each share and no company may by its articles or otherwise authorize the
issue of shares which carry more than one vote in respect of each share or which do not carry any
right to vote [Section 116 (1) (a)], and where at the commencement of the Act, any share carries
more than one vote or does not carry any vote at a general meeting, such a share shall be deemed,
as from the appointed day, to carry one vote only [Section 116 (1) (b)]. A company that fails to
comply with these provisions is liable to a daily default fine and any resolution purportedly passed
by the company in contravention of this section while the default continues is void [Section 116 (2)].
One of the nature of shares is thus its transferability. In other words shares can be transferred
or transmitted from one person to another. Section 151. The right to transfer shares is however
subject to the restrictions imposed on private companies by Section 22 (2) CAMA.
One common restriction on the transfer of shares in private companies is by pre-emption clauses.
Here, the articles of a private company may provide that no share shall be transferred to a non-
member unless no member can be found to purchase them at a fair price. In other words, members
of the company have a right of ‘first refusal’ to those shares and can therefore validly refuse to
register the transfer to a non member unless it can be proven that it was first offered to a
member(s).
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In the instant case, the membership of the company, a private company is in excess of the
provisions of the Act and is a clear contravention of the provisions of Section 22 CAMA. By Section
23, the consequence of this is that the company shall cease to be entitled to the privileges and
exemptions conferred on private companies.
Secondly, Bekee decided to sell off his shares and indeed secured his fellow Lebanese Oyibo who
was prepared to pay what Bekee demanded. However, Koko and Debo who both have a combined
share value of 50% said that Oyibo cant buy, they insisted on buying at the market value. The
action of Koko and Debo are thus within their rights, especially as they are willing to buy the shares
at their market values.
The articles of a company may also confer on the Director the power to refuse transfers, but such
Directors are required to act in good faith and in the company’s interest. See Ferris George & sons
Ltd v. Khoury. Again the facts of the present case suggest that Koko and Debo in rejecting the
purported transfer of shares from Bekee to Oyibo, acted in the company’s interest when they
expressed their willingness to buy the shares at their market value.
One of the reprehensible actions of Bekee was his intention to sell the shares at the value of 35%
of the shares ranking at 3 votes per share. This clearly violates the provisions of the Section 116
CAMA which prohibits issuing of weighted shares. But is it instructive to point out that oyibo did
nothing wrong in planning to sell the shares to Oyibo, a Lebanese as aliens have the right to form a
Company (Section 20 (4) CAMA) or become a shareholder of the company. This is however subject
to such provisions as Section 8 of the Immigration Act and the Nigerian Investment Promotion
Commission Act
The facts also state that Koko and Debo have consistently used their combined voting powers to
stop the payment of dividends while making gratuitous gifts to their friends and families.
One of the rights of a Shareholder is the right to participate in dividends and subject to Section
385 CAMA, once declared, a shareholder shall have the right to sue for dividends. Also, Koko and
Debo who clearly constitute the majority of the company’s shareholders can be liable at the suit of
Bekee, a minority if he can prove that their action is an infraction of his personal rights as a
shareholder and this would be actionable as an exception to the rule in Foss v. Harbottle.
Koko and Debo also owe the company a fiduciary duty to act only in the interest of the company
Section 279 (3) CAMA and one of the actions which have been interpreted as a breach of this right
is the making of gratuitous gifts to the friends and families of the majority shareholders See
Parke v. Daily News.
Finally on the procedure of removal of a Director, Section 266 provides that the company may by
simple resolution remove a Director before the expiration of his period of office. However, a
special notice is required of any of such resolution to remove the Director.
ORJI A. UKA Page 15

From the facts of the case, Koko and Debo today decided to include on the agenda of the next
AGM, the removal of Bekee as a Director during the next AGM of which notice is to come out today
and scheduled to hold in 21 days time. This is also a contravention of the requirement of special
notice provided by Section 262 CAMA.
Section 217 provides for a notice of 21 days for all general meetings but Section 236 provides that
where by any provision of the Act, special notice of a resolution is required, the resolution shall not
be effective unless notice of the intention to move the resolution has been given at least twenty
eight days before the meeting at which it is intended to be moved. A contravention of the above
provision shall invalidate the said resolution as was the case in Bernard Longe v. First Bank of
Nigeria.
6. In the words of Farwell J. in Borland’s Trustees vs. Steel Bros Co Ltd, “a share may be
described as the legal interest of a shareholder in the authorized and issued capital of a company
measured by a sum of money for the purpose of liability in the first place, and of participation in
the second place but also consisting of a series of mutual covenants entered into by all……… A share
is not a sum of money……………… but is an interest measured by a sum of money and made up of
various rights of a more or less amount.”
With the aid of statute and case law, critically assess the present relevance of this dictum to
Nigeria company law.
ANSWER
The above definition of shares given by Farwell J. (as he then was) in Borland’s Trustees vs. Steel
Bros Co Ltd was delivered in 1901 and for over a century has remained arguably the most classical
and widely accepted definition of shares, given by the Courts. Be that as it may, the above
definition is not free from fault having also been the subject of criticism of several articles and
comments from other writers and jurists alike.
ORJI A. UKA Page 16

To start with, the definition was criticized for including liability. The reason is that although a
share is a measure of liability, liability itself is a limitation on interests, again the term interest is
defined to include rights and liabilities; and so in defining shares, it was unnecessary to include
liability again. The term interest once again would have sufficed. Little wonder the CAMA in Section
567 uses the term interest to define shares and not repeating right or liability. See also
Commissioner of Inland Revenue v. Crossman where the court also defined shares in terms of
interest.
Secondly, the definition has been criticized for using money as the yardstick for measuring shares.
The measure of shares by a sum of money could be deceptive as the measure does not give the real
value of the shares and may be misleading except to the extent that it determines the minimum
liability. See Short v. Treasury Commissioners.
7. With the aid of case law and statutory provisions, briefly explain the present day position and
functions of a Company Secretary.
ANSWER
The Company Secretary is an important officer of companies. Section 293 (1) CAMA provides that
every company shall a secretary.
The status and position of the company secretary has developed over time with company practice.
In the early English company law statutes there were no provisions made for the appointment of a
secretary, and when it was made in the Companies Act 1948, no provisions were made for the duties
and powers of the secretary. Accordingly, the judicial attitude was to treat the company secretary
as a mere servant whose functions were prima facie clerical and ministerial only.
In Barnnet, Hoares & Co Ltd v. South London Tramways Co, Lord Esher said inter alia, “a
Company Secretary is a mere servant, his position is that he is to do what he is told, and no person
can assume that he has any authority to represent anything at all….”
These views formed the decisions of the courts until 1971 when the modern view was formulated in
Panorama Development (Guildford) Ltd. v. Fidelis Furnishing Fabrics Ltd. In that case, in
ORJI A. UKA Page 17

response to the contention that the position of the company secretary remained as stated earlier
by Lord Esher, Lord Denning referred to that dictum and said,
But times have changed. A company secretary is a much more important

person nowadays than he was in 1887. He is an officer of the company
with extensive duties and responsibilities. This appears not only in
modern Companies Acts, but also by the role which he plays in the day
to day business of companies. He is no longer a mere clerk. He regularly
makes representations on behalf of the company and enters into
contracts on its behalf which come within the day to day running of the
company. He is certainly entitled to sign contracts connected with the
administrative side and so forth. All such matters now come within the
ostensive authority of a company’s secretary.
In the same vein, Lord Salmon held that,
At the end of last century, a company secretary still occupied a very

humble position- very little higher, if any, than a minor clerk. Today, not
only has the status of a company secretary been enhanced, but that
state of affairs has been recognized by statute.
In other words the status and position of the company secretary has been greatly improved to the
extent that Prof Gower even suggests that the company secretary has graduated to an organ of the
company.
The position in Nigeria is the same, the views above having received both statutory and judicial
imprimatur. Thus in Okeowo v. Migliore, Idigbe JSC observed that in Nigerian Law, a company
secretary is a principal member of the company. See also Wimpey Ltd v. Balogun; Adebisin v. May
& Baker Nig Ltd. Section 293 CAMA uses a peremptory language ‘shall’ in providing for the
appointment of a Company Secretary while Section 298 makes elaborate provisions outlining the
duties of a company secretary.
ORJI A. UKA Page 18

8. Who is a Company Director? Briefly explain the nature of the legal position of a Director and
outline the duties that flow therefrom.
The question of who is a Director of a company under the CAMA is answered by a conflated reading
of mutually related provisions of the Act.
Section 244(1) defines a Director of a company as a person duly appointed by the company to direct
and manage the business of the company. Section 245(1) on its part provides that “………. Director
shall include any person on whose instructions and directions the Directors (duly appointed) are
accustomed to act.
The most elaborate definition of Director under the Act is contained in Section 567 which provides
“director” includes any person occupying the position of a director by
whatever name called, and includes any person in accordance with whose
directions or instructions the directors of the company are accustomed
to act.
The duties of a Director can be better appreciated if one understands the nature of the legal
position of a Company’s Director. The Directors are usually said to occupy a special position as
agents and trustees of the company, and thus owe several duties and responsibilities to the
Company and to other shareholders. Note however the qualification observed by Romer J. in Re
City Equitable Fire Insurance Company Ltd that can only be said to be in a fiduciary relationship
to the company only to the extent that in performance of their duty, they stand in a fiduciary
relationship to the company but not by way of analogy of what those duties are. See however
Section 283 CAMA.
ORJI A. UKA Page 19

The duties of a director which can be found from Sections 279 to 282 CAMA, can be divided into
two broad categories as follows: Fiduciary Duty and Duty of Care and Skill.
The Fiduciary duties of a Director (Section 279 CAMA) include

- Duty to observe utmost good faith towards the company Section 279 (1) Percival v. Wright
- To act bonafide in the best interest of the company Section 279 (3). Though the test here
is a subject test, it is however submitted that the exercise of that wide discretion should
not be abused. Parke v. Daily News
- To exercise their powers for a proper purpose. Section 279 (5)
- Duty not to fetter their discretion Section 279 (6)
- Duty to avoid conflict of interest Section 280. Here the company’s directors must not
while conducting the company’s affairs or utilizing its property or their position as
directors, make any secret profit or achieve unnecessary benefits, otherwise such director
shall be liable to account for any such secret profit made.
The second duty is the duty of exercising their powers with due diligence and skill. Section 282
CAMA. See Re City Equitable Fire Insurance Company Ltd for the old rule.
9. Critically discuss the circumstances under which the minority can take action to remedy the
wrongs done to a company, highlighting the forms of the available actions.
ANSWER
Under the common law, a rule was formulated to the effect that, if an actionable wrong has been
done to a company whether arising from statute, contract, tort or the fiduciary position of the
party in breach, the company is the proper person to seek a remedy for the breach and where an
irregularity has been committed in the course of a company’s affairs, only the company can ratify
the irregular conduct.
This rule is known as the Rule in Foss v. Harbottle and has been codified in Section 299 CAMA.
The Section provides that subject to the provisions of the Act, where irregularity has been
committed in the course of a company’s affairs or any wrong has been done to the Company, only the
Company can ratify the irregular conduct and only the Company can sue to remedy the wrong.
The Section is thus a restatement of the rule as applicable under the common law. Furthermore,
the Act in preceding Sections, also provide elaborate circumstances where the rule can be
circumvented.
Section 300 CAMA provides that on an application by a member, the Court may by injunction or
declaration restrain the company from the following:
 Entering into Illegal or Ultra Vires Acts Section 300(a).

See the case of Parke v. Daily News [1961] 1W.L.R. 493. Hutton v. West Cork Railway Co. (1883)
23 Ch.D 654. In the Bamford vs Bamford (1969) 2 WLR 1107, it was held that any wrongful act of
the Directors may be ratified by the Shareholders in general meeting. However acts that are
ORJI A. UKA Page 20

illegal, ultra vires or which amount to a fraud on the minority cannot be so ratified. So held the
Courts in the cases of Ashbury Railway Carriage and Iron Company v. Riche (1875) LR 7 HL 653
and Cook v. Deeks (1916) 1 AC 554
 Acting through an irregular procedure Section 300(b)

A company purporting to do by ordinary resolution any act which by its articles or CAMA requires to
be done by special resolution. Edwards v Halliwell [1950] 2 All ER 1064
 Infringement of personal/individual rights of the minority Section 300 (c)
In such a circumstance, a Minority member can bring a personal or representative action with the
company being the Defendant.
In Pender v Lushington (1877) 6 Ch D 70, 46, the rights of the minority shareholder was infringed
in that his votes were not allowed to be exercised and he thereby lost a resolution. He was held
entitled to an injunction since it was a personal wrong and so the rule in Foss v. Harbottle was no
bar to the action.
 Fraud on the Minority Section 300(d).

In Parke v. Daily News (supra) the Court upheld the right of the minority to seek order of
injunction or declaration to stop or set aside an act that is set to defraud him or the company:
Examples of Fraud on the Minority
Examples of fraud on the Company that have successfully ground actions at the instance of the
minority include
The misappropriation or expropriation of company’s property Sparks Electronic v. Ponmile;

Omisade v. Akande.
Where the Directors diverted to themselves a contract which should have gone to the Company and
later purported to ratify their act at a general meeting. Cook v. Deeks [1916] 1 A.C. 554
Where the Directors and controlling shareholders made ill motivated gifts of company’s property to
others. Parke v. Daily News (supra).
Where the majority fraudulently or negligently benefited themselves at the expense of the
minority or the company. Daniels v. Daniels (supra).
 Calling of company meeting
Section 300(e) allows a minority action where a company meeting cannot be called in time to be of
practical use in redressing a wrong done to the company or to minority shareholders. Here the key
thing is that time is of the essence, so where a wrong has been done to a company and there is no
ORJI A. UKA Page 21

time to call a company meeting in time to redress the wrong, due to requirements like 21 days
notice, then the court would allow an application from a minority member for a court ordered
meeting.
 Directors deriving profit or benefiting from their negligence
Section 300(f) Daniels v Daniels: [1978] Ch 406,
Forms of the Available actions
Personal, derivative and representative actions
An aggrieved minority can bring one action or combine three types of actions i.e. Personal,
derivative and representative actions:
Derivative action
Here the plaintiff's right of action derives from that of the company and any benefit obtained will
accrue to the company: Section 301(3)
No gain no damages only injunction or relief

Commencing derivative action.
An applicant applies to FHC for leave to bring derivative action in the name of the company, or to
intervene in an action or defend or discontinuing the action on behalf of the company .: Section
303(1)
ORJI A. UKA Page 22

10. (a) Distinguish between amalgamation and reconstruction.

(b) Outline the grounds for winding up and explain the “just and equitable rule.”
ANSWER
(a)Amalgamation and Reconstruction are part of the permitted ways in which a company can effect
structural changes for the purpose of effective capital reorganization to maximize profit, achieve
greater financial efficiency and generally realize its objects. The machinery for such reorganization
may be in the nature of internal reorganization of one company or external reorganization involving
two or more companies. Below are the distinctive features of amalgamation and reconstruction.
Amalgamation and Reconstruction are terms which connote two operations that are similar in form
but essentially different in purpose.
Amalgamation is akin to a merger and takes place in a situation where for instance Companies A and
B transfer their undertakings to Company C (either an existing or a newly incorporated Company) in
consideration for allotment of shares or debentures in C, and then A and B are wound up.
In Re Lipton of Nigeria Ltd, the court in considering the definitions of Amalgamation and
Reconstruction observed that the definitions of the terms was that given by Buckley J. in South
African Supply & Goldstorage Co. Re Wild v. Same Company to wit
An amalgamation involves, I think a different idea. There, you must have

the rolling somehow or other of two concerns into one. You must weld
two things together and arrive at an amalgamation, a blending of two
undertakings. It does not necessarily follow that the whole of the two
undertakings should pass substantially nor need all the corporators be
parties, although substantially all must be parties.
ORJI A. UKA Page 23

The difference between reconstruction and amalgamation is that in the

latter is involved the blending of two concerns one with the other, but
not merely the continuance of the concern. An amalgamation may take
place either by the transfer of undertakings A and B, by B upon the
terms that the shareholders of A shall become the shareholders of B. it
is not necessary that you should have a new company. You may have a
continuance upon terms that the undertakings of both corporations shall
be substantially merged in the Corporation only.
The above not withstanding, both reconstruction and amalgamation are considered the same under
the Act, the latter being treated as a merger and a kind of reconstruction.
ORJI A. UKA Page 24

COMPANY LAW MODEL QUESTION AND ANSWER
At the recently concluded Abia Business Summit, Aba, 2 Indian Businessmen- Abdul Seikh and
Santose Amu, signed an MOU with Chief Okongwu to do business together. They agreed to join in
the newly formed Limited Liability Company where the Chief and his Son are the only shareholders.
The Indians are eager to become shareholders and directors, and to restructure the already
existing company. The parties want to know
 The position of the Nigerian law on the sources and types of company capital in Nigeria as
well as the procedure for the various restructuring options available to private and public
companies in Nigeria.
 The process of becoming and ceasing to be shareholders and directors
 The process of appointment and removal of directors and company secretary.
The Indians told a story of another company they associated with, Gold Palms (Nig) Plc., where five
years after incorporation as a public company, it employed Abdullah Ibn Seikh as Managing Director
and Miss Fyneface Adah, a lawyer as Company Secretary. Six months after, the Managing Director
gave the company secretary a sack letter for failing to honour a dinner date at Transcorp Hilton.
The Board of Directors was bent on removing the MD which they believe will also automatically
operate as his removal from office as the MD because of his insubordination and overbearing
disposition to the Board of Directors. Mr Abdullah has been served a letter to this effect.
As a result of the internal wrangling of the Board of Directors, the company suffered series of
financial losses that has prevented it from servicing the N1 Billion syndicated loan facility advanced
to it by Zenith Bank (Nig) Plc., Intercontinental Bank (Nig) Plc and Skye Bank (Nig) Plc. The Banks
have resolved to exercise their rights as Creditors to wind up the company and apply the proceeds
to satisfy their outstanding loans and accrued interest.
As one of the young lawyers in the law firm engaged by the parties, the Indians will like you to
identify the legal issues arising from the above scenario and proffer appropriate legal remedy
within the confines of the Nigerian Company Law.
ORJI A. UKA Page 25

ANSWER
The issues that can be distilled from the facts of the case above include:
 The sources and types of company capital in Nigeria

 The procedure of becoming and ceasing to become shareholders and members of a company
 The process of appointment and removal of company directors
 The process of appointment and removal of the company secretary.
 The condition and procedure of winding up of a company.
 The procedure for the various restructuring options available to private and public
companies in Nigeria.
Before venturing to address the issues raised in the case above, it is pertinent to make some
prefatory remarks that will enable a logical treatment of the aforementioned issues. To that end, it
is instructive to state that the Companies and Allied Matters Act regulates the procedure,
formalities and essential requirement for the formation of companies in Nigeria. The Act also
distinguishes between the various types of companies and stipulate varying conditions for the
formation of each.
To enable companies carry on the object behind their formation, companies are empowered to
source for securities through various means like issuing of Shares, debentures, stocks etc.
The capital of a company constitutes all the assets of a company and includes the share capital and
borrowed money (loan capital), as well as fixed and circulating capital. Share capital constitutes the
most important class of companies securities. Below are the sources and types of company capital.
Types of company’s capital
Authorized or Nominal Capital: This refers to the total amount of capital which a company is
allowed to issue. Section 567 (1) defines it as “the share capital of a company at any given time.”
Under Sections 27(2) and 99 of the CAMA, the authorized share of capital of companies is not less
than N10,000 for private companies and N 500, 000 for public companies, and of this amount, 25
ORJI A. UKA Page 26

percent of the shares must be subscribed. The authorized share capital can however be increased
or decreased.
Issued capital: This is part of the company’s nominal capital which has been actually issued to the
shareholders. A company is not bound to issue all of its shares at the same time, but Section 99 (4)
CAMA provides that the issued capital of a company shall not at any time be less than twenty five
percent of the authorized share capital. In other words the minimum issued capital of private and
public companies under Nigerian Company law is N2500 and N125,000 respectively.
Paid up capital: This is part of the nominal capital issued to the shareholders, called up by them and
which has actually been paid up by them, either in cash or any other consideration accepted by the
company.
Reserve capital: Section 104 provides that an unlimited company seeking to be re-registered as a
limited company, may increase the nominal amount of each share, but subject to the condition that
no part of the increased capital shall be capable of being called up save in the event of winding up.
Again a company may also provide that a specific portion of its uncalled capital shall not be capable
of being called up except in the event of the company being wound up, such capital is termed
reserved capital.
Equity share capital: This is that part of the company’s issued capital which gives the holders a
right to participate in dividends and distribute the capital without limit.
Procedure for becoming and ceasing to become a member of a company
Section 79 of CAMA provides the procedure for becoming a member of a company. The following
are the ways of becoming a member of a company.
By subscribing the Memorandum of Association of the company: A member can agree to become a
member by subscribing the Memorandum of Association during the company’s incorporation (Section
79 (1) CAMA). Those who subscribed to the memo shall be deemed to have agreed to become
members of the company and after registration, their names are included in the register of
members. Section 79 (3) provides that in a company limited by shares, each member is required to
hold at least one share.
The second method of becoming a member of a company is by agreeing in writing to become a

member. After incorporation a person may become a member by agreeing in writing to become a
member and this is done through the acquisition of shares in the case of companies limited by
shares and then subsequently by having the person’s name registered in the register of members. A
person may become a member under this category through the allotment of shares and subsequent
registration of the member’s name. Berliet Nig v. Mordi Francis.
ORJI A. UKA Page 27

The other method is by transfer or transmission of shares also followed by registration. (Section
151 & 152 CAMA)
By signing and delivering to the Registrar an undertaking for Director’s qualification share
pursuant to Section 251 CAMA.
Membership by conversion: by Section 172 CAMA, a debenture holder may at his option or that of
the company, convert his debentures into shares in lieu of redemption. Here, the person writes to
the company intimating them of his intention to become a member.
In addition, any person who has his name in the register of members with his knowledge cannot
afterwards deny his membership, in such an instance the person becomes a member by estoppel.
In all the above instances, the entry of the prospective member’s name in the registry of members
is a sine qua non for the acquisition of membership. See Odumodu v. Tech Ent. Nig Ltd v.
Mohammed; Starcola v. Adeniji.
Section 152 (2) CAMA provides that until the name of the transferee is entered in the register of
members in respect of the transferred shares, the transferor shall, so far as concerns the
company, be deemed to remain the holder of the shares.
As regards the capacity for membership of a company, any legal person may become a member f a
company but Section 80 CAMA regulates the capacity of becoming a member of a company.
According to the section no person may be allowed to become a member if
 He is of unsound mind and the court has found it to be so

 He is a undischarged bankrupt
 He is an infant or a person under the age of eighteen
 It is a body corporate in liquidation.
Conclusively, the procedure for becoming a member of a company depends on the type of company.
In a company having shares, the membership can be acquired by subscribing to the memorandum, by
signing and delivering to the Commission an undertaking for Director’s qualification shares, by
allotment and registration and by transfer or transmission followed by registration. In companies
limited by guarantee, membership is acquired by subscription and by an undertaking under Section
27 (4) (b) followed by registration by the company.
Conversely, a person may also cease to be a member of a company when his name is struck out from
the register of members. The reason for striking out a member’s name from the register include
 Transfer of his shares and the consequent registration of the transferee in the
register of members
 Forfeiture of shares: this happens when there is a call on shares following the
demand of the company for shareholders to pay up for their shares and the member
defaults
ORJI A. UKA Page 28

 Death or bankruptcy of a member in which case his shares are transmitted by law to
his personal representatives or trustees in bankruptcy respectively.
 By surrender of shares: This is a voluntary act of a member as contradistinguished
from forfeiture, the later being an act of the company.
 Membership may also cease when the company acquires and releases some shares i.e.
by enforcing a lien on the shares pursuant to Section 139 CAMA.
The Procedure for appointment and removal of a Director
Directors are persons duly appointed by a registered company to direct and manage the company’s
business. Section 244 CAMA. The CAMA goes further in Section 245 to define a Director to
include any person by whose instructions and directions the directors are accustomed to act, that is
to say, shadow directors. Finally Section 567 defines shares in terms that encapsulate the two
definitions above.
Section 246-257 CAMA provides for the qualification and appointment of company directors. As
regards the qualification of persons to be appointed as directors, Section 257 provides that the
following persons shall be disqualified from being directors, that is to say:
An infant or a person under the age of eighteen

A lunatic or a person of unsound mind
A person disqualified under Sections 253 (an insolvent) 254 (a person found fraudulent by the
court) and 258 (a person who vacates his office as a director for reasons of being bankrupt, or
being of unsound mind or having resigned his office).
Under Section 246, every company shall on the commencement of the Act, have at least two
directors and whenever the number of directors fall below two, the company shall within one month
of it so falling appoint new directors and shall not carry on business after the expiration of one
month unless such new directors are appointed. A contravention of the above provisions will render
the company as well the officer(s) in default jointly and severally liable for whatever liability
incurred during such period of default.
There are three categories of appointments of directors that can be made by a company.
The appointment of the first directors shall be determined by the subscribers to the memorandum
of association of the company. This is done by the majority of the subscribers entering the names
of the directors in the articles of association. Section 247 CAMA.
Subsequent directors shall be appointed by the general meeting of the company. Section 248
CAMA. NIB Investments WA v. Omisore. In the highly unlikely event of all directors and
shareholders dying, any of the personal representatives of the shareholders shall be able to apply
to the court for an order to convene a meeting of all personal representatives to appoint new
directors to manage the company, and if they fail, the creditors, if any shall be able to do so.
ORJI A. UKA Page 29

Finally, the board of directors shall have powers to appoint new directors to fill casual vacancies
arising out of death, resignation, retirement or removal of directors. Section 249 CAMA. But the
tenure of such directors so appointed lapses on the next AGM except if the appointment is
approved by the general meeting.
On the procedure of removal of a Director, Section 262 provides that the company may by simple
resolution remove a Director before the expiration of his period of office. However, by Sub section
(2) a special notice is required of any of such resolution to remove the Director.
On receipt of notice of an intended resolution to remove a director, the director shall not be
removed until the company sends a copy of it to the director concerned and the director shall be
entitled to be heard on the resolution at the meeting. Where the notice has been given, the
director shall make written representations to the company or if not possible be heard orally.
A contravention or non compliance with the procedure above invalidates the purported removal. See
Longe v. First Bank of Nigeria.
The Procedure for appointment and removal of a Company Secretary
Section 293(1) CAMA provides that every company shall have a company secretary. And in the event
of a vacancy in the office, the acts of a company secretary shall be performed by any Assistant or
Deputy Secretary or in the absence of any, by any officer of the company authorized generally or
specifically in that regard.
The status and position of the company secretary has developed over time with company practice.
In the early English company law the judicial attitude was to treat the company secretary as a mere
servant whose functions were prima facie clerical and ministerial only. Barnnet, Hoares & Co Ltd
v. South London Tramways Co.
But as Lord Denning held, times have changed. A company secretary is a much more important
person nowadays than he was in 1887. He is an officer of the company with extensive duties and
responsibilities. This appears not only in modern Companies Acts, but also by the role which he plays
in the day to day business of companies. He is no longer a mere clerk. Panorama Development
(Guildford) Ltd. v. Fidelis Furnishing Fabrics Ltd.
The position in Nigeria is the same, the views above having received both statutory and judicial
imprimatur. Thus in Okeowo v. Migliore, Idigbe JSC observed that in Nigerian Law, a company
secretary is a principal member of the company. See also Wimpey Ltd v. Balogun; Adebisin v. May
& Baker Nig Ltd. Section 293 CAMA uses a peremptory language ‘shall’ in providing for the
appointment of a Company Secretary.
By Section 296 CAMA, a company secretary shall be appointed by the board of directors and may
be removed by them subject to the provisions of the Act. On the qualification for appointment as a
company secretary, such a person shall have the requisite knowledge and experience to discharge
the functions of a secretary of a company, and in the case of a public company, he shall be either a
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member of the Institute of Chartered Secretaries and Administration or the Legal Profession or
the Institute of Chartered Accountants, or a person having held the office of a public company for
at least three years of the five years immediately preceding his appointment or a body corporate
consisting of members of the above. Section 295.
Under Section 296 (2) where it is intended by the Directors to remove a secretary, the board of
directors shall give such secretary notice stating the intention to remove him, setting out the
grounds on which it is intended and giving him a period of not less than seven days to make his
defence, or give him an option to resign.
Where the secretary does not resign or make a defence, the board may remove him and make a
report to the next general meeting, but where the secretary makes a defence, which the board
does not consider sufficient, the board may still remove him and report to the general meeting.
Conditions and procedure for the winding up of a company.
The winding up of a company is one of the process whereby the life of a company can be brought to
an end, others include dissolution under reconstruction and amalgamation. In winding up a company, a
liquidator is appointed to take control of the company, collect its assets, pay its debts and
distribute any surplus among the members in accordance with the precedence of their rights. At
the end of the process, the company becomes dissolved.
Under Section 401 CAMA, there are three types of winding up under the Nigerian Company Law
Winding up by the court (Section 407)

Voluntary winding up (Section 457)
Winding up subject to the supervision of the court (Section 486)
Winding up by the court

The procedure and condition for the winding up of a company is contained in Section 408 CAMA.
Under Section 407, the court with jurisdiction to order for winding up is the Federal High Court.
A company may be wound up by the court under the following circumstances:
 Where the company has by special resolution resolved that the company be wound up by the
court
 Where default is made in delivering the statutory report to the CAC or in holding the
statutory meeting
 Where the number of members falls below two
 Where the company is unable to pay its debts
 Where the court is of the opinion that it is just and equitable that the company should be
wound up.
A company shall be deemed unable to pay its debt where a creditor to whom the company is
indebted to a sum exceeding N2000 and when due, has served the company a demand to pay the
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sum due and the company has for three weeks thereafter neglected to pay the sum. Section 409
(a). AIR Via Ltd v. Oriental Airlines; Onochie v. Alan Dick.
Circumstances where the court have found it just and equitable to wind up a company include
 Where there is a failure of the substratum i.e. the practical object for which the company
was formed can no longer be carried out
 Where there is a deadlock
 Where the company is a bubble
CCB v. Onwuchekwa
An application to the court for winding up of a company shall be by petition by either of the
following persons
 The company
 A Creditor (including a contingent or prospective creditor)
 The Official Receiver
 A Contributory
 A Trustee in bankruptcy or a personal representative of a creditor or contributory.
 The Corporate Affairs Commission under Section 323
 A Receiver if authorized by the instrument under which he was appointed
Winding up is deemed to have commenced at the time when a resolution to that effect is passed by
the company or at the time of presentation of the petition. Section 414.
Voluntary winding up
A Company may be voluntary wound up in the following cases

 When the period, if any, fixed for the duration of the company by the articles expires or
the event if any which on the occurrence of which the articles provide that the company is
to be dissolved, and the company passes an ordinary resolution requiring the company to be
wound up voluntarily; or
 If the company resolves by special resolution that it be wound up voluntarily.
Voluntary winding up could still be member’s voluntary winding up or creditor’s voluntary winding up.
Winding up subject to Court’s supervision:

Here the court orders that voluntary winding up shall continue but subject to the such supervision
by the court and with such liberty for creditors, contributories or others to apply to the court on
such terms and conditions as the court thinks just.
The procedure for the various restructuring options available to private and public companies in
Nigeria.
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Arrangements and compromise, amalgamations, reconstruction and take over are the various
restructuring options available to a company to effect structural changes for the purpose of
effectively reorganizing its capital to maximize profit and achieve its object of formation.
Generally, such reorganization can be internal, that is involving one company by way or restructuring
of the shares or other rights and liabilities of the members or external restructuring or
reorganization of two or more companies by way of amalgamation notably through the scheme of
arrangement and compromise.
The methods are generally grouped into three:
Arrangement and compromise: this is defined in Sec 537 CAMA as a change in the rights and
liability of the members, debenture holders or creditors of a company.
Merger and reconstruction: has been defined Section 119 of the Investments And Securities Act,
2007 as any amalgamation of the undertakings or any part of the undertakings or interest of two
or more companies or the undertakings of part of the undertakings of one or more companies and
one or more bodies corporate.
Take over involves a different idea. Section 117 of ISA, 2007 defined take over as “the
acquisition by one company of sufficient shares in another company to give the acquiring company
control over that other company”.
PROCEDURE FOR MERGERS
Three general steps can be identified:
1. Submission of pre-merger notification to the Securities And Exchange

Commission(hereinafter referred to as SEC).
2. Referral of the proposal to SEC for formal approval and then to the court for sanctioning.
3. A post-approval notification of compliance to SEC in the event that the Court makes the
order of approval.
PROCEDURE FOR TAKE-OVER
1. A meeting of the offeror company is convened where the resolution is passed to approve
the issuance of a take-over bid to the offeree company.
2. A take-over bid is prepared and dispatched at approximately the same time to not less than
¾ of shareholders or to a sufficient number enabling the offeror to control the company.
The bid however shall not be issued to a company with fewer than 20 members or to a particularly
20 shareholders: S.133(3) ISA or to a private company: S.133(4) ISA.
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3. No take-over bid can be made unless authority to proceed has been granted by the SEC. It
is an offence punishable with a pecuniary fine if 2 or more persons proceed with a take-over
bid without authorization from SEC
4. A copy of the proposed bid must be forwarded in advance to the SEC for registration. It is
also an offence on pains of 10,000 fine where a copy off the bid is not lodged with SEC.
5. The procedure also requires that the take-over bid must be dispatched at the same time to
the directors and all the shareholders of the target company.
6. Dissenting shareholders are not to be left out. Where the take-over has been made in
respect of not less than 90% in number of shares held by the offeror and acceptance has
been communicated in respect of not less than 90% of those shares, the offeror company is
to give notice to the dissenting members of the fact that not less than 90% of the share of
the company has been taken over. The dissenting shareholders are then within 20 days of
the notice put to their election whether
a) To transfer their shares on the same terms as other shareholders agreed, or
b) To demand a fair value for their shares. The fair value is to be fixed by the court
on the application of the offeror company or the dissenting shareholders.
See generally sections 132-151, ISA, 2007.
From the facts of the case above, 2 Indian Businessmen- Abdul Seikh and Santose Amu, signed an
MOU with Chief Okongwu to do business together. They agreed to join in the newly formed Limited
Liability Company where the Chief and his Son are the only shareholders.
Under Section 20 (4) CAMA, aliens have the right to join in the formation a Company but this is
subject to their fulfillment of such provisions as Section 8 of the Immigration Act and the
Nigerian Investment Promotion Commission Act. In addition, they must show documents like
business and resident permit, expatriate quota and approval status to enable them repatriate their
profit.
Secondly, the newly formed Limited Liability Company by Chief Okongwu is in order, despite having
only two shareholders. Section 18 CAMA provides that two or more persons may form and
incorporate a company. The Indians can thus become members/shareholders of the company if they
fulfill the conditions listed above for becoming a member of a company.
As regards Gold Palms (Nig) Plc, which employed Abdullah Ibn Seikh as Managing Director and Miss
Fyneface Adah, a lawyer as Company Secretary five years after incorporation as a Public Company,
it would be taken for granted that the appointment was not the first to be made by the company
and that they were appointed to replace the existing or outgoing Managing Director and Company
Secretary. Otherwise, the company would have contravened the provision of the CAMA especially
Section 293 CAMA by not having a Secretary for all of five years after incorporation. Be that as it
may, the appointment of Fyneface Adah, a Lawyer as Company Secretary is accordance with Section
295 CAMA.
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On the propriety of the removal of the Company Secretary, Miss Fyneface Adah by the Managing
Director, as earlier highlighted, Section 296 provides that the power to remove the company
secretary resides in the board of directors and is subject to the provisions of the Act. The Section
also provides the procedure for removal of a secretary.
However, Section 64 (b) CAMA provides that the board of directors have powers to appoint one of
their body to the office of Managing Director and may delegate all or any of their powers to such
Managing Director. Section 263(5) equally provides that the directors may delegate any of their
powers to a Managing Director. The Managing Director may thus have powers to remove a Company
Secretary provided he can show that such power was expressly delegated to him and he also
fulfilled all the conditions and followed the procedure outlined in Section 296.
Under the said Section 296, where it is intended by the Directors to remove a secretary, the Board
of Directors shall give such Secretary notice stating the intention to remove him, setting out the
grounds on which the removal is intended and giving him a period of not less than seven days to
make his defence, or give him an option to resign. Where the Secretary does not resign or make a
defence, the board may remove him and make a report to the next general meeting, but where the
secretary makes a defence, which the board does not consider sufficient and the ground for the
removal is that of fraud or serious misconduct, the board may remove him and report to the general
meeting. But if the ground is not fraud or serious misconduct the board shall not remove him
without the approval of the general meeting.
From the facts of the case, the ground given for the removal of the company secretary was her
failure or refusal to honour a dinner date at Transcorp Hilton with the Managing Director. The
ground above clearly does not constitute fraud or serious misconduct and therefore, assuming the
argument that the board of directors delegated the power to remove a company secretary to the
managing director is tenable, he is nevertheless not authorized to remove the secretary without
the approval of the general meeting. A contravention or non compliance with the procedure above
invalidates the purported removal.
The next issue is the determination of the Board of Directors to remove the Managing Director,
Abdullah Ibn Seikh which they believe will also automatically operate as his removal from office as
the MD because of his insubordination and overbearing disposition to the Board of Directors.
It has been stated before that Section 262 provides that the Company may by simple resolution
remove a Director before the expiration of his period of office. In other words, the Board of
Directors have no power to remove a Director from office, the powers being the exclusive preserve
of the general meeting.
In addition, by Section 262 (2) a special notice is required of any of such resolution to remove the
Director. On receipt of notice of an intended resolution to remove a director, the director shall not
be removed until the company sends a copy of it to the director concerned and the director shall be
entitled to be heard on the resolution at the meeting. Where the notice has been given, the
director shall make written representations to the company or if not possible be heard orally.
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From what we have, Mr Abdullah has been served a letter to this effect. By letter, if it is meant a
letter of removal, then the Board of Directors will be both procedurally and substantially ultra
vires, and the purported removal will be invalidated as was the case in Longe v. First Bank. If
however, the letter served to him is a notice, then it must comply with the formalities of a valid
notice and the procedure for such removal must be followed, not by the Board of Directors but in a
general meeting.
Again the ground for the purported removal, insubordination and overbearing disposition to the
Board of Directors may also be a ground for questioning the propriety and validity of the removal.
In as much as the Act was not explicit on the grounds for removing a Director, it is a principle of
construction of statutes that expropriatory legislations or those that affect the right of citizens
are construed fortissime contra preferentum.
Finally, it is stated that the as a result of the internal wrangling of the Board of Directors, the
company suffered series of financial losses that prevented it from servicing the N1 Billion
syndicated loan facility advanced to it by Zenith Bank (Nig) Plc., Intercontinental Bank (Nig) Plc and
Skye Bank (Nig) Plc and the Banks have resolved to exercise their rights as Creditors to wind up
the company and apply the proceeds to satisfy their outstanding loans and accrued interest.
We have said that the procedure and condition for the winding up of a company is contained in
Section 408 CAMA. The section stipulates that a company may be wound up by the Court under the
following circumstances:
 Where the company has by special resolution resolved that the company be wound up by the
court
 Where default is made in delivering the statutory report to the CAC or in holding the
statutory meeting
 Where the number of members falls below two
 Where the company is unable to pay its debts
 Where the court is of the opinion that it is just and equitable that the company should be
wound up.
See generally Gbedu v. Itie where the Court of Appeal per C. C. Nweze JCA held that winding up
for reason of inability to pay its debt is the most important ground for winding up of a company.
By virtue of Section 409 (a), A company shall be deemed unable to pay its debt where a creditor to
whom the company is indebted to a sum exceeding N2000 and when due, has served the company a
demand to pay the sum due and the company has for three weeks thereafter neglected to pay the
sum. AIR Via Ltd v. Oriental Airlines; Onochie v. Alan Dick.
ORJI A. UKA Page 36

Company Law Past Questions and Answers

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Company Law Past Questions and Answers

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COMPANY LAW PAST QUESTIONS AND ANSWERS

Advice the parties

A share in a company is the expression of a proprietary relationship. The shareholder is a

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(a) The right to dividends Section 385 CAMA.

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In the absence of restriction in the articles, the shareholder has, by

While the transfer of shares must be by means of an instrument of transfer, transmission of

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Subsection 2 of the same Section 38 provides further

A company shall not have or exercise power directly or indirectly to

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2.(a) Who is a Company Director?

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“director” includes any person occupying the position of a director by

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A debenture on its part denotes,

An instrument issued by the company, normally but not necessarily

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way of security and is often though not invariably expressed to be one

A floating charge is an equitable charge on the assets for the time

While a specific charge fastens on ascertained and definite property,

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The section provides that the

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The basis for the rule is

The misappropriation or expropriation of company’s property Sparks Electronic v. Ponmile;

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See Question 1(a) above.

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Advice all the parties.

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But times have changed. A company secretary is a much more important

In the same vein, Lord Salmon held that,

At the end of last century, a company secretary still occupied a very

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The Fiduciary duties of a Director (Section 279 CAMA) include

 Entering into Illegal or Ultra Vires Acts Section 300(a).

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 Acting through an irregular procedure Section 300(b)

 Infringement of personal/individual rights of the minority Section 300 (c)

 Fraud on the Minority Section 300(d).

Examples of Fraud on the Minority

The misappropriation or expropriation of company’s property Sparks Electronic v. Ponmile;

 Calling of company meeting

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 Directors deriving profit or benefiting from their negligence

Section 300(f) Daniels v Daniels: [1978] Ch 406,

Forms of the Available actions

Personal, derivative and representative actions

No gain no damages only injunction or relief

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10. (a) Distinguish between amalgamation and reconstruction.

An amalgamation involves, I think a different idea. There, you must have

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The difference between reconstruction and amalgamation is that in the

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