COMPANY OFFICERS

Directors

According to Section 2 of the Companies Act, a director includes any person occupying
the position of a director whatever name he or she is called.

This definition looks at the functions of a person in a company and not the title and
therefore, any person who manages the day today affairs of a company is a director
regardless of his or her title. In R V. Camps [1962] EA 243 it was held that any person
who performs the functions of a director though not duly appointed as such is occupying
the position of a director as a “defucto” director and so was Camps.

A company is an artificial person with human attributes however, it cannot carry out its
functions personally but rather through human beings.
According to article 80 of table A directors manage the day to day affairs of the company.

Denning LJ in HL Bolton (Engineering) Ltd v TJ Graham and Sons Ltd, [1957] 1 QB

159 held that:-

“A company may in many ways be likened to a human body. It has a brain and nerve
centre which controls what it does. It also has hands which hold the tools and act in
accordance with directions from the centre. Some of the people in the company are mere
servants and agents who are nothing more than hands to do the work and cannot be said
to represent the mind or will. Others are directors and managers who represent the
directing mind and will of the company, and control what it does. The state of mind of
these managers is the state of mind of the company and is treated by the law as such.”

Appointment of directors is usually governed by the articles of association of the company

however, Table A to the Act can offer guidance where the company adopts it.

Section 185 of the Companies Act provides that every company must have at least one
director. For public companies, there must be at least two directors. It is a legal
requirement for every company to have at least one director.

Under section186 the company in a general meeting has the right to appoint any number
of directors and specify their general qualifications in accordance with the guidelines
specified under the law.
A person under 18 years or over 70 years of age cannot be appointed a director.

Directors are usually appointed by shareholders in the Company General Meeting and
they are voted individually.
For a single member Company, it is required to have a nominee director and an alternate
director in addition to the single member.
REMUNERATION OF DIRECTORS

Under Article 76 of table A remuneration of directors shall be determined by the company

in the general meeting. Remuneration of directors is for shareholders to fix and not
determined by market value of services.
Re Halt Garage (1964) Ltd [1982] 3 All ER 1016
Guiness v Saunders
Re: George, Newman and Co ltd (1895) 1 Ch 674
Craven-Ellis v Canons Ltd [1936] 2 KB 403
Re Richmond Gate Property Co Ltd [1964] 3 All ER 936
Cork Railway (1883) 23 Ch D 654.
DUTIES OF DIRECTORS
Under section 198 of the companies Act the directors have the following duties:-

To exercise a degree of skill and care. Directors must be competent and must not be
negligent in their actions. There is no criteria for measuring the standard of duty of skill
and care expected of a director and consequently this will depend on the circumstances
of each case. Nevertheless, courts have tried to set some guidelines as to what these
duties entail. In Re City Equitable Fire Insurance Co. Ltd, Romer held that A director
need not exhibit in the performance of his duties a greater degree of skill than may
reasonably be expected from a person of his knowledge and experience.

This case is to the effect that when dealing with duties of skill and care the nature of the
business ought to be taken into account. The mode in which the company’s work is
distributed among the directors has to be determined. When the work is divided among
many directors, the degree of skill and care is higher.

The second duty is the duty of good faith: Under this duty, the director is required to
exercise powers in good faith and for the proper purposes. A director is said to be acting
in good faith or bonafide when he puts into account the paramount interests of the
company. In Re Lee Behrens court held that the decision of the directors has to be of a
dominant motive.
In Re Smith & Fawcett Ltd, court held that ‘interests of the company’ is that which is not
for a collateral purpose or an improper motive or self-interest of a director. In this case,
Article 10 of the company's constitution said that directors could refuse to register share
transfers. Mr. Fawcett, one of the two directors and shareholders, had died. Mr. Smith co-
opted another director and refused to register a transfer of shares to the late Mr. Fawcett’s
executors. Half the shares were bought, and the other half offered to the executors. Lord
Greene MR held that in absence of mala fides, this was proper.

“ The principles to be applied in cases where the articles of a company confer a discretion
on directors … are, for the present purposes, free from doubt. They must exercise their
discretion bona fide in what they consider - not what a court may consider - is in the
interests of the company, and not for any collateral purpose.”

In Percival v Wright, court held that the good faith is owed to the company and not to
the individual shareholders. It was being argued that the directors were trustees both for
the company and for the shareholders, who were the real beneficiaries, and, therefore,
the directors owed duties to shareholders.

Duty to deal with the company property and not to misappropriate it. Directors have a duty
to protect the company's properties and not to misappropriate them or use them for their
personal purposes. If they do so, they are liable to make good the loss. In the case of Re
George Newman it was held that company property included contracts in which the
company has interest.

In Cooks Vs Deeks (1916) AC 554 the court held that the company's property belongs
to the company both at law and equity, and that the directors cannot appropriate such
property.

Duty not to make separate profits and to avoid conflicts of interest. A director being in a
fiduciary position is accountable to the company for any secret profits which he has made
by reason of his position as director. A director is free to trade with the company but he
must ensure that he does not make a secret profit at the expense of the company. Thus
a director should not act in a transaction where there is a conflict of interest unless he
discloses that interest to the company. This was seen in the case of Abeiden Railway
company v Blaike bros (1854) 1 MaCq461 where there was a contract entered into
between Aberdeen Railways and Blaikie Bros. Aberdeen Railways, the plaintiff needed a
large number of iron chairs at the cost of 8 Pound, to which the Blaikie Bros agreed. The
contract was entered into for the duration of 18 months. The contract had been performed
partly, and Blaikie Bros had provided Aberdeen railways with as much as two-thirds of
the contracted amount of iron chairs. However, after that, Aberdeen Railways refused to
accept any more of the iron chairs from Blaikie Bros. Court held that Aberdeen Railways
was not bound by any sort of contract which they had entered into with Blaikie Bros. The
rationale presented by the Court behind this decision was that at the time when the
contract had been entered into by Aberdeen Railways and Blaikie Bros, the Chairman of
the Board of Directors of Aberdeen Railways was also the Managing Director of the
Blaikie Bros.

This rule has been modified by Article 84 of table A which allows the directors to make
profits out of transactions as long as they disclose it to the company.

Directors with interest in a contract have to disclose it and failure to do so is a crime. The
disclosure should be made to the general meeting and not to the board of directors as in
Guiness v Sauders where a director disclosed his interest in a contract to only the
committee of directors. It was held that the disclosure was supposed to be to the general
meeting.
EXERCISE OF THE DIRECTORS’ POWERS

Powers of the directors are exercised in the board of the directors. They are not exercised
by single directors.

Notice of the board meeting must be sent issued to the directors and failure to issue the
same renders the decision made in such a meeting a nullity. In Re Portuguese
Consolidated Copper Mines allotment of shares in a board meeting was held to be invalid
because one of the directors was not given notice.
Notice of the meeting should be given in reasonable time.

Where all directors consent to a decision such a decision is valid even if no meeting was
held.

If directors have misunderstandings their powers may be reverted to the general meeting
in Foster v Foster directors had misunderstandings, a meeting was called and new
directors were appointed. It was held that powers of the directors had reverted to the
general meeting.
CRIMINAL LIABILITY OF DIRECTORS

Directors may be criminally liable for failure to hold Annual General Meeting. GIBSON v
BURTON, R V CAMP
Failure to file books of account. R v Camp

Section 209, a director who authorizes or permits a company to eneter into a transaction
knowing it contravenes section 203 (A company giving a loan to a director) commits an
offence.
Section 218 failure to disclose interest in a contract is liable for a fine not execeeding 200
currency points.
COMPANY SECRETARY
According to Section 2 company officers include a company secretary.

According to Section 187 each company should have a company secretary and a sole
director cannot be the company secretary.
Qualification for one to be a secretary of a public company are set ion Section 190.

Duties of a company secretary are not laid down in the Act but they include, calling
meetings, keeping company documents, issuing share certificates, taking minutes of the
company meetings etc.

Secretaries are officers of the company and their actions are binding on the company as
illustrated in the case of Panorama Developments (Guildford) Ltd v Fidelis Furnishing
Fabrics Ltd [1971) 3 ALL ER 16where a company secretary hired cars from the Plaintiff
for the company but used them for personal benefit. Lord Denning held that a secretary
was an officer of the company and that times have changed and secretary is now an
important person with duties and responsibilities.
The earlier position in Barnnet v South London Tramways was that a secretary was
amere servant of the company and worked as directed.

PLEASE READ AND WRITE NOTES ON COMPANY AUDITORS