COMPANY LAW IN GHANA- DUTIES OF DIRECTORS ( PART 1)

DUTIES OF DIRECTORS AND THEIR ENFORCEMENT (PART 1) 1. INTRODUCTION: THE NATURE OF DIRECTORS’ DUTIES The starting point in company law is that directors are fiduciaries of the company. Section 190(1) of the Companies Act, 2019 (Act 992) provides: “A director of a company stands in a fiduciary relationship towards the company and shall observe the utmost good faith…” This provision codifies long-established equitable principles. The relationship is not with shareholders individually, but with the company as a separate legal entity. This position is consistent with classical authority: • Aberdeen Railway Co v Blaikie Brothers (1854) 1 Macq HL 461 • Regal (Hastings) Ltd v Gulliver [1942] 1 All ER 378 • Percival v Wright [1902] 2 Ch 401 The essence is that directors are: • fiduciaries (loyalty-based duties), and • managers (care and skill duties). 2. CLASSIFICATION OF DIRECTORS’ DUTIES Under Act 992 and the common law, the duties may be grouped into: A. Fiduciary Duties • Duty of utmost good faith • Duty to act in the best interest of the company • Duty to avoid conflict of interest • Duty not to make secret profit • Duty not to compete B. Duties of Care, Skill and Diligence • Objective + subjective standard • Business judgment rule C. Statutory Duties • Disclosure of interest (ss 193–195) • Confidentiality (s 198) • Proper use of powers (s 190(3), s 191) 3. DUTY TO ACT IN UTMOST GOOD FAITH Statutory Basis Section 190(1) Act 992. Content • Honesty • Loyalty • Absence of bad faith A director breaches this duty where he acts: • for personal benefit, or • for collateral purposes. Authority In Regal (Hastings) Ltd v Gulliver: A fiduciary must account for profit irrespective of good faith. Similarly, in JJ Harrison (Properties) Ltd v Harrison [2002] 1 BCLC 162, failure to disclose material facts constituted breach. 4. DUTY TO ACT IN THE BEST INTEREST OF THE COMPANY Statutory Basis Section 190(2) Act 992. This requires the director to act: • in what he honestly believes is the best interest of the company • as a whole Key Factors (Statutory) The director must consider: • long-term consequences • impact on community and environment • company reputation Meaning of “Company as a Whole” In Greenhalgh v Arderne Cinemas Ltd [1951] Ch 286: It refers to the general body of shareholders. However, Act 992 expands this to include stakeholder considerations. Important Qualification Directors owe duties to the company, not shareholders individually: • Percival v Wright • Dawson International Plc v Coats Patons Plc ________________________________________ 5. DUTY TO EXERCISE INDEPENDENT JUDGMENT Statutory Basis Section 190(5) Act 992. A director: • must not act on instructions blindly • must exercise personal judgment However: • reliance on professional advice is allowed • provided the decision remains his own ________________________________________ 6. DUTY TO ACT WITH CARE, SKILL AND DILIGENCE Standard Section 190(2): “faithful, diligent, careful and ordinarily skilful director” Nature of Standard A dual test: 1. Objective: reasonable director 2. Subjective: director’s actual skill Authorities • Re City Equitable Fire Insurance Co Ltd [1925] Ch 407 • Dorchester Finance Co Ltd v Stebbing [1989] BCLC 498 • Re D’Jan of London Ltd [1994] 1 BCLC 561 In Re D’Jan, signing documents without reading them amounted to negligence. ________________________________________ 7. DUTY TO ACT WITHIN POWERS AND FOR PROPER PURPOSE Statutory Basis • Section 190(3) • Section 191 Act 992 Directors must: • act in accordance with the constitution • use powers only for their intended purpose Improper Purpose Doctrine Even if directors act in good faith, the act may be invalid if: • the purpose is improper Authorities • Howard Smith Ltd v Ampol Petroleum Ltd [1974] AC 821 • Hogg v Cramphorn Ltd [1967] Ch 254 Example: Issuing shares to dilute control is improper.