A director is a person appointed by the company to direct and manage the company’s business. The court in Olufosoye v. Fakorede (1993)1 NWLR (Pt. 272) described as “…a person appointed or elected according to law, authorized to manage and direct the affairs of a corporation or a company”. Upon assumption of the role of a director in a public or private company, some duties arise as a result. Every director is expected to keep to these duties.
Duties of the Director
Generally, the duties of directors are classified into two:
- Fiduciary Duties; and
- Duties of Care and Skill
A. Fiduciary Duties of the Director
A director of a company shares a fiduciary relationship with the company. This relationship requires a director to maintain utmost good faith in his dealings with and on behalf of the company. A director owes a fiduciary duty to the company where –
- a director is acting as an agent of a particular shareholder; or
- though not an agent of any shareholder, but the director is a shareholder or a person dealing with the company’s securities.
The fiduciary duties of a director of a company are as follows:
- Duty to always act in what the director believes to be in the best interests of the company, in good faith, to preserve the company’s assets, further its business, and promote the purposes of the company – section 305(3) of CAMA 2020.
- Duty to further the company’s business and purposes in a faithful, diligent, careful manner. In doing so, the director must pay attention to what an ordinarily skillful director would do in those circumstances. The director must also have regard to the impact of the company’s operations on the environment the company carries on its business operations – section 305(3) of CAMA 2020.
- Duty to always take into consideration the interests of the company’s employees, as well as the interests of its members – section 305(4) of CAMA 2020.
- Duty of a director to exercise powers as a director based on the specified obligations within his role and not do so for a collateral purpose – 305(5) of CAMA 2020.
- Duty not to fetter discretion to vote in a particular way (the director is expected to use his voting power and discretion in the best interest of the company) – 305(6) of CAMA 2020.
- Where a director is allowed to delegate powers under any provision of CAMA, such a director shall not delegate the power in a way that may amount to an abdication of duty – 305(7) of CAMA 2020.
- Duty to ensure that the director’s interest does not conflict with any of the director’s duties to the company- section 306(1) of CAMA 2020.
- Duty not to make unnecessary secret profit while managing and utilizing the properties of the company as a director. If such profit is made, the director is expected to make accounts – 306(2) and (3) of CAMA 2020. Where a director discloses potential interests before the transaction and before the secret profits are made to the general meeting, the general meeting may or may not authorize any resulting profits. The director is likely to escape liability on this premise. Disclosure after secret profit necessitates accountability – 306(2) and (3) of CAMA 2020.
- Duty not to misuse corporate information. This duty subsists even after the retirement of the director and a director or former director can be restrained by an injunction from misusing the company’s information – 306(5) of CAMA 2020.
- In the case of a public company, duty to disclose the age of the director where a director is up to or more than 70 years at the time of appointment or proposed appointment. Additionally, to disclose multiple directorships and not to derogate from fiduciary duties in a particular company because of multiple directorship roles in different companies – sections 278 and 307 of CAMA 2020.
Duties of Care and Skill
The duty of care and skill is provided for in Section 308 (1) and (2) of CAMA 2020. Every director of a company is expected to discharge his or her duties with the degree of care, diligence, and skill in a manner that a reasonably prudent director would do in comparable circumstances. Failure to take reasonable care is a ground for an action for negligence and breach of duty against a director in default.
A director is to be individually responsible for the actions of the board in which he participated. If a director is absent from the board’s deliberations on a particular issue, that does not relieve the director of such responsibility that may arise as a result of that deliberations, unless justified – section 308(4) of CAMA 2020.
In the light of the foregoing, no provision, whether contained in the articles of association of the company, resolutions of a company, or any contract, can relieve any director from the duties highlighted above or relieve a director from any liability incurred as a result of any breach of these duties – section 305(8) and (9) of CAMA 2020. The inability or unwillingness of the company to perform any function or duty under the company’s articles and memorandum of association does not also constitute a defense to the breach of any duty owed by the director to the company – section 306(4) of CAMA 2020.
Ubongene 