A director can leave office either vacation or removal
This is the voluntary quitting of office a director. It can happen during the director’s tenure of office and for any reason such as ill health, age, agreement with the board of directors or even for special reasons.
A director, who is vacating office must follow the procedure, if any, laid down in the Articles of Association or the common law rules. He must give notice of such intention to vacate and reasons too. He should avail himself so that he can sort out his obligations and rights. Anything one while he is a director he must be liable for but not thereafter, hence the date of his vacation is quite important in the determination of his liability or otherwise for wrongful acts.
Removal of directors from office
In contrast, removal means being forced to quit the position of a director. He can be removed in two broad ways
a) By operation of law, and,
b) By the company itself
If a director is in breach of any of his statutory qualifications, the consequences is that the law operates immediately to remove him from such appointment. In addition, when the company goes into liquidation the directors cease to hold office.
A company is empowered to remove a director from office an ordinary resolution to that effect provided that the following procedure is followed:
Procedure for removal of a director from office:
a) A special notice of the intended resolution to remove a director from office must be given to the company.
N/B: In Section 142, a special notice is defined as notice given twenty (20) days before the meeting in question.
b) Upon receipt of the notice, the company must send a copy thereof to the director concerned who is entitled to make written representations.
c) The director may request the company to notify the members that he has made representations.
d) The directors must summon an extra ordinary general meeting to discuss the matter
e) Notice of the meeting must indicate that the director has made representations and copies thereof must be sent to the members unless received late the company.
f) If the copies are not enclosed reason of lateness or default the company, the director is entitled to have them read out at the meeting however the directors representations need not be sent out to members or read out at the meeting if an application the company or any other aggrieved person, the Court is satisfied that the director is abusing his right to be heard, to secure needles publicity for a defamatory matter.
g) The Court may hold the director liable for the cost of the applications.
h) The removal of a director from office takes effect when the meeting ordinary resolution so resolves.
Compensation of Directors for Loss of Office
Any director may receive non-contractual compensation for loss of office, paid to them voluntarily. Any such compensation is lawful only if approved members of the company in general meeting after proper disclosure has been made to all members, whether voting or not. This only applies to uncovenanted payments; approval is not required where the company is contractually bound to make the payment.
Compensation paid to directors for loss of office is distinguished from any payments made to directors as employees. For example, to settle claims arising from the premature termination of the service agreements. These are contractual payments which do not require approval in general meeting.
Directors are entitled to fees and expenses as directors as per the articles, and compensation for loss of office as per their service contracts (which can be inspected members). Some details are published in the directors’ remuneration report along with the accounts.
Details of directors’ remuneration are usually contained within their service contract. This is a contract where the director agrees to personally perform services for the company.
Most articles state that directors are entitled to reimbursement of reasonable expenses incurred whilst carrying out their duties or functions as directors.
In addition, most directors have written service contracts setting out their entitlement to emoluments and expenses. Where service contracts guarantee employment for longer than two years then an ordinary resolution must be passed the members of the company.
Directors’ remuneration report
Quoted companies are required to include a directors’ remuneration report as part of their annual report, part of which is subject to audit. The report must cover:
o The details of each individual director’s remuneration package
o The Company’s remuneration policy
o The role of the board and remuneration committee in deciding the remuneration of
It is the duty of the directors (including those who were a director in the preceding five years) to
provide any information about themselves that is necessary to produce this report.
Quoted companies are required to allow a vote members on the directors’ remuneration report. The vote is purely advisory and does not mean the remuneration should change if the resolution is not passed.
However, a negative vote would be a strong signal to the directors that the members are unhappy with remuneration levels.
Items not subject to audit
Consideration the directors (remuneration committee) of matters relating to directors’ remuneration
Statement of company’s policy on directors’ remuneration Performance graph (share performance)
Directors’ service contracts (dates, unexpired length, and compensation payable for early termination)
Items subject to audit
Salary/fees payable to each director Bonuses paid/to be paid
Compensation for loss of office paid Any benefits received
Share options and long-term incentive schemes – performance criteria and conditions Pensions
Excess retirement benefits Compensation to past directors
Sums paid to third parties in respect of a director’s services
Director’s long-term service contracts (157)
This applies to a contract under which the employment of a person as a director of company is guaranteed with the company; or if the person is the director of a holding company within the group
that comprises the company and its subsidiaries, for a period exceeding, or that could exceed, two years.
A company may not enter into such a contract unless it has been approved
o By resolution of the members of the company; and
o In the case of a director of a holding company, a resolution of the members of that company.
Inspection of directors’ service agreements
A company must make available for inspection members a copy or particulars of contracts of employment between the company and a subsidiary with a director of the company. Such contracts must cover all services that a director may provide, including services outside the role of a director, and those made a third party in respect of services that a director is contracted to perform.
Contracts must be retained for one year after expiry and must be available either at the registered office, or any other location permitted the Secretary of State.
Prescribed particulars of directors’ emoluments must be given in the accounts and also particulars of any compensation for loss of office and directors’ pensions.
Loans and Other Payments to Directors
A company may not give a loan to a director of the company or of its member, holding company; or give a guarantee or provide security in connection with a loan made any person to such a director, unless the transaction has been approved a resolution of the members of the company
Legal Position of Directors
Section 3 (1) of the Companies Act provides that a director includes any person occupying the position of director whatever name called. This definition fails to identify the director and his relationship with the company.
Every company must have director to manage its affairs. The legal position of directors has been articulated Courts.
“Directors have been called trustees and managing trustees. It does not matter what you call them so long as you understand what their true position is”
For certain purposes directors are regarded as agents, for others they are considered as trustees but their true legal position is that of fiduciaries.
a) Directors as agents
A company, as an artificial person, acts through directors who are elected representatives of the shareholders of a company. They are in the eyes of the law, agents of the company for which they act, and the general principles of the Law of Agency regulates in most respects, the relationship between the company and its directors.
They are deemed to be agents when they contract on behalf of the company. On contracts of employment borrowing or in furtherance of the objects of the company, they contract as agents and
the company is generally liable as the principal. However in those circumstances in which the agent is personally liable, the directors are liable. It was so held in Ferguson V Wilson.
Directors not personally liable as agents:
Where directors of a company act on its behalf, they are not personally liable for contracts they make for the company provided they act within the scoop of their authority and do not make the contracts in their personal name.
In Ferguson V Wilson, the plaintiff had an option to subscribe for some of the company’s shares. The directors allotted the whole of its authorized capital to other persons, including themselves, so that the option became worthless.
It was held that the directors were not liable. The general rule was stated as follows: “wherever an agent is liable, directors would be liable, where the liability would attach to the principal, and the principal only, the liability is the liability of the company”.
The directors are, however liable where:-
i. The contract is in their own name
ii. They use the company’s name incorrectly, e.g. omitting the or the words “limited” or “Private Limited”
iii. The contract is signed in such a way that it is not clear whether it is the principal (the company) or agent who signed
iv. They exceed the powers given to other the Articles of Association.
It is however not true to say that directors are nothing more than agents of a company. They have in certain matters independent powers. They are not bound to consult the shareholders in all matters. Some powers may, according to the Articles, be exercised the directors. Certain other powers may be reserved for the shareholders in general meetings. If powers of management are vested in the directors, they and they alone can exercise these powers.
b) Directors as trustees
It is argued that directors are trustees for certain purposes though not ordinarily trustees.
Unlike ordinary trustees who have legal title in trust property, directors do not have it as it is vested in the company. Unlike ordinary trustees whose obligation is to preserve trust property for the beneficiary, directors are bound to invest for the benefit of the company.
Money in a company’s bank account which directors are authorized to operate is held in trust for the company. Assets that come into the hands of directors or under their control are held in trust for the company. It was so held in Re: Forest of Dean Coal Mining Co. Therefore, directors are treated as trustees
Of the company’s money and property, and
Of the powers entrusted to them.
c) Directors as fiduciaries
In the words of Lord Porter in Regal (Hastings) Ltd V Gulliver:
“Directors no doubt are not trustees but they occupy a fiduciary position towards the company whose Board they form. This is the true legal position of directors. There is a fiduciary relationship between the directors and the company, a relationship based on trust, confidence and good faith which imposes upon the directors various fiduciary or equitable duties often referred to as duties of loyalty and good faith”