A shareholder does not lose the right to seek legal protection simply because the company is managed by a board of directors. Where a director acts unlawfully, breaches a duty, misuses company assets, commits fraud or engages in conduct that unlawfully affects a shareholder’s rights, the law provides remedies that can be pursued in appropriate circumstances. However, a shareholder cannot sue a director for every wrong committed against the company. This distinction is important because a company is a separate legal person. Where the wrong is done to the company, the general rule is that the company itself is the proper party to sue. The Companies and Allied Matters Act 2020 (CAMA 2020), however, provides specific exceptions through personal actions, representative actions, derivative actions and remedies for oppressive or unfairly prejudicial conduct. This article explains when a shareholder can sue a company director in Nigeria and the circumstances in which the court can grant relief. Can a Shareholder Sue a Company Director? Yes, but the shareholder must establish a recognised legal basis for the action. A shareholder can bring proceedings against a director where the director has violated a right belonging personally to the shareholder. A shareholder can also, in appropriate circumstances, bring proceedings on behalf of the company through a derivative action where the wrong was committed against the company and the company itself has failed to take appropriate action. CAMA 2020 specifically provides mechanisms for members and other qualified persons to commence derivative proceedings. Sections 341 to 350 deal with actions by or against companies, protection of members and derivative actions. The nature of the wrong therefore determines the appropriate type of action. When Can a Shareholder Bring a Personal Action Against a Director? A shareholder can bring a personal action where the director’s conduct infringes a right belonging to the shareholder personally. Examples can include circumstances involving: unlawful interference with voting rights; improper treatment of the shareholder’s shares; conduct affecting rights attached to the shareholder’s membership; unlawful acts affecting the shareholder personally; or other breaches of rights recognised by law. The key question is: Was the shareholder personally wronged, or was the company wronged? If the shareholder was personally wronged, a personal action can be appropriate. If the company was wronged, the proper route will ordinarily be a derivative action or an action brought by the company itself. What Is a Derivative Action? A derivative action is an action brought by a shareholder or another qualified person on behalf of the company to remedy a wrong done to the company. This is important because the company, rather than an individual shareholder, normally owns the cause of action arising from a wrong done to the company. For example, suppose a director unlawfully diverts ₦100 million belonging to the company to a personal account. The immediate victim of the wrongdoing is the company. A shareholder cannot simply treat the ₦100 million as the shareholder’s personal money and sue for its recovery in a personal action. Instead, where the statutory requirements are satisfied, the shareholder can seek to bring a derivative action on behalf of the company. Why Would a Shareholder Need a Derivative Action? The derivative action exists because there are circumstances in which the company is technically the proper claimant but the people controlling the company are unwilling to sue. Consider a company with five directors. Suppose four directors have participated in diverting company funds for their personal benefit. The company is the proper party to recover the money. But the board controlled by those directors is unlikely to commence proceedings against itself. A derivative action provides a mechanism through which a qualified person can seek the court’s intervention to protect the company’s interests. What Does CAMA 2020 Provide About Derivative Actions? CAMA 2020 contains specific provisions governing derivative proceedings. Section 346 permits an eligible applicant to commence or intervene in proceedings on behalf of a company in circumstances prescribed by the Act. The court must consider the statutory requirements before allowing the action to proceed. Among the matters considered is whether the applicant is acting in good faith and whether bringing, prosecuting, defending or discontinuing the action appears to be in the best interests of the company. This means that a shareholder cannot commence a derivative action simply because the shareholder disagrees with a director. There must be a proper basis for invoking the statutory remedy. Who Can Bring a Derivative Action? CAMA 2020 gives the court jurisdiction to entertain applications from specified persons. Section 352 identifies an “applicant” for the purposes of the derivative-action provisions to include: a registered holder or beneficial owner of a security of the company; a former registered holder or beneficial owner; a director or officer, including a former director or officer; the Corporate Affairs Commission; and another person whom the court considers a proper person to make the application. The statutory definition is therefore broader than simply a current shareholder. What Must a Shareholder Establish Before Bringing a Derivative Action? The shareholder must satisfy the requirements prescribed by CAMA. The court considers, among other matters, whether the applicant is acting in good faith and whether the proposed proceedings are in the best interests of the company. The court can therefore prevent derivative proceedings from being used merely as a weapon in a personal dispute between shareholders. The applicant should be able to demonstrate a genuine corporate wrong and a legitimate reason why the company has not adequately pursued the matter itself. Can a Shareholder Sue a Director for Stealing Company Money? A shareholder can seek appropriate relief where a director has misappropriated company funds, but the proper procedure depends on who suffered the legal wrong. If the money belongs to the company, the company’s cause of action is ordinarily against the director. The shareholder should therefore consider a derivative action where the company is unwilling or unable to pursue the claim. The shareholder should not simply claim that the director stole “the shareholder’s money” because the shareholder owns shares in
Can a Director Be Personally Liable for a Company’s Debt in Nigeria?
One of the fundamental principles of company law is that a company is a legal person separate from its directors and shareholders. This means that, ordinarily, a company’s debts are the debts of the company, not the personal debts of its directors. However, limited liability does not give directors absolute immunity from personal liability. There are circumstances in which a director can become personally liable for obligations arising from the company’s business, particularly where the director has acted outside the protection ordinarily afforded by separate corporate personality or has committed a breach that attracts personal liability. The Companies and Allied Matters Act 2020 (CAMA 2020) expressly recognises circumstances in which directors and other officers can incur personal liability. For example, section 316 makes directors or officers personally liable where money or property received for a specific purpose or project is, with intent to defraud, not applied for that purpose. Understanding the distinction between company liability and personal liability of a director is therefore essential for both company directors and creditors. Is a Director Personally Liable for a Company’s Debt? Ordinarily, no. A company incorporated under CAMA is a legal person separate from its directors and shareholders. The company can own property, enter into contracts, incur debts and sue or be sued in its own name. Consequently, where a company legitimately borrows money or purchases goods on credit, the company’s creditor ordinarily has a claim against the company. The mere fact that a person is a director does not automatically make that person personally responsible for the company’s debt. This is the essence of the principle of separate corporate personality. Why Are Directors Ordinarily Not Liable for Company Debts? The principle exists because the company has a legal personality separate from the individuals who manage or own it. A director acts as an officer of the company. Where the director enters into a transaction on behalf of the company within the scope of the company’s authority, the resulting obligation is ordinarily that of the company. CAMA recognises this principle. Section 89 provides, among other things, that acts of the general meeting, board of directors or managing director in the usual course of the company’s business are treated as acts of the company itself, with the company being civilly and criminally liable to the relevant extent. Therefore, a creditor cannot simply sue a director personally merely because the director signed a company contract in their capacity as director. Does Signing a Contract Make a Director Personally Liable? Not automatically. A director frequently signs agreements on behalf of a company. The important question is the capacity in which the director signed the agreement. If the agreement clearly identifies the company as the contracting party and the director signs on behalf of the company, the contractual obligation ordinarily belongs to the company. For example: ABC Limited, acting through its Managing Director, borrows ₦50 million from XYZ Bank. If the Managing Director signs the loan documentation solely as an authorised representative of ABC Limited, the debt is ordinarily ABC Limited’s debt. The director does not become personally liable merely because the director signed the document. The position changes if the director separately undertakes personal liability. When Can a Director Become Personally Liable for a Company Debt? There are several situations in which a director can become personally liable. These include where the director: gives a personal guarantee; acts fraudulently; commits a tort personally; misapplies money received for a specific purpose in circumstances covered by CAMA; engages in conduct for which legislation imposes personal liability; acts outside the company’s authority in circumstances giving rise to personal liability; participates in wrongful or dishonest conduct; or falls within another recognised exception to the principle of separate corporate personality. The mere existence of a company debt is not enough. There must be a legal basis for transferring or imposing liability on the director personally. Can a Director Be Personally Liable Because of a Personal Guarantee? Yes. A personal guarantee is one of the clearest circumstances in which a director can become personally liable for a company’s debt. Suppose a bank lends ₦100 million to a company and requires its managing director to execute a personal guarantee. The primary borrower remains the company. However, if the company defaults and the terms of the guarantee are triggered, the bank can enforce the guarantee against the director personally, subject to the terms of the guarantee and applicable law. This is why directors should never sign personal guarantees casually. A director signing a company loan document should determine whether the document merely records the director’s authority to act for the company or creates a separate personal obligation. What Is the Difference Between Signing as Director and Signing as Guarantor? The distinction is fundamental. Signing as Director The director signs on behalf of the company. The company assumes the contractual obligation. Signing as Guarantor The director separately undertakes to answer for the company’s obligation if the conditions of the guarantee are satisfied. The director can therefore become personally liable. A document can contain both capacities. A director should therefore read the entire agreement rather than assume that every signature placed on behalf of a company carries the same legal effect. Can a Director Be Personally Liable for Fraud? Yes. Separate corporate personality does not protect an individual from personal liability for their own fraudulent conduct. A director cannot use the company as a shield for fraud personally committed by the director. For example, if a director deliberately makes false representations to obtain money for the company and personally participates in the fraudulent conduct, the fact that the company received the money does not automatically protect the director from personal consequences. The precise cause of action and relief will depend on the facts. Can a Director Be Personally Liable for Misappropriating Company Money? Yes, depending on the circumstances. A director who misappropriates company funds can face personal liability and other legal consequences. A director’s position does not give the director ownership of the company’s
Recovery of Premises in Nigeria: What Landlords Need to Know
A landlord who wants a tenant to vacate rented premises cannot simply take the law into their own hands. The fact that the landlord owns the property does not dispense with the legal procedure for recovering possession from a tenant who is entitled to remain in possession. Where a tenancy has expired, rent remains unpaid, the tenant has breached the tenancy agreement or another lawful basis for termination exists, the landlord must follow the applicable procedure for recovery of premises. Failure to comply with the required procedure can delay possession and expose the landlord to unnecessary legal disputes. This article explains the essential steps a landlord should understand before commencing proceedings to recover possession of rented premises in Nigeria. What Does Recovery of Premises Mean? Recovery of premises is the legal process through which a landlord seeks to regain possession of property occupied by a tenant. The process is different from simply asking a tenant to leave. Where a tenant voluntarily surrenders possession, there is no need for contentious recovery proceedings. The difficulty arises where the tenant remains in possession despite the tenancy having lawfully come to an end. In such a situation, the landlord must use the procedure prescribed by the applicable law. Can a Landlord Recover Possession From a Tenant? Yes. A landlord is entitled to recover possession when the tenancy has lawfully determined and the landlord has complied with the applicable statutory and contractual requirements. Depending on the circumstances, the basis for recovery can include: expiration of the tenancy; failure to pay rent; breach of the tenancy agreement; use of the premises for an unlawful purpose; unauthorised subletting; persistent nuisance; substantial damage to the premises; or another recognised ground for termination. However, the landlord must establish the legal basis for recovery and follow the appropriate procedure. Does a Landlord Need to Give Notice Before Recovering Possession? In many cases, yes. The precise notice required depends on the nature of the tenancy, the terms of the agreement and the applicable legislation. A landlord should not assume that because rent has expired the tenant can immediately be physically removed. The applicable law can require a notice to quit or other statutory notice before proceedings for possession can properly be commenced. This is why the landlord must first establish the type of tenancy involved. What Is a Notice to Quit? A notice to quit is a notice informing a tenant that the landlord intends to terminate the tenancy and requires the tenant to surrender possession. The length of the notice depends on the type of tenancy and the applicable law. The tenancy agreement can also be relevant where it contains provisions concerning termination. The notice must comply with the applicable legal requirements. A defective notice can create procedural problems and potentially result in the landlord’s claim failing. Is a Notice to Quit Always Required? Not in every situation. The requirement depends on the nature of the tenancy and the circumstances in which possession is being sought. For example, where a fixed-term tenancy has expired by effluxion of time, the legal position concerning notice can differ from a situation where the landlord seeks to terminate a periodic tenancy before its natural expiration. There are also circumstances in which the law permits recovery proceedings without the ordinary notice to quit. The landlord should therefore obtain advice on the particular tenancy rather than using the same notice for every tenant. What Is a Notice of Owner’s Intention to Recover Possession? A landlord may also be required to serve a notice informing the tenant of the landlord’s intention to commence proceedings to recover possession. This is distinct from the notice to quit. The precise terminology and requirements depend on the applicable recovery of premises legislation. For example, under the Lagos State Tenancy Law 2011, where a tenancy has been determined and the tenant remains in possession, the landlord is required to serve the appropriate statutory notice before commencing proceedings for recovery of possession. The landlord should therefore ensure that the correct notice is prepared and served in accordance with the applicable law. What Happens If the Tenant Refuses to Leave? If the tenancy has lawfully ended and the tenant refuses to surrender possession, the landlord can commence proceedings for recovery of possession. The landlord should not: change the locks; remove the tenant’s belongings; disconnect utilities to force the tenant out; physically eject the tenant; threaten the tenant; or employ other forms of self-help. The appropriate course is to commence the necessary legal proceedings. See Can a Landlord Evict a Tenant Without a Court Order in Nigeria? for a detailed discussion of unlawful eviction and self-help. What Court Handles Recovery of Premises? The appropriate court depends on the location of the property, rental value, the applicable law and the nature of the claim. The Magistrate Court and the High Court of the State the property is located are usually the courts with jurisdiction depending on the value of the rent. A landlord should establish the proper court before commencing proceedings rather than assuming that any court can hear the claim. The applicable state legislation and procedural rules should be examined before filing. What Should a Landlord Claim in a Recovery of Premises Action? The reliefs depend on the circumstances of the case. A landlord can seek appropriate orders relating to: recovery of possession; arrears of rent; mesne profits; damages where legally recoverable; costs; and other appropriate reliefs. The landlord should plead and prove each claim separately. Can a Landlord Recover Rent and Possession in the Same Case? Yes. A landlord does not have to choose between recovering possession and recovering money properly due from the tenant. Where the tenant remains in possession after the tenancy has determined, the landlord can claim mesne profits for the period during which the tenant wrongfully remains in possession. Mesne profits are essentially compensation for the loss of the landlord’s use and occupation of the premises during the period of wrongful possession. The landlord can therefore, where properly established,
Landlord and Tenant Disputes in Nigeria: Legal Remedies Available to Tenants
Landlord and tenant disputes are common in Nigeria. They can arise over rent increases, eviction, unpaid rent, refusal to renew a tenancy, failure to refund a deposit, unlawful entry, damage to property, utility bills and other disagreements concerning the use or possession of rented premises. Although a landlord owns the property, ownership does not give the landlord an unrestricted right to interfere with a tenant’s lawful possession. A tenant, likewise, is not entitled to remain in possession indefinitely or disregard the terms of the tenancy. The rights and obligations of both parties are determined by the tenancy agreement, applicable legislation and the general principles of landlord and tenant law. Where a dispute cannot be resolved amicably, a tenant has legal remedies available. What Are the Most Common Landlord and Tenant Disputes in Nigeria? Landlord and tenant disputes commonly involve: rent increases; non-payment of rent; eviction and recovery of possession; inadequate or defective premises; refusal to renew a tenancy; disputes over security or caution deposits; unlawful entry into rented premises; harassment or threats by a landlord; disconnection of electricity or water; disputes over service charges; alleged damage to the property; recovery of rent arrears; refusal to accept rent; and disagreements over the terms of the tenancy. The appropriate remedy depends on the nature of the dispute. What Law Governs a Landlord and Tenant Dispute in Nigeria? There is no single landlord and tenant law that governs every tenancy throughout Nigeria. Landlord and tenant matters are substantially regulated by the law applicable in the particular jurisdiction where the property is situated. For example, Lagos State has the Lagos State Tenancy Law 2011, while other states have their own legislation or applicable rules governing tenancy and recovery of premises. The tenancy agreement is also important. Accordingly, before commencing proceedings, a tenant should determine: where the property is located; what legislation applies; whether there is a written tenancy agreement; what the agreement provides; and what exactly the landlord has done or failed to do. Can a Landlord Evict a Tenant Without a Court Order? A landlord cannot simply use self-help to eject a tenant from premises where the law requires judicial recovery of possession. A landlord who wants to recover possession must comply with the applicable legal procedure. Depending on the nature and duration of the tenancy, this can involve the appropriate notice and, where the tenant does not surrender possession, proceedings for recovery of possession. A landlord should not resort to: changing the locks; removing the tenant’s belongings; physically forcing the tenant out; disconnecting essential services to force the tenant to leave; or employing threats or violence. The legal procedure for recovery of premises should be followed. For a detailed explanation, see [Can a Landlord Evict a Tenant Without a Court Order in Nigeria?]. What Can a Tenant Do If the Landlord Attempts an Illegal Eviction? A tenant facing an attempted unlawful eviction should document what is happening and obtain legal advice promptly. The tenant should preserve: photographs and videos; messages from the landlord; letters and notices; evidence of threats; evidence of damage to property; rent payment records; and witness details. Where appropriate, the tenant can seek judicial relief to protect the tenant’s possession or pursue a claim arising from the landlord’s unlawful conduct. The precise remedy depends on the facts. Can a Tenant Challenge an Excessive Rent Increase? Yes. A landlord can propose a new rent, but the legality of an increase depends on the existing tenancy, the tenancy agreement and the applicable law. In Lagos State, Section 37 of the Lagos State Tenancy Law 2011 provides an existing tenant with a statutory procedure for challenging an increase considered unreasonable. The court can consider factors including the general level of rents in the locality, evidence presented by the parties and special circumstances relating to the premises. For more information, see [Can a Tenant Refuse a Rent Increase in Nigeria?]. What If the Landlord Increases Rent During an Existing Fixed Tenancy? A fixed-term tenancy and a new tenancy after expiration should be distinguished. Where a tenant has entered into a fixed-term tenancy at an agreed rent, the landlord cannot ordinarily change the agreed rent during the fixed term contrary to the tenancy agreement. The position can be different where the agreement contains a valid rent review clause. A tenant should therefore examine the tenancy agreement before deciding whether an increase is legally enforceable. What If a Landlord Refuses to Renew the Tenancy? A tenant does not automatically acquire a right to renew every tenancy simply because the tenant has occupied the property for a long period or has consistently paid rent. The position depends on the tenancy agreement, any contractual option to renew and the circumstances surrounding the tenancy. Where there is no written tenancy agreement, the tenancy can still be express or implied. However, an implied tenancy is not the same thing as an automatic implied right of renewal. Where a landlord refuses to renew, the tenant should establish whether there is a contractual or other legal basis for requiring renewal. See [What to Do When a Landlord Refuses to Renew a Tenancy Agreement in Nigeria] for a detailed discussion. What If There Is No Written Tenancy Agreement? The absence of a written agreement does not mean that the tenant has no legal protection. For example, Section 3 of the Lagos State Tenancy Law 2011 recognises tenancy agreements that are express or implied, oral or written, or partly oral and partly written. A tenancy can therefore be established through: oral agreement; payment of rent; possession; receipts; correspondence; conduct of the parties; and other evidence establishing the tenancy. A tenant should therefore preserve evidence of the tenancy even where no formal document was executed. Can a Tenant Sue a Landlord for Refusing to Refund a Security Deposit? Yes, where the tenant has an established entitlement to the money. The first question is whether the payment was actually a refundable security or caution deposit and what the tenancy agreement says about it. A
How to Recover Your Rent Deposit from a Landlord in Nigeria
Many tenants in Nigeria pay a caution fee, security deposit or other form of deposit when taking possession of a rented property. The money is usually intended to protect the landlord against damage to the property, unpaid bills or other obligations of the tenant. The problem often arises when the tenancy ends and the landlord refuses to return the deposit. A tenant may hear statements such as: “The money is not refundable.” “It is part of the rent.” “You damaged the property.” “I will refund it when I am ready.” “The previous tenant never got theirs back.” Whether the landlord is entitled to retain the money depends on the nature of the payment, the tenancy agreement, the reason for the deduction, etc. A tenant who is entitled to a refund does not have to simply abandon the money. There are practical and legal steps that can be taken to recover it. What Is a Rent Deposit? The expression “rent deposit” is often used loosely in Nigeria to describe different payments made by a tenant. It is therefore important to establish exactly what the tenant paid. A payment described as a caution fee or security deposit is different from rent paid in advance. Caution Fee or Security Deposit A caution fee or security deposit is generally money held as security against specified obligations of the tenant. Depending on the agreement, it can be used to cover matters such as: damage caused by the tenant; unpaid utility bills; outstanding obligations under the tenancy agreement; missing items belonging to the landlord; or other losses expressly covered by the agreement. It is not ordinarily the same thing as rent. Rent Paid in Advance Rent paid in advance is consideration for the tenant’s occupation of the premises for the agreed rental period. It should not automatically be described as a security deposit. For example, if a tenant pays ₦2 million as one year’s rent, that ₦2 million is rent. If the tenant separately pays ₦200,000 as a caution fee, the ₦200,000 has a different legal character. This distinction becomes important when the tenancy ends. Is a Caution Fee Refundable in Nigeria? Generally, where a payment was genuinely made as a security or caution deposit, it is refundable subject to legitimate deductions authorised by the tenancy agreement or otherwise legally recoverable from the tenant. The landlord is not entitled to simply convert a security deposit into additional income because the tenancy has ended. The precise entitlement, however, depends on the agreement and the circumstances. The safest approach is to examine the document or receipt describing the payment. If the tenancy agreement expressly states that the caution fee is refundable at the end of the tenancy, subject to specified deductions, the tenant has a clear contractual basis for demanding its return. If the agreement is silent, the nature and purpose of the payment, the parties’ conduct and the surrounding circumstances become important. Can a Landlord Keep the Entire Deposit? Not simply because the tenant has vacated. A landlord who intends to retain all or part of a security deposit should have a legitimate basis for doing so. For example, the landlord can have grounds to deduct the reasonable cost of repairing damage actually caused by the tenant where the tenant is contractually responsible for that damage. The landlord should not treat ordinary deterioration resulting from normal use as though it were automatically compensable damage. The question is whether there is a legitimate loss for which the tenant is responsible. What Can a Landlord Deduct from a Security Deposit? The answer depends on the tenancy agreement and the applicable law. Common legitimate deductions can include: the reasonable cost of repairing damage caused by the tenant; unpaid utility bills attributable to the tenant; unpaid rent or other sums contractually owed; the cost of replacing missing items belonging to the landlord; and other amounts which the tenancy agreement validly permits the landlord to deduct. The landlord should be able to explain the basis of the deduction. A tenant should therefore ask the landlord for a breakdown where the landlord refuses to refund the entire deposit. Can a Landlord Deduct Money for Ordinary Wear and Tear? Ordinary wear and tear is different from damage caused by the tenant. A property naturally deteriorates through ordinary occupation. Examples can include: minor marks on walls; ordinary fading of paint; normal deterioration of fittings through age; reasonable wear to flooring; and other deterioration resulting from ordinary use. A landlord should not automatically charge the tenant for every change in the condition of the property. Where the landlord claims that the tenant caused damage, the tenant should request evidence of the alleged damage and the cost of rectification. What If the Landlord Says the Deposit Is Non-Refundable? The first question is: What exactly did the tenant agree to pay? The word “fee” alone does not necessarily determine the legal character of a payment. If the payment was expressly described in the tenancy agreement as a non-refundable fee, it must be distinguished from a payment expressly described as a refundable caution or security deposit. The court will look at the agreement and the circumstances surrounding the payment. A tenant should therefore not assume that every payment called a “caution fee” is automatically refundable without examining the agreement. Conversely, a landlord should not simply label a genuine security deposit “non-refundable” after receiving it if that is inconsistent with the parties’ agreement. What If There Is No Written Tenancy Agreement? The absence of a written tenancy agreement does not necessarily prevent a tenant from recovering a deposit. The tenant can rely on other evidence showing: that the money was paid; the amount paid; who received it; the purpose for which it was paid; the condition of the property; the circumstances in which the tenancy ended; and any agreement concerning repayment. Evidence can include: bank transfer records; receipts; WhatsApp messages; text messages; emails; photographs; videos; witness testimony; and communications with the landlord or agent. This is another reason why