The position of a company director is not necessarily permanent. Under Nigerian company law, a director can be removed before the expiration of his or her tenure where the statutory requirements for removal are satisfied. The Companies and Allied Matters Act 2020 (CAMA 2020) provides a specific procedure for removing a director from office. The procedure is important because a company cannot simply remove a director informally or disregard the director’s statutory right to respond to the proposed removal. Section 288 of CAMA 2020 provides that a company may remove a director before the expiration of the director’s period of office by ordinary resolution, notwithstanding anything contained in the company’s articles or an agreement with the director. However, the Act requires special notice and gives the affected director an opportunity to be heard. This article explains how a director can be removed from a Nigerian company, who can initiate the process, the procedure that must be followed and what happens after removal. Can a Director Be Removed From a Nigerian Company? Yes. A company can remove a director before the expiration of the director’s tenure. Section 288(1) of CAMA 2020 expressly provides that a company may, by ordinary resolution, remove a director before the expiration of the director’s period of office. This power applies notwithstanding anything contained in the company’s articles or in an agreement between the company and the director. The existence of an employment contract or other agreement with a director therefore does not, by itself, prevent the company from exercising the statutory power of removal. However, removal from the office of director and termination of an employment relationship are separate legal questions. A director who is also an employee can have contractual rights that require separate consideration. What Resolution Is Required to Remove a Director? The removal of a director under section 288 requires an ordinary resolution. An ordinary resolution is generally passed by a simple majority of members entitled to vote and voting at the meeting, subject to the applicable provisions of CAMA and the company’s constitution. The important point is that the company does not require a special resolution merely to remove a director under section 288. However, the company must comply with the separate requirement of special notice. What Is Special Notice? Special notice is a statutory notice required for specified corporate resolutions. Section 288(2) expressly requires special notice of a resolution to remove a director, or to appoint another person in place of the director proposed to be removed. The requirement protects directors from being removed without adequate procedural notice. Who Gives the Special Notice? The members proposing the removal must give the required notice to the company. The company’s subsequent responsibility is to communicate the proposed resolution to the director concerned and the members in accordance with CAMA. The procedure should therefore not be treated as an ordinary board decision. A board of directors cannot simply pass a resolution declaring that another director has been removed where the statutory procedure under section 288 is applicable. Does the Director Have to Be Told About the Proposed Removal? Yes. Once the company receives notice of the intended resolution to remove a director, the company must immediately send a copy of the notice to the director concerned. This applies whether or not the director is also a member of the company. The director is then entitled to be heard on the resolution at the meeting. This is an important procedural safeguard. Does a Director Have a Right to Defend Himself? Yes. The director proposed to be removed has a statutory right to make representations concerning the proposed removal. The director is also entitled to be heard orally at the meeting where the resolution is considered. The purpose is to ensure that members have an opportunity to consider the director’s response before voting on the proposed removal. Can the Director Make Written Representations? Yes. Where the director makes written representations concerning the proposed removal and requests that they be communicated to the company’s members, the company is required to take the steps prescribed by section 288. The representations must not exceed a reasonable length. Subject to the statutory requirements concerning timing, the company must state in the notice of the resolution that representations have been made and send copies of the representations to members who are being sent notice of the meeting. This prevents the company from presenting only one side of the dispute to shareholders. What If the Company Fails to Circulate the Director’s Representations? CAMA provides protection for the director where the representations are not circulated because they were received too late or because of the company’s default. The director can require the representations to be read out at the meeting, without prejudice to the director’s right to be heard orally. However, the court can intervene where it is satisfied that the statutory right concerning representations is being abused. Does the Company Need a Court Order to Remove a Director? No, not ordinarily. Where section 288 applies, removal is effected through the company’s statutory corporate procedure. The company does not ordinarily need to obtain a court order merely to exercise the power of removal. The essential requirements are compliance with CAMA, including the special-notice requirement and the ordinary resolution. However, a court can become involved where the validity of the removal is challenged or where another legal dispute arises concerning the process. Can the Board of Directors Remove Another Director? This requires an important distinction. The statutory power under section 288 is a power of the company exercised through an ordinary resolution, rather than simply a power of the board to remove one of its members. Therefore, where the objective is to remove a director from the office of director under section 288, the statutory procedure involving the members’ resolution must be followed. The board should not substitute an internal board decision for the statutory removal procedure. Can Shareholders Remove a Director? Yes. Shareholders can exercise the company’s power to remove a director
Minority Shareholder Rights Under Nigerian Law
Owning a minority shareholding in a Nigerian company does not mean that a shareholder has no legal protection. Although majority shareholders generally have greater voting power, Nigerian company law recognises that majority control cannot be used without legal limits to unfairly prejudice minority shareholders. The Companies and Allied Matters Act 2020 (CAMA 2020) provides various protections and remedies for members of a company, including remedies against oppressive, unfairly prejudicial or discriminatory conduct. Minority shareholders can therefore challenge certain decisions and conduct that unlawfully interfere with their rights or unfairly prejudice their interests. This article explains the principal minority shareholder rights in Nigeria, the situations in which those rights can be enforced and the remedies available under Nigerian company law. Who Is a Minority Shareholder? A minority shareholder is generally a shareholder who does not possess sufficient voting power to control the company’s decisions. For example, if four shareholders collectively own 80% of a company’s shares and another shareholder owns 20%, the 20% shareholder is a minority shareholder. Being a minority shareholder does not mean that the shareholder has fewer legal rights simply because the shareholder has fewer shares. The shareholder retains the rights attached to the shares held, subject to the company’s constitution and applicable law. What Rights Does a Minority Shareholder Have in Nigeria? Depending on the circumstances, minority shareholders have rights relating to: voting; participation in general meetings; receiving notices of meetings; receiving dividends when lawfully declared; receiving relevant corporate information; inspection of certain company records; challenging unlawful corporate acts; protection against oppressive conduct; protection against unfairly prejudicial conduct; bringing derivative proceedings in appropriate circumstances; seeking relief where their membership rights have been infringed; and receiving their lawful entitlement when the company is wound up. The precise scope of each right depends on CAMA, the company’s articles and the circumstances of the particular company. Does a Minority Shareholder Have Voting Rights? Yes. A minority shareholder is entitled to exercise the voting rights attached to the shares held, subject to the company’s constitution and the applicable provisions of CAMA. For example, a shareholder holding 20% of the ordinary shares does not lose the right to vote merely because another shareholder owns 80%. The majority shareholder will ordinarily have greater voting power, but the minority shareholder’s voting rights remain legally recognised. Can Majority Shareholders Do Whatever They Want? No. Majority voting power is not an unlimited licence to act unlawfully or oppressively. The majority can ordinarily determine matters according to the voting structure of the company, but decisions must still comply with: CAMA 2020; the company’s memorandum and articles; applicable resolutions and procedures; directors’ duties; and other relevant laws. Where majority control is exercised in a manner that unfairly prejudices minority shareholders, the minority can seek appropriate legal relief. Can a Minority Shareholder Challenge an Unlawful Company Decision? Yes. A minority shareholder can challenge an unlawful decision where the shareholder has a legally recognised basis for doing so. The appropriate remedy depends on the nature of the decision. For example, a shareholder can challenge a corporate act that violates the shareholder’s personal rights or seek appropriate relief where the company’s affairs are being conducted in an oppressive or unfairly prejudicial manner. A shareholder should, however, distinguish between an unlawful decision and a decision that the shareholder simply considers commercially unwise. Courts do not ordinarily substitute their commercial judgment for that of properly constituted corporate organs. What Is Minority Shareholder Oppression? Minority shareholder oppression occurs where the affairs of a company are conducted in a manner that unfairly subjects a member or members to oppressive treatment. CAMA 2020 provides a statutory remedy where the company’s affairs are conducted in a manner that is oppressive, unfairly prejudicial or unfairly discriminatory against a member or members. This protection is particularly important where majority shareholders use their control of the company to unfairly disadvantage minority shareholders. What Is Unfairly Prejudicial Conduct? Conduct can be unfairly prejudicial where it causes unfair harm to the interests of a shareholder in circumstances recognised by law. Examples can include: exclusion from management contrary to established arrangements; diversion of company benefits to majority shareholders; manipulation of shareholding; withholding information improperly; using corporate powers to unfairly dilute a minority interest; treating similarly situated shareholders differently without lawful justification; or using control of the company to advance the interests of the majority at the expense of the minority. Whether particular conduct is oppressive or unfairly prejudicial depends on the facts. Can Majority Shareholders Dilute a Minority Shareholder’s Shares? A company can lawfully issue additional shares in accordance with CAMA and its constitution. However, the power to issue shares must not be abused for an improper purpose. A purported share issue designed principally to destroy a minority shareholder’s voting power or unfairly alter control can be challenged where the facts establish a legal basis for doing so. A minority shareholder who suspects an improper dilution should promptly obtain the relevant corporate records and examine the circumstances surrounding the share issue. Can a Minority Shareholder Challenge a Transfer of Shares? A shareholder can challenge a share transfer where there is a legal basis for doing so. The company’s articles and CAMA can regulate transfers, particularly in private companies. A minority shareholder should examine: the articles of association; the share transfer documentation; board resolutions; relevant shareholder agreements; pre-emption provisions; the company’s register of members; and the circumstances surrounding the transfer. The mere fact that a shareholder dislikes a transfer does not make it unlawful. Does a Minority Shareholder Have a Right to Dividends? A shareholder does not acquire an automatic right to a dividend merely because the company has made a profit. Dividends must be lawfully declared in accordance with CAMA and the company’s constitution. Once a dividend is properly declared and becomes payable, the shareholder’s entitlement becomes enforceable in accordance with the applicable law. A majority shareholder cannot simply divert a lawfully declared dividend belonging to a minority shareholder. Can Majority Shareholders Refuse to Pay Minority Shareholders Dividends? The answer depends on