Types of directors (3): Shadow, Substitute and Alternate directors

This is the last instalment of our look into the various types of directors recognised under Ghanaian law. Previous articles have touched on the executive and non-executive director, as well as the managing director. This final instalment considers the position of the shadow director, the substitute director and the alternate director. 

 

Shadow director 

The shadow director, like the name suggests, is a director lurking in the shadows. You may not see him, but he plays a critical role in the decision-making process of the company. Section 170(2)(b) of the Companies Act defines a shadow director as “a person, not being duly appointed director of a company, on whose directions or instructions the duly appointed directors are accustomed to act.” The Companies Act makes it clear that the shadow director is subject to the same duties and liabilities of a director as if that person were a duly appointed director of the company. The various decisions of the court point to the fact that the main reason for robing in shadow directors and fixing them with liability is to make those who exercise real decision-making power responsible for their action and not create a situation where they use the board of directors as a smokescreen. There is an endless list of persons who can be considered as shadow directors. It is always a question of fact whether a person is indeed a shadow director or not. The court often considers the position of the individual involved and the real role that the person has played or continues to play in the decision-making process of the company. It is important to note that a person does not become a shadow director simply because the directors of a company often act on the advice given by that person in a professional way. In the case of Republic v Ibrahim Adam & Anor (FT/MISC 2/2000), Afreh JSC (as he then was) described former President Mills as a shadow director of the Quality Grain Rice Company. In the words the court: “From the evidence, including the Professor’s own evidence, I do not have any doubt that Prof. Mills often intervened in and even ran the affairs of the Quality Grain Company. He was in effect, what in company law is called a ‘shadow director’… Such a director is subject to the same duties and liabilities as if he were a duly appointed director of the company.” The Court went on to stress that the existence of a shadow director does not relieve the duly appointed directors of their obligations to the company. 

 

Substitute director

A substitute director is a director who is appointed to act to act as a deputy for another named director and as the substitute in the absence of the director.  A close reading of section 180 of the Companies’ Act suggests that the position of the substitute director is a permanent one. The exact wording is “a company may appoint substitute directors.” 

It is important to note that the substitute director is not counted as a director for the purposes of the official count of the number of directors that a company has. So if in the constitution of a Company A, a company cannot have more than five directors, the substitute director is not counted for the purpose of determining the minimum and the maximum number of directors of the company. The Companies Act considers the substitute director as being one and the same as the substantive director. In other words, the office of the substitute director does not have an independent standing. Rather, it is merely an appendage of the main director. So if by mere happenstance, the substantive director and the substitute director are present at the same meeting, the substitute director shall not be counted for the purposes of the meeting of any quorum requirement. Also, a substitute director cannot vote at a meeting of directors or committee of directors at which the director for whom the substitute director represents is present. It is worth pointing out that in the absence of a substantive director, the substitute director is considered as a full director and is to be appointed and removed in the same way as a director of a company. The Companies’ Act points out that a substitute director does not stop being a substitute director simply because the substantive director has ceased to be a director. This point is another confirmation of the fact that the position of the substitute director is permanent.  

 

Alternate director 

The Companies Act provides that except as otherwise provided in the constitution of the company, a director may appoint another director or any other person approved by a resolution of the board of directors as an alternate director. The distinctive thing about the alternate director’s position is that it is for a limited period. To be more specific, the alternate director cannot act beyond six months. Thus whiles in the case of a substitute director, no time limit are imposed on how long the substitute director may act, that is not the case with respect to the alternate director. Another distinctive thing about the position of the alternate director is that he or she is meant to take over when a director is absent from the republic or unable for a reason to act as a director. The alternate director is also a full director for the duration of his appointment. The alternate director is not an agent of his appointor but rather an officer of the company. The alternate director is excused from meeting any shareholding requirement even if the company’s constitution insists on directors meeting any shareholding requirement. The alternate director is himself not entitled to appoint another alternate director and is also not counted as a director for the purpose of meeting any quorum requirement. since the alternate director stands in the stead of the main director, the constitution of the company may provide that the main director’s salary is paid to the alternate director. The alternate director’s appointment shall end with the expiration of the period for which the appointment was made.