Types of Directors (4): Persons not duly appointed as directors

Our previous notes have considered the position of the law concerning the Managing director, the Executive Director, the Non-Executive Director, the Shadow Director, the Substitute Director, and the Alternate Director.

In the Managing Director’s case, she is a director appointed by her colleague directors and given a specific role to perform. The law does not limit what she can do and not do. Her terms of reference are prescribed by her colleague directors. In the case of the Executive and Non-Executive Directors, the real distinction lies in the fact that an Executive Director is deeply involved in the running of the affairs of the company whiles a Non-Executive Director is not. The Executive Director hold some other position of profit in the company besides being a director. In the case of the substitute director, even though she is a permanent fixture in the company; she comes in to fill in the role of an absentee director. The same can be said for the alternate director even though her role is for 6 months. The shadow director means the director nobody sees but who is lurking in the shadows and on whose advice the members of the board of directors are used to taking instructions and directions.

This note aims to consider the position of persons who though are not formally appointed as directors, are held out by the company as directors. In summary, the Companies’ Act, 2019 recognises these persons as directors. Section 170(2)(a) says that:

“a person not being a duly appointed director of a company, who holds out as a director or knowingly allows to be held out as a director of that company is subject to the same duties and liabilities as if that person was a person duly appointed director of the company.”

Section 170(2)(a) therefore introduces a pragmatic and functional approach in determining who is a director. And there are sound policy reasons for this rendition. The main policy rationale is that a company must ensure that persons who represent it in public have the correct authority and power to do so. And the opposite is true as well: Persons dealing with a company should not be burdened with the responsibility of having to double-check the capacity of the persons they are dealing with when the company holds the person out as a director. With persons either held out or who allow themselves to be held out as directors, they are not only fixed with the liability of the director but the Companies Act also imposes an additional fine of 250 penalty units on such person if found culpable.

The Ghanaian court of appeal case of Commodore v Fruit Supply (Ghana) Ltd [1] is instructive on this point. At the heart of the dispute was a man by name Attoh Quarshie. He was not a duly appointed director. But he was very influential in the running of the Fruit Supply company. He was, for instance, influential in helping the company gain an import licence.  The company allowed Mr Attoh Quarshie to share in its profit. His name appeared on the company’s letterhead as a director. Mr Attoh Quarshie committed the company into a deal that went bad. A suit followed. The company then denied any relationship with Mr Attoh Quarshie under the formalistic notion that he was not duly appointed as a director. In summary, the company’s position was that Mr Attoh Quarshie was on his own and since he was not a duly appointed director; he did not have the power to bind the company in any transaction.

The court held that even though Mr Attoh Quarshie was not formally appointed as a director of a company; he was as a matter of law held out by the company as being a director with authority to transact business with the appellant. The court said that the company was therefore estopped from denying that Mr Attoh Quarshie was a director.

The court further stressed that a person who entered into a contract with a company and dealt with the company in good faith had the right to assume that the acts within the constitution and powers of that company had been duly and properly performed. The court also noted that an outsider had no obligation to look into the internal affairs of the company to ascertain whether acts of management had been regularly performed.

Therefore persons not duly appointed as directors who hold themselves out as directors or allow themselves to be held out as directors should beware that they may also be held personally liable for any acts of the company.

[1] [1977] GLR, 241, CA

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