Directors Accountability (2)

This note considers the grounds for the disqualification of directors under the Companies’ Act, 2019 (Act 992). Previous notes have considered the grounds for (a) restraining fraudulent persons from acting as directors; (b) persons convicted of an offence involving fraud or dishonesty; (c) persons convicted of an offence in connection with the promotion, formation or management of a body corporate; and (d) persons culpable of criminal offences (whether convicted or not).

Disqualification of a director on the grounds of insider dealing[1] 

According to the Dictionary of Banking and Finance, insider dealing refers to the illegal buying or selling of shares by staff of a company or other person who have secret information about the company’s plan. The Securities Industry Act, 2016 does not use the phrase “insider dealing”, but rather the phrase “insider trading” which is defined as “the buying and selling of securities by a person who has access to material non-public information about the security”[2].

The learned author of the Pennington Companies Law[3] notes that the idea behind the frowning upon of the use of insider information to acquire shares or securities is that it is inherently unfair since the price at which the transaction takes place reflects the market’s estimation of the value of the securities on the assumption that the special facts known to the person does not exist[4]. In the case of directors, they are likely to come across insider information simply because of the position they hold as directors. Insider information includes unpublished profit figures, profit forecasts, revaluation of assets, schemes for the acquisition of other business undertakings.

So the big question is – what is wrong with a director engaging in insider dealing or trading? Well, a director is under an obligation to the company not to use any information generated or obtained by the company or its employees or from any other source for the benefit of anyone other than the company. To bring the point home, a director who uses company information to acquire shares on favourable terms is enriching himself at the expense of the company and is under an obligation to account for the profit attained from such a transaction. A lot can be said for insider trading, but simply, a person who cannot be trusted not to unlawfully exploit company property and information for their own personal gain does not deserve a seat on the board of directors of that or any other company. A director’s primarily role is to ensure that he / she acts in the best interest of the company at all times and avoids any situation in which his personal interest may conflict with that of the company. 

Persons Adjudged Bankrupt[5]

The Companies Act prohibits persons declared bankrupt from acting as directors. It does not matter where the declaration was made.  In other words, the declaration of a person as bankrupt outside Ghana is enough to bar that person from getting a seat on the Board of Directors of any company in Ghana. In Republic v. High Court, Accra; Ex Parte Ploetner[6], the Supreme Court in explaining the effect of the rules on the exclusion of persons adjudged to be bankrupt from taking director positions explained that: “…a person who was adjudged bankrupt outside Ghana [was] incompetent to act as a director of a company in Ghana without leave…The argument of counsel urging a contrary view was misconceived for it would have the pernicious effect of unleashing foreign bankrupts on us.”

The main reason why persons who have been adjudged bankrupt are prohibited from acting as directors is that the fact of bankruptcy demonstrates that they were highly irresponsible in managing either their own assets or those of others and therefore required protection from creditors; as a result, such a person should not be made to go near the decision making process in any company lest the company finds itself in the same situation as the person.

Persons debarred as a result of disciplinary inquiry[7] 

This grounds focuses on persons belonging to professional bodies. This class of persons include lawyers, auditors, accountants, architects, engineers etc. It may also include human resource professionals[8] and marketers[9]. Regardless of the class of profession, what stands out is that those persons should be considered as being in good standing in relation to their professional organisation. It is interesting to note that the grounds upon which a person may be debarred include integrity and honesty issues.

Duty to Report Disqualification[10] 

To ensure that only persons of high integrity find a seat in the Boardroom, there is a further requirement for disqualified persons to self-report the disqualification to the Board and to the Company Secretary as soon as the person becomes aware of it. Failure to report a disqualification opens a director to a fine of not less than 500 penalty units or imprisonment to a term between two and five years. A court has the discretion, in fitting cases, to award both a fine and imprisonment[11]. The aim is to ensure that the right people are at the helm of steering the affairs of companies.

[1] Act 992, Section 177(1)(a)(iii)

[2] Act 929, Section 216 (definition section)

[3] 8th Edition

[4] Ibid, pg.463

[5] Act 992, Section 177(1)(b)

[6] [1984–86] 2 GLR 107-133

[7] Act 992, Section 177(1)(d)

[8] See Act 1020

[9] See Act 1021

[10] Act 992, Section 178(1)

[11] Act 992, Section 178(2)

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