Ghanaian Company Law: Addressing the gap for aggrieved directors, shareholders and secretaries

In the intricate framework of Ghanaian company law, primarily governed by the Companies Act, 2019 (Act 992), the requirements for effecting amendments in a company’s profile at the Office of the Registrar of Companies (ORC), presents critical procedural and practical challenges for stakeholders.

It is trite that rectifications in a company’s records, such as the removal of director(s), shareholder(s), company secretary, or the transfer of shares, has serious legal implications. Consequently, it becomes a matter of serious concern when amendments are effected without the knowledge or consent of the party or parties to be affected.

For instance, a company may submit inaccurate information to the ORC and successfully effect unauthorised changes in the records of the company, such as transferring shares without the consent of the shareholder.

When a shareholder finds their shares have been transferred to an unidentified entity or a director discovers his name has been removed from the company’s register at the ORC without their knowledge or consent, they may hesitate to initiate legal action against the company. This reluctance may stem from a number of reasons comprising financial constraints, unwanted publicity, desire to avoid confrontation or frustrations of the court system. In such cases, the individual may prefer to formally dissociate from the company and avoid any liabilities whatsoever incurred without his knowledge.

While the law delineates avenues for legal redress, these remedies predominantly direct aggrieved parties towards the courts, which is fraught with its own problems such as undue delays, disruption of business, etc. Unfortunately, Act 992 provides no clear administrative process for such formal dissociation from the company apart from court action. Worse, individuals are effectively disabled from taking any steps to rectify the inaccurate records at ORC without the consent and participation of the Company. Consequently, aggrieved persons are compelled to deal with the company through protracted litigation – a case of double mistreatment.

For individuals seeking to avoid litigation and to formally dissociate themselves from a company while simply notifying the ORC, a notable deficiency exists in the provision of practical, non-judicial options. This article examines the current legal framework, highlights this lacuna in our company law, and proposes potential solutions for enhancing corporate governance, drawing upon practical solutions from a comparative study of statutory provisions of other common law countries.

THE LEGAL FRAMEWORK

Under Act 992, the removal of a director or the transfer of shares without consent triggers specific protections. Section 176(5) stipulates that a director may only be removed by an ordinary resolution of shareholders upon notice to the director, who shall be entitled to be heard at the meeting. This procedural requirement mandates notice and an opportunity for the director to present representations, if he so wishes.

Should this procedure be violated through clandestine resolutions or fraudulent documentation, the director may contest the legality of such actions. Sections 218(1)(b) and 219 entitle shareholders to seek court orders restraining illegal or irregular activities by the company. Conversely, while the Act does not explicitly confer removal protections upon company secretaries, they may invoke Section 218 or the principles of natural justice under common law, as expressed in the case of Aryee v. Ghana Ports and Harbours Authority.

Unfortunately, the efficacy of these protections is contingent upon an aggrieved person initiating legal proceedings – a recourse often perceived as onerous due to associated costs, delays, and publicity, potentially deterring aggrieved parties.

THE NON-JUDICIAL DILEMMA: A MISSING ROUTE?

A significant lacuna in Act 992 arises when shareholders, directors or secretaries who are confronted with unauthorised actions by the company seek a non-judicial avenue for resolution of the matter.  While judicial recourse exists under the law, Act 992 fails to outline a clear administrative process for resolution of disputes. In essence, the Registrar of Companies lacks the authority to address these pertinent issues. This compels aggrieved parties to consider potentially protracted and costly litigation in court as the primary means of redress.

Section 216(1) obligates companies to notify the Registrar of changes in directors or secretaries within Twenty-eight (28) days, utilising prescribed forms. Similarly, sections 33 and 101 mandate updates to the register of members following share transfers. However, these obligations rest with the company, not the affected individual(s).

If a company submits fraudulent updates, such as improperly removing a director or transferring shares without the consent of the shareholder, the aggrieved party is denied the opportunity to lodge a counter-notice with the Registrar of Companies. The Registrar’s function under Act 992 is primarily mechanical, relying on company submissions and lacking inherent authority to investigate discrepancies except a court order or upon a formal complaint by an aggrieved individual.

This starkly contrasts with the system in the United Kingdom, where under Section 1095 of their Companies Act, 2006 individuals may apply to the Registrar, using a prescribed form to rectify the register of a company where information delivered was either invalid or ineffective, factually inaccurate or forged.

In other words, the Registrar is empowered to investigate such complaints and rectify records upon application (See Regulations 4 and 5 of The Registrar of Companies and Applications for Striking Off Regulations 2009). This provides a non-judicial route for correcting inaccurate information on companies. The absence of such a mechanism in Ghana leaves aggrieved individuals reliant on judicial action or informal negotiations, neither offering a guaranteed and legally recognised dissociation from company liabilities and potential future exposures.

Under Section 190, directors hold fiduciary duties and may be liable for breaches committed by the company even after their unwarranted removal from office. Again, shareholders may be called upon in respect of unpaid shares, while secretaries on record are liable for compliance issues. In essence, an individual whose name remains associated with the company per the official records, risks exposure to liabilities for debts, regulatory penalties for actions that they never authorised the company to do.

A non-judicial dissociation process would offer crucial protection, signaling to creditors and regulators a member’s disengagement from the company’s activities.

PROPOSED SOLUTION

To address this practical need, an alternative administrative mechanism is required. Section 381(1) of Act 992 provides that the Minister may on the advice of the Board, make Regulations regarding any of the powers and discretions conferred on the Registrar by the Act. By subsection (2)(g), the Registrar may be authorised to prescribe administrative and other penalties for offenses committed under the Act. It however appears that this avenue has not been explored.

The author proposes that a legislation empowering the Registrar, to formulate procedures, to address pertinent matters summarily will inure to the benefit of corporate stakeholders, serve the interest of justice, and further reduce the workload of the courts. The procedure may entail the following:

1. Submission of Evidence to the Registrar by an aggrieved party, detailing unauthorised action(s) and supporting documentation evidencing same.
2. Review and Investigation of Complaint by the Registrar upon notice to the company.
3. Public Record Update where facts have been sufficiently established as well as right of appeal.

This approach would provide a means for resolving company disputes summarily, saving commercial relationships and permitting a formal disassociation of members where requested.  Further, the approach aligns with the Registrar’s mandate to maintain accurate records.

 CONCLUSION: A CALL FOR REFORM

Act 992 commendably provides judicial remedies for corporate stakeholders. However, its current deficiency lies in the absence of a non-litigious, expedited dissociation mechanism for individuals contending with unauthorized acts of the company which invariably affects them.

While judicial recourse remains, the introduction of a streamlined administrative process at the ORC is crucial. Such reform would balance efficiency and fairness, offering vital relief to directors, shareholders, and secretaries affected by corporate malfeasance, and obviating the unenviable choice between costly litigation and enduring potential liability. This reform is therefore not merely desirable, but necessary.

Author: Anthony Danquah Esq

Associate @ Sedi Legal Bureau

Email: [email protected]

References

1. Companies Act, 2019 (Act 992) (Ghana).
2. Aryee v. Ghana Ports and Harbours Authority [1998-99] SCGLR 296.
3. Companies Act 2006 (UK), s. 1095.
4. The Registrar of Companies and Applications for Striking Off Regulations 2009 (UK).

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