Ferdinand D. Adadzi: Sanctions for Corporate Directors – Imprisonment, Fines and Liability

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You are a director of a company incorporated in Ghana. Do you know that you can go to jail for acts or omissions as a manager or be fined?

This question never or rarely comes to anyone’s mind when approached with the request to act as a director of a company. Not only is it possible for you to be convicted and sent to prison as an administrator, but you may be fined as an administrator, or you may incur other civil liability for your acts or omissions as an administrator. administrator.

Accordingly, one must understand the duties imposed upon them as a director and intend to discharge those duties diligently before accepting a board appointment. This article draws attention to the sanctions imposed on directors for acts or omissions which the law obliges the directors respectively to do or not to do.

Appointment of an administrator

Directors are persons appointed to administer the affairs of a company or corporation. For a company limited by guarantee, directors may be called board members, board members, or any other designation.

In many cases, people are approached to be appointed directors of companies based on a relationship they may have with shareholders or members of the companies or existing directors. A shareholder may choose to appoint a spouse, relative, friend or business partner as a director.

The admin position is rarely advertised with qualifying criteria for those interested in applying. In a few cases, a more formal process is used by engaging recruitment agencies who search for suitable candidates.

One of the reasons for this method of appointing directors is that being a director is not a salaried position or an employment position. A director is not an employee of the company and is not automatically entitled to remuneration. Any payment is at the discretion of the shareholders of the company, who may determine the amount to be paid to the directors by ordinary resolution. The situation is different for executive corporate officers who, in addition to being directors, are employees of the company and must be remunerated as employees.

Act as

Once a person is appointed as a director, regardless of their relationship to shareholders, they must conscientiously discharge the responsibilities imposed by law and the company’s articles of association. In many cases, especially for small and medium-sized companies, the appointed director considers the appointment to the position as a favor done to him.

The appointed director therefore acts on the instruction of the shareholder or does nothing. A spouse, relative or friend appointed as a director can never know the exact scope of the company’s activity, nor know the composition of the management team, see the financial statements or question them, nor participate in the preparation of the company’s strategy for the business, or attempt to hold the CEO accountable and, in extreme cases, never have anything to do with the business of the company.

Furthermore, a possibly worse scenario is that the appointed administrator may not even be aware of the obligations and duties imposed upon him as an administrator. Prior to 2019, there was no mandatory requirement for the board to meet, so directors may not even meet. The shareholder, who is also a director and manager, can only ask the appointed director to sign documents when required by law.

Directors are the brains of the company. Individually, they are directors of the company and together constitute a principal organ of the company. As such, the act of the board is the automatic act of the company. The primary responsibility of directors is to administer the affairs of the corporation.

Directors cannot, intentionally or unintentionally, choose not to administer the affairs of the company. The law imposes obligations on the directors in the management of the affairs of the company. Failure to administer the affairs of the Company or to administer the affairs of the Company in violation of the requirements of law and the Company’s articles of association carries penalties in the form of criminal and civil liabilities.

Duties, Breaches and Sanctions

The law requires all directors to act in the best interests of the corporation. Acts or omissions that are not in the best interests of the Company will constitute a breach of this obligation.

In acting in the best interests of the corporation, the law requires, among other things, that directors exercise prudence and diligence, exercise independent judgment and avoid conflicts of interest and duties. This article does not deal with the exact scope of the duties imposed on directors.

Therefore, the first step for any person appointed as a director is to know the activity of the company, the requirements of the incorporation of the company, as well as the obligations and duties imposed by law.

Where a director acts contrary to the above requirements, the director has breached the duties imposed and is liable to incur criminal or civil liability depending on the exact nature of the offence. The civil obligations imposed on directors include:

  • Compensate the company for the damage suffered as a result of the manager’s failure. A friend or relative appointed as a director who fails or neglects to participate in the administration of the business resulting in a loss to the business may therefore be liable to pay monetary compensation to the business.
  • Recovery of benefits accruing to the manager as a result of the breach. A director who receives benefits in violation of his duties to the company must report to the company. The company can thus recover property, money or benefits received by the manager.
  • Termination of contracts with the director. When a director enters into a contract with the company in violation of the duties imposed on him, the company has the right to terminate the contract.

The law obliges the company to comply with several legal requirements. Since the company is a legal person, the law requires that these responsibilities be assumed by the directors as officers of the company. Failure of the directors to fulfill these obligations on behalf of the company results in criminal sanctions in the form of a fine or imprisonment. Examples may be illustrative.

  • Where a company changes its permitted activity but fails to give the required notice to the Registrar, the directors may be required to pay a fine of GH¢600 to the Registrar.
  • Where a company fails to register details of members and beneficial owners in a register of members and submit details to the Registrar of beneficial owners, the directors may be liable to pay a fine of GH¢300 for each day during the default period of The Registrar.
  • Where a company engages in certain prohibited share transactions, the directors may be liable to a fine of GH¢6,000 to the Registrar.
  • Where a company raises additional capital, thereby increasing its stated capital, but fails to provide the required details to the Registrar, the directors may be required to pay a fine of GH¢300 per day for the period of default to the Registrar.
  • Where a company fails to have its name affixed or painted on its office(s), the directors may be liable to a fine of GH¢3,000 to the Registrar.
  • Where a company fails to submit its annual reports to the Registrar, the directors may be liable to a fine of GH¢300 per day for the period of default to the Registrar.
  • Where a director fails to take reasonable steps to ensure that the company complies with the requirements of annual reports and accounts, the director is liable, if convicted, to a fine of GH¢5,000 or imprisonment for up to two years or both. and imprisonment.
  • A director who swears on a solvency affidavit without reasonable cause is liable, if convicted, to a fine of GH¢300 or imprisonment for up to six months or both.
  • A director who also fails to report his disqualification after being appointed as a director shall be liable, if convicted, to a fine of GH¢12,000 or imprisonment for two to five years, or both. a fine and imprisonment.
  • A director who causes a company to engage in any business or trade or to incur any debt or liability leading to the insolvency of the company commits an offense and is liable on summary conviction to a fine of GH¢6,000 to GH¢12,000 or a sentence of two to five years’ imprisonment, or both a fine and imprisonment.

The above illustrates a few instances under the Companies Act where a director may face criminal liability or administrative penalties. Persons appointed as directors should therefore not assume their responsibilities with a disinterested attitude. Sanctions are provided for in the event of non-compliance with the obligations. Performing the duties requires an understanding of the company’s business and the requirements of the law and the company’s constitution.

In addition, stricter requirements are imposed on directors in certain sectors, including banking and financial services, insurance, pensions and listed companies. One should not therefore consider the appointment of administrator as a favor that is returned to him, nor occupy the position thinking that it is for recognition or to receive advantages.

For a full understanding of the duties of directors, those appointed as directors should receive a comprehensive orientation to the company’s corporate governance system and to all of the company’s activities.

Conclusion

The next time you receive a request to be a director of a company, think first of the possibility of going to prison or incurring personal responsibilities.

If you are already a director of a company, know that there is such a possibility. The possibility that the new Office of the Registrar of Companies may begin to strictly enforce the requirements of the new Companies Act to enforce all of these responsibilities should guide you in exercising your responsibility with due diligence. Companies should have a comprehensive orientation for directors after their appointment.

The writer, Ferdinand D. Adadzi, is a partner in the Corporate & Finance practice group of AB & David Africa. He is based in the Accra office and works with the firm’s Corporate & Finance team which advises on transactions in Sub-Saharan Africa. He has advised several corporations and businesses on their corporate governance structure, transaction structuring, fundraising and project partnership agreements. Ferdinand also teaches at the Faculty of Law of GIMPA in corporate law. He recently published a book titled “Modern Principles of Company Law in Ghana”.

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