By Isaac Adeyanju[1]

Introduction.

The position of a Director and an Officer of a Company is one which is doubtlessly laced with several evolving arguments, debates, and conversations around what their underlying roles suggest in relation to a Company. From a governance perspective, there is a unanimous recognition of the fact that a Company only mirrors the decision of its Directors and Officers and that its strategic path, consumer satisfaction, business and ethical value proposition and profitability are a function of the decisions of the persons that form its Boards and Officers and serve in that capacity per time.

Conversely, from a business perspective, Directors have been considered important in helping Companies achieve one of their core objectives: profit. Directors have proven over the years to be integral in stirring the reigns of a Company business-wise and directing its strategic business objectives and strategies, delivering oversight functions to its management team and ensure that the interests of the shareholders are catered for within the confines of their powers. Directors and Officers in relation to their roles are reposed with salient duties and responsibilities ensuing from their defined relationships with a Company. A breach of these duties has been understood to birth liabilities in the adverse interests of the concerned Directors of Officers. A consideration of the arguments for limitations and restrictions of these Liabilities from a domestic and international perspective forms the crux of this piece.

Who are Directors of a Company?

The term Directors of a Company has been accorded with several respected yet evolving descriptions rather than definitions, rightly connoting their principal roles and functions in relation to a Company. The initial point of call in understanding the personality of a Director in relation to a Company relates to the pronouncement of our domestic courts on the subject matter, where they have severally aligned with the meaning accorded to the term; Director under the Companies and Allied Matters Act.[2] The Apex Court in the case of Bernard Longe v. First Bank of Nigeria PLC3 Per Oguntade, noted concerning the personality of a Director, that they are persons duly appointed by the Company to direct and manage the business of the Company. Similarly, the Nigerian courts have viewed Directors as persons appointed or elected according to law, authorized to manage and direct the affairs of a corporation or a company.[3]

Relatedly, Directors have been described as any person occupying the position of a director by whatever name called[4] and seen as a person appointed to act as one of a Board with power to bind the Company when acting on the board[5].

On the international scene, the British Courts have defined the term ‘Director’ to mean agents, trustees, or managing partners of the Company whose expressions are not used to exhaust the powers or responsibilities of those persons, but as indicating useful points of view from which they may be considered.[6] Similarly, the Indian Courts have understood Directors to mean persons duly appointed by the company to direct and manage the business of the company8

From a closer consideration of the foregoing definitions, Directors are understood to be persons appointed by a Company to direct and manage its affairs. This position has been clearly adopted by the Companies and Allied Matters Act which defines a Director as one who is duly appointed by the company to direct and manage the business of the company.[7]

Who are Officers of a Company?

An Officer of a Company like a Director of a Company have been understood from varying lights across several climes. From a business perspective, an Officer of a Company have been severally seen as an high ranking member of a Company appointed by the Board of a Company to manage the day to day operations of a Company.[8]Others have simply seen Officers of a Company as persons who are duly authorised to represent the company and make decisions regarding how it is run.[9]

Against this backdrop, Officers have been generally seen from a larger purview across international legal climes. Under the Australian Corporation Act[10], for instance, Officers have been understood to include persons who are Directors, Secretaries and persons that make, or participate in making, decisions that affect the whole, or a substantial part, of the business of a corporation; that have the capacity to significantly affect a corporation’s financial standing or persons in accordance with whose instructions or wishes, the directors of a corporation are accustomed to act. The High Court of Australia is recently remembered to have considered the extended meaning of an Officer in the case of Australian Securities and Investments Commission v King[11] where the court considered whether the CEO of a parent company acted as an ‘officer’ of a subsidiary under section 9(b)(ii) of the Corporations Act, despite not holding any official title in relation to that company. In arriving at their conclusion that the CEO was acting as an ‘officer’ of the subsidiary during the course of the alleged conduct, the court held that whether an individual is acting as an ‘officer’ would depend on the degree of influence exerted over a company, and their capacity to affect that company’s financial standing.

The UK Companies Act[12] on a similar note sees an Officer of a Company to include a director, manager or (company) secretary, and any person who is to be treated as an officer of the company for the purposes of the provisions in question.

One will agree that the Nigerian Companies and Allied Matters Act have aligned with its international counterparts in defining an Officer of a Company, where it defines an Officer of a Company to include a Director, Manager and Secretary of a Company.[13]

It is interesting to note that while the term ‘Director’ is conclusive in its meaning, the meaning attached to an Officer as understood above is not exhaustive in its definition as can be seen in the use of the word “Include” or “including”, pointing to the fact that while an officer of a Company could be sued to mean a Director, Secretary of Manger of a Company, it could mean more, depending on the circumstance in question and the construction of the Courts.

It is noted that while the Term ‘Director’ and ‘Officer’ have been largely misconstrued as one and the same, the above clarifies the fact that an Officer may be used to refer to a director, a manager a secretary or any other person where the context so admits. The definition of who a Director and Officer as we will see, is instructive in helping readers understand how and on who obligations and liabilities attach under several Laws in force in Nigeria. From the foregoing, one will agree that in circumstances where the Law specifically attaches a liability on the Officers of a Company, same could be construed to include the Secretaries of such Company for instance.

Directors and Officers Liabilities.

Directors and Officers’ liabilities are birthed as a chief consequence of their relationship with their principal, the Company, in that they owe the same a ‘duty’. The duty here refers to a technical term in law signifying a thing which is due16 or widely expressed as a debt. This has been defined as a prescription of conduct recognized by law, to be observed by parties in their legal relationship.

These duties reposed on Directors and Officers of a Company originate from two principal legal concepts which form the bedrock of a Director and Officers relationship with a Company, the Trust and Agency concepts, which consequently births fiduciary duties and duties to act in the best interest of the Company. Directors legally hold the position of a Trustees of a Company’s money, properties and powers and are similarly seen as Agents where they act within the powers and authority of the Company.[14] Relatedly a Company Secretary is noted as an Agent of a Company and conversely owes a fiduciary duty to the company when relating in this capacity with the Company that births immediate liability for breach of these responsibilities to the Company.[15]

From a governance perspective, these duties are importantly provided to drive efficient control, checks and management of a Company’s affairs, for instance, a director is required to be accountable to the Company[16] and ensure compliance of the Company with all laws and regulation in force in Nigeria[17] for the purpose of ensuring that he serves as a strong link between the stakeholders and the Company. These duties have importantly enjoyed a statutory flavour within the Companies and Allied Matters Act, (as amended) as its counterparts in Australia and UK. Under the Nigerian extant Laws, Directors and Officers are reposed with duties which include duties to act in good faith,[18] to act in the best interest of the Company[19], to always account when dealing with the companies property or resources[20], duties not to allow personal interests to interfere with the exercise of their powers, duties to act with care and skills, duties not to make secret profits[21] among others, where it relates to a Director. A secretary on the other hand is duty-bound not to make secret profits, allow conflicting interests or use confidential information for personal benefit, attend meetings, maintain registers of companies, render proper returns, carry out administrative duties as directed from time to time by the director of the company and duty to notify the commission of changes[22] among others[23].

Equally as stated, these duties are the birthing points for liabilities on Directors and officers of a Company, as such, there are a thousand and one provisions attaching liabilities on Directors or officers of a company following from the breach of their duties under the applicable Laws. In relation to a director for instance, the Companies and Allied Matters Act is express in stating that:

Any duty imposed on a Director under this Section is enforceable against a director by the Company[24]

Similarly, the Companies and allied matters act provides as follows:

Where a company—

receives money by way of loan for specific purpose;
receives money or other property by way of advance payment for the execution of a contract or project; or
with intent to defraud, fails to apply the money or other property for the purpose for which it was received, every director or other officer of the company who is in default is personally liable to the party from whom the money or property was received for a refund of the money or property so received and not applied for the purpose for which it was received and nothing in this section affects the liability of the company itself.[25]
(Underlined for emphasis)

Furthermore, a Secretary of a Company is liable to such Company where he makes secret profits, allows his personal interests to conflict with his duties or uses confidential information for his benefit, this the Companies and allied matters act provides where it notes:

. . . where he is acting as its agent he owes fiduciary duties to it, and as such is liable to the

company where he makes secret profits or lets his duties conflict with his personal interests, or uses confidential information he obtained from the company for his own benefit[26]

(Underlined for emphasis)

Summarily from the foregoing, and under the applicable Laws, Directors and Officers of a Company are largely liable for crimes, where same relates to an offence specified under the applicable law arising from the breach of their duties, such as bribes, frauds or theft. Similarly, they are liable for non-compliance, liable for the torts of negligence, deceits and liable in contract as the case requires.

It is helpful to see the attitude of the Nigerian Courts in attaching liabilities to Directors or Officers in relation to breach of duties. The court of Appeal decision in the case of Securities Solutions Ltd & Ors V. Mrs Biodun Idowu Adamu-Oladiran30 where a critical issue for determination was whether personal liability could be imposed on non-executive directors who were not in charge of the daily conduct of the affairs of the company, here the courts stated:

. . . As I had earlier stated, the second and third Appellants cannot distance themselves from the activities of the first appellant even if they are not responsible for the day to day running of the first appellant, they had failed to exercise that degree of care and diligence that a prudent director ought to have exercised in the circumstances, hence they breached the duty of care owed the Respondents.

(Underlined for emphasis)

Similarly in certain circumstances, where authorized by the Articles of a Company, a Company may by a special resolution render the liability of its director unlimited. In such circumstances, a proposal for a person to be elected or appointed to the office of director or manager must add to that proposal a

statement that the liability of the person holding that office will be unlimited, and before the person accepts the office or acts therein, notice in writing that his liability will be unlimited must be given to him by either the promoters, the directors, manager or secretary of the Company[27].

Limitation of Directors’ and Officers’ Liabilities.

Today, following the ever increasing scale of claims against Companies and by implication, their Directors and Officers, there has been a budding risk exposure posed against Directors and Officers of a Company for business decisions and actions taken while running the affairs of the Company. Accompanying this revelation has been an apprehension around Board rooms of the perils of possible losses that could confront them while acting or intending to act as Directors or officers of a Company.

While Directors and Officers’ liability has been recognized as a corporate consequence that has helped to ensure the maximal efficiency of persons who control the wheels of a Company, it has provided a room for corporate allegations which has been viewed by many as malicious or baseless. This allegations include claims for breach of duty, neglect, breach of contract, breach of employment obligations, and breach of health & safety obligations, with statistics of the value of directors’ and officers’ (D&O) loss claims worldwide between 2011 and 2016 evidencing that 61% of claims relate to claims around non-compliance of directors and officers with applicable laws and regulations, 14% relating to negligent conducts, 10% relating to lack of controls and maladministration, 4% relating to breach of trust and fiduciary duties, and 1% relating to inadequate disclosures among others.[28]

The above risk exposures have occasioned an interesting departure from the traditional position on Directors and Officers liability and the recognition of provisions for indemnification of Directors and officers of companies across international scenes to help give a level of equitable comfort to Directors and Officers while representing their Companies. Under the UK Corporate regime, directors are not entitled to indemnification for liabilities where such is claimed by their Company and are only entitled to indemnification where the claims emanate from third parties[29] or where such claim arise in connection with the company acting as a trustee of an occupational pension scheme for its activities as a pension scheme trustee.[30] Similarly, the UK Corporate regime, permits companies to procure insurance covers for their directors at their cost.35

In contrast to the UK corporate regime, in Australia we find that under the Australian corporate regime, Companies are prohibited from indemnifying Directors and Officers from a liability owed to the company; liability for a pecuniary penalty order or compensation order arising out of breaches of civil penalty provisions; and liabilities which did not arise out of conducts done in good faith.[31] Furthermore, the Australian Corporation Act prohibits Companies from indemnifying a director or officer against legal costs which are incurred in defending proceeding connected to liabilities which cannot be indemnified by the Company, criminal proceedings where director or officer is found guilty, proceedings brought by the Australian Securities and Investment Commission or actions brought by liquidator if the grounds for making such orders are established and actions where the reliefs sought from liabilities are denied. Additionally, it is a practice for company’s in Australia to make provisions in their constitution to include indemnities in favour of directors and officers, typically conferred by the corporation by means of a deed of indemnity.[32]

Under the Nigerian Corporate regime on the other hand, the Companies and Allied Matters Act (as amended) is express in stating that :

any provision contained in the articles of the company or in any contract with a company or otherwise, for exempting any officer of the company or any person employed by the company as auditor from, or indemnifying him against any liability which by virtue of any rule of law would otherwise attach to him in respect of any negligence, default, or breach of trust of which he may be guilty in relation to the company, is void[33]

(Underlined for emphasis)

From the foregoing, it is respectfully submitted that a provision either contractual or otherwise intended to entitle a director or an Officer of a Company to indemnification against liability attaching and accruing to him in respect of their negligence, default or breach of trust where he may be found guilty in relation to his company is void. On the other hand, such Director/Officer is entitled to indemnifications for acts and breaches not done to or claimed by the Company. The consideration of the above provisions points to the fact that an Officer or director of a company in Nigeria may only be entitled to indemnification where the loss does not relate to purported wrongs committed against the Company. Furthermore, a Director of Officer of a Company is authorized to make claims for indemnification for cost of defending an action related to fraudulent trading and judgement is given in his favour.[34]

Directors and Officers Liability Insurance (D&O Liability Insurance).

An important framework developed for given a fair level of comfort and indeed protect Directors and Officers from unforeseen liabilities while functioning as officers of a Company is the D&O Liability insurance. This insurance coverage are employed to cover the legal fees and other costs incurred as a result of such suits and claims.40 Generally, D&O Liability insurance policies, are undertaken by the Company itself through a group insurance policy for all its Directors or officers, or for specified directors and officers, in which case the Companies bears the responsibility for payment of the premium. In the alternative, the policies may be obtained by the Directors or Officers themselves in which case, they bear the responsibility for payment of premiums.

Under the Nigerian Corporate regime, a Director or Officer of a Company may only enjoy indemnity from a D&O Liability Insurance where it relates to third parties claims and liabilities and Companies are precluded under Section 91(1) of the Companies and Allied Matters Act from procuring an insurance cover for liabilities claims brought by the Company itself. Generally, claims covered under the D&O Liability insurance include claims relating to claims for breach of trust, breach of duties, defaults, negligence, errors, misleading statements, wrongful trading, Creditor claims, and the cost of defending civil or criminal actions. Whilst there are no available decisions of Nigerian courts relating to claims under D&O Liability Insurance, the US Supreme Court’s decision in a plethora of cases[35] presents a persuasive ground for the enforceability of D&O Insurance covers in Nigeria.

In the case of RSUI Indemnity Company v. Murdock42the US Supreme Court affirmed that losses from claims, resulting from fraudulent actions of an officer or director of a Delaware corporation are insurable. The US Supreme Court in making her decision noted that the D&O policy had an expansive definition that covered losses; thus, allegations of fraud fit comfortably within the terms defining the scope of its coverage. Similarly, it was noted that despite RSUI’s arguments to the contrary, Delaware does not have a public policy against the insurability of losses occasioned by fraud so strong as to vitiate the parties’ freedom of contract.

Today, Nigeria is thankfully witnessing a growing scale of recognition among insurance institutions for D&O insurance policy coverage for members of Boards and largely providing reimbursements or advancement for cost of defending law suits, criminal and regulatory investigations arising against Directors and officers, for alleged wrongs, breaches and infringements respectively.

Conclusion.

It is noted on the whole, that while there is nothing under the Insurance Act approving or precluding the procurement of a D&O Liability Insurance policy, in practice Companies are known to obtain insurance policies for their Directors and Officers across international stages for the purpose of entrenching their confidence while performing their roles as alter egos and officials of the Company respectively.

In contemplation of the growing risk threatened to Directors and Officers of Companies in Nigeria relating to compliance obligations, breach of duties, regulatory witch-hunts, investigations and malicious third party claims, D&O liability insurance presents a sound level of assurance and can be taken out by an everincreasing proportion of companies.

Whilst legislative reforms exhaustively recognising D&O liabilities insurance are hopefully on their way, It is noted that D&O liability insurance could provide a competitive edge for Nigerian companies to attract top leadership talent and expertise to man their businesses. Top-tier executives and officers will not consider joining a company if their personal assets would by their decision suffer massive jeopardy and or risk exposures. Summarily, D&O liability insurance helps directors and Officers of Companies to focus on making the best possible decisions for their company, instead of worrying about the risks associated with their role.

[1] Corporate and Commercial Attorney. adeyanjuizeek@gmail.com

[2] Emmanuel J. Iwuchukwu v. Engineer David C. Nwizu & Anor (1994) 7 NWLR (Pt. 357) 379 3 (2010) 6 NWLR (Pt. 1189)

[3] (1993)1 NWLR (Pt. 272)

[4] Section 395(1) of the Companies Act 1968

[5] Per Uwais JSC. (as he then was), in Emmanuel J. Iwuchukwu v. Engineer David C. Nwizu & Anor (1994) 7 NWLR (Pt. 357) 379

[6] Imperial Hydropathic Hotel Co. v. Hampson, (1882) 23 Ch. D. 1 8 Judhah v. Rampada Gupta, AIR 1959 Cal 715.

[7] Section 269 (1) of the Companies and Allied Matters Act (as amended)

[8] Corporate Officers; everything you need to know; available at https://www.upcounsel.com/corporate–officerdefinition.

[9] Officers; available at https://www.cooleygo.com/glossary/officer/

[10] Section 9 of the Australian Corporation Act, 2001,

[11] [2020] HCA 4

[12] Section 1437, the UK Companies Act, 2006

[13] Section 868, the Companies and Allied Matters Act (as amended) 16 From the latin word Debitum, which is rendered as a debt owed.

[14] Section 309 of the Companies and Allied Matters Act (as amended)

[15] Section 334 of the Companies and Allied Matters Act

[16] Principle 1.6 of the Nigerian Code of Corporate Governance, 2018, similarly noted in Section 309 of the

Companies and Allied Matters Act (as amended)

[17] Principle 1.3 of the Nigerian Code of Corporate Governance, 2018

[18] Section 305 (1) of the Companies and Allied Matters Act (as amended)

[19] Section 305 (1) of the Companies and Allied Matters Act (as amended)

[20] Section 309(1) of the Companies and Allied Matters Act (as amended)

[21] Section 306 (2) of the Companies and Allied Matters Act (as amended)

[22] Section 339 of the Companies and allied matters act

[23] Section 334 and 335 of the Companies and allied matters ACT

[24] Section 305(9) of the Companies and allied matters Act( as amended)

[25] Section 316 of the Companies And Allied Matters Act ( as amended)

[26] Section 334 of the Companies And Allied Matters Act ( as amended) 30 (2016)LCN/8257(CA)

[27] Section 314 and 315 of the Companies and Allied Matters Act.

[28] Distribution of value of directors’ and officers’ (D&O) loss claims worldwide between 2011 and 2016, by cause available at https://www.statista.com/statistics/647144/leading–causes–dando–loss–worldwide–value–of–claims/.

[29] Section 426 of the UK Companies Act, 2006

[30] Section 434 of the UK Companies Act, 2006

[31] Section 199A(2) of the Corporations Act

[32] M. Quinlan & M. Lindfield., The Commercial Law Association of Australia Leading Edge Seminar Series, 2008.

[33] Section 91(1) of the Companies and Allied Matters Act (as amended)

[34] Section 91(2)(b) of the Companies and Allied Matters Act (as amended) 40What is directors’ and officers’ (D&O) liability insurance? Available at https://www.lexology.com/library/detail.aspx?g=6e3a11f2–e097–4001–bddc–37802fb6d56c.

[35] RSUI Indemnity Company v. Murdock 2021 WL 803867 and Solera Holdings, Inc. v. XL Specialty Ins. Co., 213 A.3d 1249