Presidential Directive Dissolving Boards: Ifs and Buts Arising…

Originally written on 3 February 2009

The President has given a directive “dissolving” all boards of some specified organisations. One cannot quarrel with that ‘directive’ with respect to state corporations, commissions and other public bodies, subject, of course, to the clear terms of the relevant statutes. That is not the focus of my attention today. The newspapers have reported that the Chairman of the National Media Commission has stated that the ‘dissolution’ directive does not apply to the Boards of state media organisations. Good call. If the NMC does nothing at all, it defends its turf.

But, the matter goes further because if the directive was intended to affect companies incorporated under the Companies Code, in which the government holds shares and so might appoint directors or nominate directors for appointment, then it raises some legal questions that we might have to consider.

In 1993, Ghana’s then young Parliament passed the Statutory Corporations (Conversion to Companies) Act, 1993 (Act 461). Section 1 of that Act provided that companies were to be formed to take over specified statutory corporations. The section provided specifically as follows: “a company under the Companies Code, 1963 (Act 179) shall be formed and registered after the coming into force of this Act, for the purpose of vesting in the company the assets, properties, rights, liabilities and obligations to which any of the statutory corporations specified in the Schedule to this Act was entitled or subject to immediately before the registration.”

By section 2(1), all “the assets, properties, rights, liabilities and obligations of that statutory corporation” were to vest in the “successor company.” By section 3 the successor companies were to issue shares either to the Republic or any other person as the Finance Minister, acting in consultation with the State Enterprises Commission, would direct. Further shares to be held by the Republic were to be allotted to and held in the name of the Finance Minister. Under section 7 the statutory corporation and its incorporating statute would cease to exist on the date of registration of the relevant successor company.

The Schedule to the Act listed 32 entities that were to undergo this conversion. They were the following: Agricultural Development Bank, Bank for Housing and Construction, Ghana Commercial Bank, National Investments Bank, National Savings and Credit Bank, Architectural and Engineering Services Corporation, Electricity Corporation of Ghana, Football Pools Authority, Ghana Airways Corporation, Ghana Cocoa Board, Ghana Film Industry Corporation, Ghana Food Distribution Corporation, Ghana National Manganese Corporation, Ghana National Petroleum Corporation, Ghana National Procurement Agency, Ghana National Trading Corporation, Ghana Oil Palm Development Corporation, Ghana Publishing Corporation, Ghana Reinsurance Organization, Ghana Trade Fair Authority, Irrigation Development Authority, Omnibus Services Authority, Telecommunications Division of the P & T Corporation, Precious Minerals Marketing Corporation, State Construction Corporation, State Gold Mining Corporation, State Housing Corporation, State Insurance Corporation, State Shipping Corporation, State Transport Corporation, Tema Food Complex Corporation and Tema Shipyard and Drydock Corporation.

As we might be aware these entities have undergone various metamorphoses. Many were duly converted into limited liability companies with 100%, majority or minority government shareholding. Some converted companies are now listed on the stock exchange and others have undergone divestiture. The status of some of them, like ADB is still unclear, as it appears it never underwent the conversion.

Once the entities were converted into limited liability companies, they were no longer governed by their respective statutes, but by the provisions of the Companies Code. The question then is, “does the government have the power to ‘dissolve’ boards of companies incorporated under the Code?”

Where the government has power to appoint the minority or majority of a board (either by virtue of shareholding or otherwise), it definitely has no power to dissolve that board. The only possible effect of the ‘dissolution’ directive then would be that the government has purported to remove directors that it appointed to serve on the respective boards. However, absent any provisions in the relevant company regulations or shareholders agreements that provide that the absence a government-appointed director makes the board inquorate, and especially where the company is left with at least 2 directors, that company can continue to operate with its board until such time that the government deems it fit to appoint new members to join the existing board. Under those circumstances, the ‘dissolution’ directive is of no legal effect or moment where the company is concerned. All that the ‘dissolution’ directive would have succeeded in doing is to leave the company in the hands of the directors that the government did not appoint, to administer and direct the affairs of the company for as long as it takes the government to appoint new board members.

Where the government appoints all the members of a company’s board, and if we agree then that the effect of the ‘dissolution’ directive is to remove all the members of the board, or where by virtue of the ‘dissolution’ directive the company is left with less than 2 directors, the company can only carry on business for a period of not more than 4 weeks. If the company engages in any business after the 4-week period (with zero or 1 director), that company, every director (if any remains) and members (including the government) in default will be liable to a fine for each day during which the company carries on business. Further, every director and member who is cognisant of the default will be jointly and severally liable for all the debts and liabilities of the company incurred during that time.

I guess the question, still, is whether the government has the power to ‘dissolve’ boards of companies? My response is that if the effect of the order would be to incapacitate the board in the manner described above, then it is arguable that the board is deemed dissolved, until it is duly reconstituted. But if the board retains at least 2 members who are able to form a quorum, then the ‘dissolution’ order is of no legal consequence.

Further, is the ‘dissolution’ directive legal, with respect to companies? Does it really remove directors from a Board?

First, a director may be removed from office by an ordinary resolution of the members at a general meeting, notwithstanding any provision to the contrary in the Regulations or any agreement. Thus if the members desire to remove a director, that action should take place at a general meeting (with the director having the right to be heard); and so a director cannot be removed by written resolution. The Court of Appeal has held that this procedure for removing directors is “mandatory.”

Second, a director who has validly been appointed by the company, but who is subsequently caught by the relevant disqualification provisions under the Code is deemed to have been removed from office.

Third, a director who fails to meet share qualification requirements, where any exist, is deemed to have vacated his office as a director.

Fourth, a director may be removed where the Regulations, shareholders agreement or other contractual agreement lawfully provide additional grounds for the termination of office of directors. For example, the relevant document may empower the directors to remove some of their number. It may also contain provisions for the ‘deemed termination’ of office where other directors request a director’s resignation, retirement of directors by rotation, that directorship is contingent on the nomination of a particular shareholder or upon the director holding some other office. The removal of a director under any of such provisions in the company’s Regulations, shareholders agreement or other contractual agreement is legal, valid and enforceable.

It would therefore appear that this ‘dissolution’ directive would have the effect of removing directors if it was expressly provided in the respective companies’ regulations, shareholders agreement or in some terms upon which the directors were appointed, that they would lose their office if the nominating shareholder (the government, in this case) withdraws their appointments.

I do not know if such an express provision exists with respect to any of the companies in which the government appoints directors. In any event, such an instruction can only affect directors appointed by the government, so that other directors appointed by other shareholders can continue to run the company, and absent any quorum restrictions in the relevant regulations, those directors can and will continue to run the companies, until the government gets around to nominating or appointing new directors.

But in thinking over this matter my attention was drawn to section 72 of the Financial Administration Act, 2003 (Act 654). That section imposed on directors of companies appointed by the government, a duty to submit reports on the operations of the company to the Minister for Finance at the end of June and December of each year. It also requires such directors to forward to the Minister, a copy of the company’s audited financial statement within one month of publication of that statement. Then it provides that “subject to any other provision for the removal of directors from a board” directors in default of these reporting requirements “shall be removed from the Board.” This becomes a further ground, but I am certain that these directors are not being “removed” on this ground.

Am I nitpicking? Maybe. But surely, the new NDC government is filled with 'nits' to pick on an almost daily basis.