All llan Hans Muhome me Legal Consultant April 2016 +265888304274 - tmuhome@gmail.com
PART TWO Directors qualifications and duties Company secretaries Accounts and Auditors Liquidation of a Company Insolvency Act [peep thru only] Allan Hans Muhome Companies Act 2013 2 of 25 Exploring Key Changes April 2016
1.A De De Jur Jure Dir Director ector (a director from law) is is properly appointed to the board and registered with Registrar of Companies - A registered director. 2.A De De Fact Facto Di Dire rector ctor (a director in fact or in reality) - not properly appointed and registered but who acts as a director. 3. Alt Alternat rnate Di Direct rector or – a person appointed by a director to act when he cannot. 4.A Cas Casual ual Di Direct rector or – fills a casual vacancy that arises between annual shareholders’ meetings coz of death/resignation. 5.A Shad hadow Dir Direct ector or – one in accordance with whose instructions the Board acts or is accustomed to acting. (not a professional advisor) 6.Nomi omine nee Directo ector - a shareholder/creditor/employees’ rep. 7.Execut Executiv ive (2 contracts – employee and director) and No Non- execu ecutive ive (single contract as director - Independent) Allan Hans Muhome Companies Act 2013 Exploring Key Changes April 2016 3 of 25
A private co. must have at least on one director. Previously all companies were required to have three three directors which is now the case for Plcs only. One director must be resident in Mw for all companies [S. 162] WHY WHY?. The CA 2013 regulates directors’ service contracts for Plcs [S. 216 -219]. Every Every company must keep a register of directors [S. 174]. Ineli eligi gible ble Persons ons [S. 164] A body corporate, unless for a SOC; 1) A person below the age 18 (previously 21); 2) For Plcs - a person over 70 (or below per constitution); 3) An un-discharged bankrupt; 4) A person prohibited from being a director; 5) A person adjudged to be of unsound mind; 6) A person disqualified by the constitution e.g. where a 7) director is required to take up shares and fails. Allan Hans Muhome Companies Act 2013 Exploring Key Changes April 2016 4 of 25
APPOIN APPOINTM TMENT NT- (1) First directors are the ones named in the application for registration [S. 166(1)]. (2) Subsequent directors are appointed by an ordinary resolution [S. 166(2)]. (3) The High Court has been granted power to appoint a director where there are no directors or are not quorate [S. 167 ]. (4) The Registrar may also appoint e.g. following death of a sole director & Shareholder [S.171(9) ] RE REMOVA OVAL-A director of a Plc may be removed from office by an ordinary resolution at a General Meeting; a director of a Private co. may be removed from office by special resolution [S. 169]. VACA VACATI TION ON – may arise through non-eligibility (e.g. turns 70 for a Plc; adjudged bankrupt or of unsound mind) resignation, death or other qualification in the constitution. Allan Hans Muhome Companies Act 2013 Exploring Key Changes 5 of 25 April 2016
Being a director is easy. Being a responsible director is not. Being a responsible director means more than just acting with honesty and integrity and using talents to the company's best advantage. It means developing an understanding and awareness of the ever increasing legal obligations and responsibilities being placed on directors, breach of which can give rise to personal liabilities under the civil and criminal law and even disqualification from holding office as a director - Charles Russel, Directors Di rectors Responsi Responsibil bilit ities ies www.charlesrussel.co.uk Allan Hans Muhome Companies Act 2013 6 of 25 Exploring Key Changes April 2016
1) Du Duty ty to to Act ct in in Acc ccor ordance dance wi with th the the Cons Consti titution tution [S. 176] – Minors ill placed Masanga ngano no v Masanga ngano no (2014). S 39 Co to act intra vires . 2) Du Duty ty to to us use powe owers rs for or a pro proper per pu purpo rpose [S. 176] - wrong to issue shares just o alter balance of votes- Bamford v Bamford [1970]. 3) Du Duty ty to to pro romote ote the the succe uccess of of the the com ompany any [S. 177] a number of factors for consideration are provided e.g. the likely consequences of any decision in the long term; the interests of employees, creditors, suppliers, customers and others; the impact of the company's operations on the community and the environment e.t.c. [Triple bottom – social, environmental and financial] [CSR] 4)Duty uty to to exerci cise independent judgment [S. 178] (do not just follow what other directors opinion) Allan Hans Muhome Companies Act 2013 Exploring Key Changes 7 of 25 April 2016
5) Duty uty of of care are and and skill skill [S. 179] Re Re City City Eq Equita uitable ble Fire Fire Ins Insuran urance ce [1925] - Director to exercise average skill in accordance with his experience and skill. rd parties 6) Duty not to to accept ept benefi efits from 3 rd es [S. 181] 7) Dut Duty to to av avoid oid confl nflict ict of of int inter eres est [S. 180] Press esscan cane Lt Ltd v Patel Patel - use of mgt accounts by director against his co in court … 8) Duty Duty to to de declare clare inter interest [S. 182]. A director is obliged to declare the same to the Board of directors. Such transactions may be voided by the company within six months from the date of the declaration unless the company has received fair value under it [S. 186-194]. Allan Hans Muhome Companies Act 2013 Exploring Key Changes 8 of 25 April 2016
9) Du Duty ag again inst in inside de deal dealin ings gs [S. 194] [also Securities Act 2010] Diam amond ond v Ore Oreamuno amuno (1969) [USA] -Directors who sold their shares at a higher value, knowing the next day the shares would loss their value were guilty of insider trading – had to refund difference. 10 10) Du Duty ty as as to to the the company’s solvency lvency (W (Wro rongful ngful Trad Tradin ing) g) A director of a company who believes that the company is unable to pay its debts as they fall due is obliged to forthwith call a meeting of the Board to consider whether the Board should appoint a liquidator or an administrator. [S. 222(1)] and disclose the same to the Director of Insolvency (if Plc)[S. 11 Insolvency Act 2016]. 11 11) Du Duty ty to to co comply ly wit ith the the co code de of of cor orpora rate te gove overn rnance ance The Act has adopted the ‘‘comply or explain’’ UK approach. It provides that the prescribed code is only directory in nature but the Court, the Registrar or any authority is entitled to have regard to it. Allan Hans Muhome Companies Act 2013 Exploring Key Changes 9 of 25 April 2016
Remedies for breach of directors statutory duties are the same as those for common law [S.185(1)] they include:- 1. Removal of the director from office; 2. Liability to compensate the co. for any loss; 3. Account to the co. for any profit made; 4. The contract or other transaction may be rescinded by the co. 5. The co. may obtain an injunction against the director’s breach; 6. The director may be ordered to pay a fine or be imprisoned in line with the provisions of the CA 2013. [General fine K5 m S. 381 – R v Lutep tepo (2015)] 7. Lifting the Corporate Veil – NBM v Nya Ndovie Ker (2007). 8. The Minister, Registrar or the Registrar of Financial Institutions in the case of Plcs, may appoint inspectors to investigate the affairs of a co. and breaches found may be criminally prosecuted with the consent of the Director of Public Prosecutions [S 331(1)] . Allan Hans Muhome Companies Act 2013 Exploring Key Changes 10 of 25 April 2016
Req Requireme uirement- Under the CA 1984, every company was required to have a co. secretary which requirement remains for Plcs only [S. 68, 156] hence register of Co. secretaries remains for Plcs only [S. 227]. [Financial Institutions also under financial laws]. Qualif ualifica icatio ions of of Secret retar aries ies of of Plcs [S [S. 225 25] A person who appears to directors to have the requisite knowledge and experience to discharge the functions of secretary of the co; OR has the following qualifications:- 1. that he has held the office of secretary of a public co. for at least three of the five years immediately preceding his appointment as secretary; or 2. that he is a member of any professional body of co. secretaries in Malawi (IS THERE ONE?). Allan Hans Muhome Companies Act 2013 Exploring Key Changes April 2016 11 of 25
The Board is under obligation to cause ac accoun counting ting reco ecords to to be be kept ept that, among others, correctly record and explain the transactions of the co. and enable the financial position of the co. to be determined with reasonable accuracy [S. 229]. Fi Financi nancial al St Stat atement ents must be completed, signed by director/s for all companies [S. 245]. The Board of every co. must, within six months after the balance sheet date of the co. prepare an an annua ual repo report rt and and ac accou counts nts. [S. 251(2)]. This does not apply to a one person co. [S. 251(4)]. Shareholders of a private co. may also resolve by unanimous resolution against this [S. 251(3)]. IS THIS ANY GO GOOD FOR INVESTOR TOR CONFID IDENCE ENCE? Allan Hans Muhome Companies Act 2013 Exploring Key Changes April 2016 12 of 25
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