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CAMA remedies for breach of duties by directors


One of the risks of buying the shares of a company is that the company may fail and close shop, as it has happened even to a lot of big and old companies. While the failure of a company may be due to a combination of factors, a lot of time, they are product of improper behaviour or breach of duties by the directors of the company i.e the people appointed by the shareholders to manage the affairs of the company.

The Companies and Allied Matters Act (CAMA) anticipates such improper behaviours or breach of duties by directors of companies and thus has provisions on how to address or resolve such breaches. Hence, a company and not its shareholders, has numerous options open to it when any of its directors is found wanting. The options are listed below.

Order of Injunction: The company can obtain a Court Injunction against a director either to preempt breach of duty or to stop continuation of breach of duty.

Compensation and or damages:  Where the case of breach of duty has been established against a director, the company can demand that the erring director pay compensation as a form of restitution.

Revocation of contract: This is possible where the company is able to show that the alleged contract was ultra vires to its objects and it cannot be ratified to the prior knowledge of the third party. So the company can revoke the contract.

Restoration of the company’s property: A Director may be ordered by the court to restore the company’ property if it is proved that he duped the organisation.

An order for the Director to render an account of the profits made. Summary dismissal of the Director as has been done in some cases could be remedy for breach of duty.

Who can challenge a breach of duty?
The general company law rule is that it is only the company itself and not its directors or shareholders that can contest a wrong done to the company or ratify an irregular conduct. This can be found in Section 299 of CAMA.

There are some exceptions to this rule, which entitles shareholders to commence an action in a Court of Law, as provided for in Section 300 of CAMA.

They include: entering into illegal or ultra vires transactions, purporting to do by ordinary resolution any act, which by its Articles/Charter or CAMA is required to be done by special resolution; any act or omission affecting the shareholder’s individual rights as a member of the company, committing fraud on either the company or its minority shareholders; Where a company meeting cannot be called on time to be of practical use in redressing a wrong done to the company or to its minority shareholders; where the directors are likely to derive a profit or benefit, or have profited from the negligence or from their breach of duty.

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