DIRECTORS OF COMPANY BOARDS HAVE PERSONAL AND COLLECTIVE LIABILITIES.

Liabilities of the Board Directors.

Directors of the board may be collectively or individually liable for misconducts. Being liable means that the individuals involved should be ready to face the negative consequences of misconducts in their organisation whether it is committed by them or persons under their command. Facing the consequences means that the Indvidual(s) will be punished according to the requirements of the applicable laws, regulations and company internal policies. Such punishment may include dissolution of the board before the tenure expires, dismissal of the specific director(s) involved, payment of fines, asset seizure, jail term or company license suspension or withdrawal and company liquidation.

There are several circumstances that can cause the board and directors to be held liable for misconducts. The circumstances can be found in the companies acts, code of corporate governance and other laws and regulations applicable to the companies within a jurisdiction.   

Below is a brief overview of the circumstances that can cause collective or personal liabilities to the directors of the boards.

Circumstances that can cause directors to be held personally or collectively liable for misconducts

When the directors or a director fail to observe the following:

• protect the interest of the company by taking wrongful decisions or actions that may impact negatively on the organisation, shareholders, directors, management and employees, customers, suppliers, host communities, the environment and others.
• exercise independent and objective judgement in quality decision making and taking timely actions on matters affecting the company.
• comply with the rules of the law, regulations and internal company policies.and
• demonstrate duty of care, loyalty and obedience towards the company.

Other circumstances the directors of the board can be held liable:

• When the executive management, employees and others under the director(s)’ command misbehaves.
• When a party (parties) feel aggrieved and brought actions such as litigations or allegations on the company or specific individuals involved..
• When the company breaches terms of contract with internal staff or third parties such as customers, vendors, host community and others.
• when a director provides a personal guarantee to another person in order to obtain credit facility and the individual fails to pay up.
• when the shareholder agreement stipulates that directors must provide personal security for company debts and they fail

Some Examples of The Liabilities Attached To Misconducts Committed By Directors of Company Boards

In Nigeria, the legal and fiduciary duties of company boards and directors of the boards as well as their rights are contained in the National Code of Corporate Governance 2018, Investment and Securities Act 2007, Company and Allied Matters Act (CAMA) 2020 and other sources. However, the collective and personal liabilities attached to the breach of duties committed by the director of the boards or officers under them are contained in the Investment and Securities Act (ISA) 2007 and Company And Allied Matters Act (CAMA) 2020. Presented below are some excerpts of the specific liabilities attached to the directors of company boards in Nigeria.

Investment and Securities Act (ISA) 2007 – Some Examples Of The Liabilities of the Directors of Company Board in Nigeria

• Experts Statement on Prospectus – 77 (1) A prospectus inviting persons to subscribe for securities in a company and including a statement purporting to be made by an expert shall not be issued unless- a) the expert has given and has not, before delivery of a copy of the prospectus for registration, withdrawn his written consent to the issue of the statement included in the form and context in which it is; and (b) a statement appears in the prospectus that the expert has given and has not withdrawn his consent

2) If any prospectus is issued in contravention of this section, the company and every person who is knowingly a party to the issue commits an offence and is liable on conviction to a fine of x100,000 or a term of imprisonment of not less than three years or to both such fine and imprisonment.

• Criminal liability for mis[1]statement in prospectus. – 86 (1) Where a prospectus includes any untrue statement or mis-statement, any director or officer who authorised the issue of the prospectus commits an offence and is liable-  (a) on conviction to a fine of not less than x1,000,000,000 or to imprisonment for a term not exceeding three years, or to both such fine and imprisonment; or  (b) on summary conviction, to a fine of not less than x1,000,000,000 or to imprisonment for a term not exceeding three months or to both such fine and imprisonment, unless he proves either that the untrue statement or mis-statement was immaterial or that he had reasonable ground to believe and did, up to the time of the issue of the prospectus, believe that the statement was true

Companies And Allied Matters Act (CAMA) 2020 – Some examples of The Liabilities Of The Directors of Company Board in Nigeria

• Corporate Responsibilities for Financial Reports – 405.—(1) The chief executive officer and chief financial officer of a company other than a small company or persons performing similar functions shall certify in each audited financial statement that the—(a) officer who signed the audited financial statements has reviewed them, and based on the officer’s knowledge the— (i) audited financial statements do not contain any untrue statement of material fact or omit to state a material fact, which would make the statements misleading, in the light of the circumstances under which such statement was made,

(2) Where a managing director, chief financial officer or person performing similar functions fails to discharge the duty imposed on him under this section, he commits an offence and is liable on conviction to a penalty as the Commission shall specify in its regulations