Illegality of Actions of MDs of MDAs Such as AMCON Whose Boards Have Been Dissolved


Mike Ozekhome

It is patently illegal for the Managing Director of a dissolved Department or Agency of Government to exercise powers and take major decisions in the absence of an extant Board, the previous Board having been dissolved.

A Board of Directors is a body of elected or appointed members who jointly oversee the activities of a company or organization, which can include a non-profit organization or a government agency or corporation. A Board of Directors’ activities are determined by the powers, duties, and responsibilities delegated to it or conferred on it by an authority outside itself.

From the provisions of the Asset Management Company of Nigeria Act CAP L5, LFN 2004, the Board of Directors is vested with the responsibility regarding the policy and general supervision of the affairs of the Corporation. Section 9 of the Asset Management Company Of Nigeria Act, provides as follows:

(1) There is established for the Corporation the Board of Directors (in this Act referred to as “the Board”) which shall be responsible for:

(a) the attainment of the objects of the Corporation
(b) the policy and general supervision of the affairs of the Corporation; and
(c) Such other functions conferred upon it by any other provision of this Act.
(2) The Board may delegate any part of its responsibilities under subsection (1) of this section and under any other provision of this Act as it may deem fit.
Although, the Act specified under sub-section (2) of that the Board can delegate its responsibility as it may deem fit.

Generally, the Board of Directors is synonymous to the management of the company. Under Section 17 of the Asset Management Company Of Nigeria Act, CAP L5, LFN 2004, it is provided that:
(1) The Managing Director shall have responsibility for the day-to-day management of the affairs of the Corporation.

(2)The Managing Director shall be responsible to the Board for the performance of his functions and the implementation of the Corporation’s strategic plans and objective.
In Corporate law, the Board of Directors of a company is entitled to exercise all such powers, and do all such acts and things as the company is authorized to exercise and do. In exercising the aforesaid powers or doing any of the aforesaid acts or things, the Board will be subject to the provisions contained in that behalf in the Act setting up the Company or under which it derives its validity and power to so act .

Thus, the Board may exercise all powers of the company and can do all such acts and things that the company can do except those which are specifically provided to be exercised or done by the company in general meeting. It is therefore clear that the powers of a company in respect of all matters are to be exercised by the Board of Directors except where these are reserved for exercise by company in general meeting.

In specific reference to the Asset Management Company of Nigeria , analogical relationship as to the overriding powers of the Board of Directors can be gleaned from the provisions of the Companies and Allied Matters Act, CAP C20, 2004. Section 63 of CAMA provides as follows:
A company shall act through its members in general meeting or its board of directors or through officers or agents, appointed by, or under authority derived from, the members in general meeting or the board of directors.

In the case of Asset Management Company of Nigeria, where there is no General meeting, it can be read to mean that officers or agents of the company derive their power or authority from the Board of Directors. If this analogy is accepted, it therefore means that where for instance, the Board of Directors at the material time has been dissolved, the power of the Board cannot be usurped by the Managing Director and any act of the Managing Director which touches on the power exercisable by the Board will be deemed null, void and of no effect whatsoever.

It is pertinent at this junction, to draw further analogies of the overriding and exclusive powers of the Board of Directors of a public corporation like AMCON by sifting the common law doctrine as encapsulated in the “exceptions” to ”indoor Management rule”- also known as “the rule in Royal British Bank v. Turquand”. This rule, states that outsiders dealing with a company are not bound to ensure that all the internal regulations of the company have in fact been complied with as regards the exercise and delegation of authority: but they are entitled to assume that all acts of internal management have been properly carried out in accordance with the maxim “omnia praesumuntur rite et solemniter esse acta” – “all things have been done properly and solemnly which ought to have been done”. In other words, a person dealing with an incorporated company is not expected to peep into the internal affairs of the company or to investigate the locus standi of the officers before transacting any business of a normal every-day nature with the company.

The case of ROYAL BRITISH BANK V. TURQUAND (1856) 6 E. & B. 327., was the case in which the rule was first enunciated and therefore, the locus classicus on this point. In that case, the Royal British Bank sued Turquand as the liquidator of the Coalbrook Steam, Coal, and Swansea and London Railway Co., on a bond signed by two directors, whereby the latter company acknowledged itself to be bound to the Royal British Bank in an amount of 2,000. Under the Constitution of the company the Directors, might borrow on bond such sums as should, from time to time, by a general resolution of the company, be authorized to be borrowed, and the defendant pleaded that there had been no such resolution. The Court held that the defendant was bound. Jervis C.J. gave the rationale for the rule in the case thus:

“We may now take for granted that the dealings with these companies are not like dealings with other partnerships, and that the parties dealing with them are bound to read the statute and the deed of settlement. But they are not bound to do more. And the party here, on reading the deed of settlement, would find not a prohibition from borrowing, but a permission to do so on certain conditions. Finding that the authority might be made complete by a resolution, he would have a right to infer the fact of a resolution authorizing that which on the face of the documents appeared to be legitimately done”

In the case of TRENCO (NIGERIA) LTD. V. AFRICAN REAL ESTATE AND INVESTMENT CO. (1978) 3 S.C.9, (1978) 1 L.R.N. 146 , the Supreme Court also held, applying this rule, that the defendants were entitled to assume that the Chairman of the plaintiff company had the authority to enter into a binding contract with the defendant company on behalf of the plaintiff company.

Also, in AFRICAN DEVELOPMENT CORPORATION LTD. V. LAGOS EXECUTIVE DEVELOPMENT BOARD AND UNITED AFRICA COMPANY OF NIGERIA (1966)(1) A.L.R. COMM. 438, the plaintiff acquired a leasehold of two plots of land from the first defendant, LEDB, which executed a deed of lease in plaintiff’s favour. Afterwards, following a request conveyed by the Managing Director of the plaintiff company to surrender the deed and be released from the contract, the Plaintiff’s General Manager who was a director of the company, signed the deed of surrender on behalf of the company which was witnessed by an accountant with the company’s seal affixed.

Eleven years later, Plaintiff brought an action against the first Defendant seeking a declaration that the deed of surrender was null and void; claiming also, that the Board of Directors had not given the General Manager authority to execute the deed of surrender. It was held applying, the earlier authorities, that the Defendant Board was entitled to assume that Plaintiff company’s General Manager who was a Director in his own right in the company, had authority to execute the deed of surrender of the lease, and that the plaintiff company was bound accordingly.

Exceptions to the Indoor Management Rule
The Indoor Management Rule is subject to some limitations and it does not apply in the following cases:
(i) Where the person seeking to rely on the rule is himself aware, or has knowledge, of the irregularities;

(ii) Where the transaction is of such an unusual nature or by reason of some suspicious circumstances, that a person dealing with the officers of a company might reasonably be expected to make inquiries to assure himself that those with whom he is dealing are acting regularly and within the authority of the company;
(iii) Where the person seeking to reply on it was not aware of the contents of the memorandum and articles of association of the company.

(iv) Insiders (persons holding responsible positions within the company) cannot rely on the rule because they must be taken to know of the irregularity.
(v) Where the transaction involves forgery or is a “non-genuine” transaction. We now consider the exceptions seriatim with relevant decisions.

The above exceptions have been codified under Section 69 of CAMA thus:
“69. Any person having dealings with a company or with someone deriving title under the company shall be entitled to make the following assumptions and the company and those deriving title under it shall be estopped from denying their truth that–

(b) every person described in the particulars filed with the Commission pursuant to section 35 and 292 of this Act as a director, Managing Director or secretary of the company; or represented by the company, acting through its members in general meeting, board of directors, or managing director, as an officer or agent of the company, has been duly appointed and has authority to exercise the powers and perform the duties customarily exercised or performed by a director, Managing Director, or secretary of a company carrying on business of the type carried on by the company or customarily exercised or performed by an officer or agent of the type concerned;

Provided that:-
(i) a person shall not be entitled to make such assumptions as aforesaid, if he had actual knowledge to the contrary or if, having regard to his position with or relationship to the company, he ought to have known the contrary;
(ii) a person shall not be entitled to assume that any one or more of the directors of the company have been appointed to act as a committee of the board of directors or that an officer or agent of the company has the company’s authority merely because the company’s articles provided that authority to act in the matter may be delegated to a committee or to an officer or agent.

What we are trying to establish by the above-analogies are that even in strict corporate law, there is no authority which expressly states that an officer of the company can usurp the powers of the Board of Directors. The law has been that where there is ostensible authority wielded by such an officer on behalf of the company and which induces or acts as an allurement to unsuspecting third party suffering detriment in any way, the company will be held liable and it would not lie in its mouth to say that such an officer does not have its authority to so act. The law, it must be noted, never stipulate that the officers of the company can usurp the powers of the Board. As a matter of fact, it is because of the very fact that such company officer(s) do not have such power that necessitated the court’s intervention to state that where such officer is allowed to represent the company as a result of his position in the company, the same company will be estopped from denying such authority or evading liabilities.

Sieving from the analogical position of the law above, we state emphatically, that the power to manage and supervise the Asset Management Company Of Nigeria is vested in the Board and as the Asset Management Company Of Nigeria Act, expressly states, the Board can delegate such power. It is also the law that the Managing Director does not have the final say in the hierarchical scheme of things but is responsible to the Board. The law of delegation is that any person to whom power is delegated becomes an agent of the delegator, being that such a person, acting under authority cannot without express authority of the delegator, delegate such power. This is encased in the maxim, delegatus non potest delegare.

It is a well known position of law that the death of a Principal/Delegator is an instantaneous and absolute revocation of the authority of the agent. Therefore, the cessation of the operation of a Board of Directors of Asset Management Company Of Nigeria as evidenced by the dissolution of same by the President is analogically tantamount to the death of the Board, thus, effectively revoking the Managing Director’s exercise of power delegated to it by the Board as touching the Board’s power to oversee and act as the last echelon commander in the chain of authority under the Asset Management Company Of Nigeria Act, CAP L5, LFN 2004. Act. It is therefore safe to conclude that the Managing Director’s power is only limited to the day to day administration of the Company and nothing more till a new Board is inaugurated. Therefore, anyone who feels aggrieved by any exercise of power not inherent in the Managing Director, may approach a Court of law to ventilate his grievances.
–Ozekhome is a constitutional lawyer and human rights activist