The sections, word for word
Every section on this subject, exactly as printed in the Official Gazette (Act No. 3 of 2020). The explanation follows beneath.
Section 305. Duties of directors
(1) A director of a company stands in a fiduciary relationship towards the company and shall observe utmost good faith towards the company in any transaction with it or on its behalf.
(2) A director owes fiduciary relationship with the company where—
(a) a director is acting as agent of a particular shareholder ; or
(b) though, he is not an agent of any shareholder, such a shareholder or other person is dealing with the company’s securities.
(3) A director shall act at all times in what he believes to be the best interests of the company as a whole so as to preserve its assets, further its business, and promote the purposes for which it was formed, and in such manner as a faithful, diligent, careful and ordinarily skilful director would act in the circumstances and, in doing so, shall have regard to the impact of the company’s operations on the environment in the community where it carries on business operations.
(4) The matters to which a director of a company is to have regard in the performance of his functions include the interests of the company’s employees in general, as well as the interests of its members.
(5) A director shall exercise his powers for the purpose for which he is specified and shall not do so for a collateral purpose, and the power, if exercised for the right purpose, does not constitute a breach of duty, if it, incidentally, affects a member adversely.
(6) A director shall not fetter his discretion to vote in a particular way.
(7) Where a director is allowed to delegate his powers under any provision of this Act, such a director shall not delegate the power in such a way and manner as may amount to an abdication of duty.
(8) No provision, whether contained in the articles, resolutions of a company, or any contract, shall relieve any director from the duty to act in accordance with this section or relieve him from any liability incurred as a result of any breach of the duties conferred upon him under this section.
(9) Any duty imposed on a director under this section is enforceable against a director by the company.
Section 306. Conflicts of duties and interests
(1) The personal interest of a director shall not conflict with any of his duties as a director under this Act.
(2) A director shall not—
(a) in the course of management of affairs of the company, or
(b) in the utilisation of the company’s property, make any secret profit or achieve other unnecessary benefits.
(3) A director is accountable to the company for any secret profit made by him or any benefit derived by him contrary to the provisions of subsection (2).
(4) The inability or unwillingness of the company to perform any function or duty under its articles and memorandum does not constitute a defence to any breach of duty of a director under this Act.
(5) The duty not to misuse corporate information does not cease by a director or an officer having resigned from the company, and he is still accountable and can be restrained by an injunction from misusing the information received by virtue of his previous position.
(6) Where a director discloses his interests before the transaction and before the secret profits are made before the general meeting, which may or may not authorise any resulting profits, he may escape liability, but he does not escape liability if he discloses only after he has made the secret profits, and in this case, he shall account for the profits.
Section 307. Multiple directorships
(1) The fact that a person holds more than one directorship shall not derogate from his fiduciary duties to each company, including a duty not to use the property, opportunity or information obtained in the course of the management of one company for the benefit of the other company, or to his own or other person’s advantage.
(2) Subject subsection (3), a person shall not be a director in more than five public companies.
(3) Any person who is a director in more than five public companies shall, at the next annual general meeting of the companies after the expiration of two years from the commencement of this Act, resign from being a director from all but five of the companies.
(4) Any person who acts as a director of a public company in contravention of the provisions of this section is liable to a daily penalty in such amount as the Commission shall specify in its regulations and shall refund to each of the companies every remuneration and allowances paid to him as a director in each of the companies.
Section 308. Duty of care and skill
(1) Every director of a company shall exercise the powers and discharge the duties of his office honestly, in good faith and in the best interests of the company, and shall exercise that degree of care, diligence and skill which a reasonably prudent director would exercise in comparable circumstances.
(2) Failure to take reasonable care in accordance with the provisions of this section, is a ground for an action for negligence and breach of duty.
(3) Each director is individually responsible for the actions of the board in which he participated, and the absence from the board’s deliberations, unless justified, does not relieve a director of such responsibility.
(4) The same standard of care in relation to the director’s duties to the company shall be required for both executive and non-executive directors: Provided that additional liability and benefit may arise under the master and servant law in the case of an executive director if there is an express or implied contract to that effect.
Section 309. Legal position of directors
(1) Directors are trustees of the company’s money, properties and their powers and as such shall account for all the money over which they exercise control, refund any money improperly paid away, and shall exercise their powers honestly in the interest of the company and all the shareholders, and not in their own or sectional interests.
(2) A director may, when acting within his authority and the powers of the company, be regarded as agents of the company under Part III of this Act.
What this means
Short answer
A director stands in a fiduciary relationship with the company and must act in utmost good faith (section 305(1)). He must avoid conflicts and secret profits (section 306), exercise the care and skill of a reasonably prudent director (section 308), and hold the company’s money and property as a trustee (section 309).
The main duties in section 305
- Good faith. A director stands in a fiduciary relationship with the company and must observe utmost good faith (section 305(1)).
- Best interests. He must act in what he believes to be the best interests of the company as a whole, as a faithful, diligent, careful and ordinarily skilful director would, and have regard to the company’s impact on the environment in the community where it operates (section 305(3)).
- Employees and members. The interests of employees in general count as well as those of members (section 305(4)).
- Proper purpose. Powers must be used for the purpose for which they are given, not a collateral one (section 305(5)).
- Independent judgement. A director must not fetter his discretion to vote in a particular way, and must not delegate in a way that amounts to abdicating his duty (section 305(6) and (7)).
- No contracting out. Nothing in the articles, a resolution or a contract can relieve a director of these duties, and the company can enforce them (section 305(8) and (9)).
Conflicts of interest and secret profits
A director’s personal interest must not conflict with his duties, and he must not make a secret profit or take other unnecessary benefits in managing the company’s affairs or using its property. If he does, he is accountable to the company (section 306(1) to (3)). The duty not to misuse corporate information continues after he resigns (section 306(5)).
Timing matters. A director who discloses his interest before the transaction, and before the profit is made, may escape liability. One who discloses only after making the profit does not, and must account for it (section 306(6)).
More than one directorship
Holding several directorships does not reduce the duties owed to each company, including the duty not to use one company’s property, opportunities or information for another’s benefit. A person may not be a director in more than five public companies (section 307(2)). A person who breaks this faces a daily penalty set by the Commission and must refund the remuneration and allowances paid to him by each company (section 307(4)).
Care and skill
Every director must act honestly, in good faith and in the company’s best interests, with the care, diligence and skill that a reasonably prudent director would show in comparable circumstances. Failing to take reasonable care can ground an action for negligence and breach of duty (section 308(1) and (2)).
- Each director is individually responsible for the actions of the board in which he took part, and unjustified absence does not relieve him (section 308(3)).
- The same standard applies to executive and non-executive directors, although executive directors may carry extra liability under their contract (section 308(4)).
Directors as trustees
Directors are trustees of the company’s money and property. They must account for the money they control, refund anything improperly paid away, and use their powers honestly in the interest of the company and all shareholders, not their own or sectional interests. When acting within their authority they can be regarded as the company’s agents (section 309).
Questions and answers
What is a director’s main duty under CAMA 2020?
To act in utmost good faith, in the best interests of the company as a whole, as a faithful, diligent, careful and ordinarily skilful director would (section 305).
How many public company boards can a person sit on?
Not more than five (section 307(2)).
Are non-executive directors held to a lower standard of care?
No. Section 308(4) applies the same standard of care to executive and non-executive directors.
Can a director escape liability for a secret profit by disclosing it?
Only if he discloses the interest before the transaction and before the profit is made. Disclosing afterwards does not help, and he must account for the profit (section 306(6)).
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