DUTIES OF COMPANY DIRECTORS UNDER NIGERIAN COMPANY LAW

Company directors occupy an important position in the management of a company. They are responsible for making decisions that affect the company’s operations, finances, employees, shareholders and overall direction.

But being a director is not simply about having the authority to make business decisions.

Under Nigerian company law, directors owe important duties to the company. These duties are designed to ensure that directors exercise their powers responsibly, honestly and in the interests of the company.

The Companies and Allied Matters Act 2020 (CAMA 2020) contains several provisions governing the duties and responsibilities of directors.

Here are some of the key duties every company director should understand.

1. DUTY TO ACT IN GOOD FAITH

A director is expected to act in good faith in the best interests of the company as a whole.

This means that a director should not use their position primarily to pursue a personal interest at the expense of the company.

For example, a director should not deliberately approve a transaction simply because it personally benefits them while exposing the company to an unreasonable disadvantage.

The director’s position comes with a responsibility to consider what is beneficial to the company rather than simply what benefits the director personally.

2. DUTY TO EXERCISE CARE, SKILL AND DILIGENCE

Directors are expected to exercise appropriate care, skill and diligence when carrying out their responsibilities.

Being a director does not mean that every decision must produce a successful outcome. Businesses naturally involve risk, and directors may sometimes make decisions that do not produce the expected results.

However, directors are expected to approach their responsibilities responsibly.

This includes making reasonable efforts to understand the company’s affairs, paying attention to important information, asking appropriate questions and avoiding careless decisions that could unnecessarily expose the company to loss.

A director should not simply approve decisions without understanding what they are approving.

3. DUTY TO AVOID CONFLICTS OF INTEREST

Directors must be careful when their personal interests could conflict with the interests of the company.

A conflict may arise where a director has a personal, financial or business interest in a transaction involving the company.

For example, imagine that a company is looking for a supplier and one of its directors owns an undisclosed business that wants to provide those supplies.

The director’s personal interest in securing the contract could conflict with their duty to act in the company’s interests.

In situations like this, the director should comply with the applicable disclosure requirements and avoid allowing the personal interest to improperly influence the company’s decision-making.

4. DUTY NOT TO MAKE SECRET PROFITS

Directors must not use their position to make undisclosed personal profits at the expense of the company.

A director may come across valuable business opportunities, confidential information or other benefits because of their position.

That does not automatically mean they are free to take those opportunities for themselves.

Where a director uses their position to obtain an undisclosed benefit, the director may face legal consequences.

The underlying principle is straightforward:

A director should not secretly profit from the trust placed in them by the company.

5. DUTY NOT TO MISUSE COMPANY PROPERTY

Company property belongs to the company.

A director should therefore not treat company assets as their personal property simply because they have control over the company’s affairs.

For example, a director should not take company funds for personal use without proper authority or use company property for personal purposes in circumstances where this is not permitted.

Directors must remember that control over company assets does not mean personal ownership of those assets.

6. DUTY TO PROTECT CONFIDENTIAL INFORMATION

Directors may have access to sensitive information about a company’s finances, customers, contracts, strategies, intellectual property and future business plans.

Such information should be handled responsibly.

A director should not improperly disclose or use confidential company information for personal benefit or for the benefit of another person or business.

This is particularly important where the information could give the director or another party an unfair commercial advantage.

7. DUTY TO EXERCISE POWERS FOR PROPER PURPOSES

Directors are given powers to enable them to manage the affairs of the company.

Those powers must be exercised for the purposes for which they were given.

A director should not use a corporate power simply because they have the authority to do so if the power is being used for an improper purpose.

For example, a director should not use the company’s powers to unfairly advance a personal agenda or improperly disadvantage another shareholder.

The fact that a director has a particular power does not mean that the power can be used without regard to its proper purpose.

WHY DO THESE DUTIES MATTER?

Directors are not merely people who attend board meetings and make business decisions.

They occupy positions of trust and responsibility.

Their decisions can affect the company’s assets, employees, shareholders, creditors and other stakeholders.

Directors’ duties therefore form an important part of corporate governance in Nigeria.

When directors act honestly, exercise proper care, disclose relevant interests and use company resources responsibly, they help create a corporate environment based on accountability and responsible management.

WHAT HAPPENS WHEN A DIRECTOR BREACHES THEIR DUTIES?

A breach of a director’s duties can have legal consequences.

Depending on the nature of the breach and the applicable law, a director may face consequences such as liability to the company, repayment or restoration of improperly obtained benefits, or other remedies available under company law.

The specific consequence will depend on the circumstances of the case and the particular duty involved.

This is why directors should understand their legal responsibilities rather than treating corporate governance as a mere formality.

FINAL THOUGHT

Being appointed a company director is not simply an opportunity to participate in running a business.

It is a position that comes with legal responsibilities and fiduciary obligations.

Directors are entrusted with the management of the company’s affairs and must exercise their powers with honesty, care, diligence and proper regard for the company’s interests.

Understanding these duties is an important step towards responsible corporate governance and protecting both the company and its directors from avoidable legal problems.