REMEDIES AGAINST IMPROPRIETIES

1. REMEDIES AGAINST IMPROPRIETIES • Session 1: the rule in Foss v Harbottle • Session 2: legal proceedings instituted by individuals • Session 3: Judicial remedies against improprieties • Session 4: Registrars check against improprieties • Session 5: Case Review: Okudzeto v Irani Brothers (Part 1) • Session 6: Case Review: Okudzeto v Irani Brothers (Part 2)

2. Session 1: the rule in Foss v Harbottle: • The general rule is that individuals members of a company do not have the right to sue or compel a company to conform to its Regulations or to enforce a claim belonging to the company • Generally if a member is dissatisfied with the decision of the board of directors or the majority of shareholders and bring an action against them in court, the company will object to the members standing to sue or the court on its own motion may stay proceedings

3. So long as the irregularity can be remedied by passing of ordinary resolution, the aggrieved member is potentially, if not in fact, deprived of the right to successfully sue. • The limitation on the member’s or minority to sue is known as the rule in Foss v Harbottle. • Refer to the case in page 139 • The court’s vie is that so long as the company could confirm or avoid impugned matter, shareholders could not sue the directors personally, or sue in the company’s name in respect of the impugned matter

4. Application of the rule in Ghana • Appenteng and others v Bank of West Africa • Refer to page 141 • The case bothers on the whether the plaintiff falls under the exception to permit them to sue • Ollenu rejected the claim on the grounds that the individual right of invasion which will give a shareholder a cause of action for wrong done to the corporate body, must be a legal personal right, a right which is enforceable at law.

5. Justification of the rule • The corporate status argument: there is a separate and distinct status of the company • Majority rule justification: all have a say but the majority rule prevails • Judicial reluctance in making business decisions or interfering with business policies • The court’s do not want to make orders in vain

6. Session 2: Legal Proceedings instituted by individuals In this session, we will discuss the exception to the rule in Foss v Harbottle, how the right to sue is applied, and how representative actions are called for. (S324)

7. Right to sue • Sometimes, however, individuals members or minority have the right to sue to compel a company to conform to its Regulation or to enforce claim belonging to the company. • This right may be exercised in the following instances:

8. When the company purports to undertake an activity that is illegal, or ultra vires and can’t be cured by the company • Where the right of the plaintiff have been invaded such as • Where profit and dividend has been declared but he has not been paid a share proportionate to his investment • Being deprived of his right to vote at general meeting or where his vote has not been recorded • When those who control the company undertake unconscionable conduct at the expense of those who do not control the company • When the interest of justice permits the plaintiff to sue

9. If the plaintiff is enforcing a personal right, he can institute a personal action • When the plaintiff seeks to enforce the right that he enjoys by being a member of a class, or he seeks reliefs because he suffers burdens as a member of a certain class, or he seeks to enforce compliance to the Regulation, he must institute a representative action • A personal action can be instituted when a person in whom the Regulation vest power to appoint or remove an officer is deprived of that right or a paid- up member is deprived of his right to attend, speak at, and vote at general meeting

10. Representative Action Representative actions are called for in a number of cases • By virtue of the effects of the Regulation when registered • When a shareholder or creditor seeks to obtain a court order for an injunction to restrain a company from paying dividend or making a return or distribution of any of the company’s assets contrary to S71(1) or where a shareholder or creditor seeks to obtain a court order for restoration of any dividend paid, asset return or asset distributed

11. When a debenture holder institutes legal proceedings to enforce the security of a series of debentures of which he holds part • In pursuant to S210(1) and (3) suits by members against directors to enforce liabilities or to restrain threatened breach of duty by directors or to recover from directors any property of the company ought to be brought in a representative capacity

12. Stipulations of representative action • The plaintiff may institute a legal proceedings in a representative capacity without the consent and approval of the other members of the class he represents • The plaintiff in a representative capacity shall have the sole conduct of the action. • no other member of the class shall in any way be liable for the cost of these proceedings, notwithstanding that the plaintiff is suing in a representative capacity.

13. Any member of the class represented may at any time prior to final judgement apply to the court for a leave to be a party to the proceedings and the court may grant that leave on such terms that the court deems fit • Upon the court’s granting leave to intervene, the person becomes a party to the proceedings and liable to have an order for costs awarded against him • Any judgement given in the representative action shall bind and ensure for the benefit of all members of the class represented • No representative action shall be dismissed, settled or compromised without the court’s leave

14. Indeed it is advisable that plaintiffs in a representative action conclude such agreements with the members of the class on whose behalf they are suing. • Such agreements when executed are binding on all members

15. Proceedings Instituted by the company Proceedings may be instituted by the company in a number of instances • On the authority of the board of directors • On the authority of any receiver and manager • On the authority of liquidator • By the registrar after an investigation into the affairs of the company • By the members of the company having passed an ordinary resolution

16. Session 3: Judicial remedies against improprieties • In this session, we will now turn our attention to judicial remedies against improprieties. • Specifically, we shall discuss provisions against improprieties in S217 and S218 • We shall also focus on how to apply and remedy in pursuant to S218

17. Provisions against improprieties • There are three key provisions of the code that afford judicial reliefs against improprieties • S210- which deals with court action against directors • S217- which deals with illegal or ultra vires measures • S218- which deals with remedies against oppression

18. Section 217 • Members alone may apply to the court for an injunction to restrain the company from doing any act or entering into any transaction which is illegal, or beyond the power or capacity of the company or infringes any provisions of the Regulation or from acting on any resolution not properly passed in accordance with the Regulation • A member can institute an order for declaration if the act has already been committed

19. Section 218 • The phrase remedy against oppression is a misnomer. An act of oppression does not necessarily entitle one to S218 remedy and it deals with other matters that are not ordinarily considered as oppressions. • Compared to S217 which grants injunction and declaration, S218 covers a broader range of improprieties • It is available to a greater number of parties and once made out, it affords a considerable array of potential remedies

20. Refer to page154 for details of the oppressions covered by the S218

21. Applying for S 218 remedies • Members can apply for the remedy • The registrar can apply for the remedy • Officers can apply the remedy

22. Remedy in Pursuant to S218 • Directing an act • Prohibiting an act • Cancelling any transaction or resolution • Varying a transaction or resolution • Regulating the future conduct of the company’s affair • Providing for the purchase of of shares or debentures by other shareholders or debenture holders • Alerting or adding to the company’s Regulation • Winding up the company

23. Session 4: Registrar’s checks against improprieties • In this session we shall discuss how the Registrar, through administrative intervention, can check a company and thereby curb improprieties. • The registrar uses two tools to achieve this • Investigation by the registrar • Appointment of inspector We shall also discuss proceedings after investigation or inspection

24. Investigation by Registrar • The registrar may by written order call on a company to produce for his inspection, all books and /or to furnish in writing any further information and or explanation • The registrar may require this • On its own motion • Upon a tip off by a member, officer or creditor

25. The Registrar may investigate a company under the following circumstances • In order to ensure that the company complies with the provisions of the code relating to the maintenance and auditing of accounts • Where the provisions of the code are apparently not being complied with • Where any document which the company is required to send to the Registrar does not disclose full and fair statement of a matter to which it relates

26. Where the company’s business apparently is conducted with the intent to defraud its creditors or otherwise for fraudulent purposes • Where persons concerned with the formation of the company or management of its affairs is apparently been guilty of a breach of duty towards the company or its members • Where the members of the company have apparently not been given all the information with respect to the affairs that they might reasonably expect

27. Where the Registrar makes an order for the company to produce for his inspection all its books or to furnish in writing any further information or explanation, the company and all its officers or former officers shall comply with such order within the time stipulated in the Registrars order or face a fine • If the Registrar is dissatisfied with the books produced or the information/explanation provided, he shall proceed in accordance with S255 of the code or report the circumstances in writing to the court.

28. Appointment of an inspector • An inspector is always appointed by the Registrar, but the appointment of an inspector may be procured by the court, members or the Registrar on his own motion. • The high court may order the Registrar to appoint one or more inspectors to investigate the affairs of the company and to report to the Registrar.

29. The following persons have the right to apply to the High court for the order directing the Registrar to appoint an inspector • The registrar, after he has concluded preliminary enquiries and prepared a report in accordance with S219 • The Registrar, invariably in urgent cases only, absent a report following preliminary enquiry • At least one hundred members • Members holding at least 10 percent of the issued shares of the company • At least 10% of the total number of members of the company

30. When members commence the application in court, they shall give the Registrar at least 14 days previous notice • The registrar is entitled to intervene in those proceedings • The court may require by way of evidence a prima facie case for the appointment order they seek • Application for the appointment order whether brought by the Registrar or the members shall be heard in chambers

31. At least, 14 days notice shall be given to the company which shall be entitled to be represented at the hearing to give evidence and call witnesses • If the court is satisfied that it is appropriate that the affairs of the company be investigated, it shall direct the Registrar to appoint the investigator(s) • By a special resolution by members for appointment of an inspector, the Registrar has no discretion but to appoint the inspector

32. The inspector appointed by the Registrar, whether pursuant to members special resolution or court order has extensive powers to facilitate their work