HIGH COURT, ACCRA
DATE: 30 JANUARY 1967
BEFORE: AMISSAH J.A.
CASES REFERRED TO
(1) York Tramways Co., Ltd., v. Willows (1882) 8 Q.B.D. 685; 51 L.J Q.B. 257; 46 L.T. 296; 30 W.R.
624, C.A.
(2) Munster v. Cammwell Co. (1882) 21 Ch.D 183; 51 L.J. Ch. 731; 47 L.T 44; 30 W.R. 812.
(3) Punt v. Symons & Co., Ltd. [1903] 2 Ch. 506; 72 L.J. Ch. 768; 52 W.R. 41; 10 Mans. 415.
(4) Piercy v. Mills (S.) & Co. [1920] 1 Ch. 77; 88 L.J. Ch. 509; 122 L.T. 20; 35 T.L.R 703; 64 S.J. 35.
NATURE OF PROCEEDINGS
APPLICATION to declare the appointment of a director and the allocation of shares in the company to him null and void. The facts are fully stated in the ruling of Amissah J.A. sitting as an additional judge ofthe High Court.
COUNSEL
E. N. Moore for the applicants.
S. A. Okudzeto for the respondent.
A. C. Kuma in person.
JUDGMENT OF AMISSAH J.A.
This application has been brought by the two applicants, personal representatives of the deceased Dr. Dimitra Politis, to declare the appointment of Mr. A. C. Kuma as a director of Plastico Ltd. and the allocation of shares of the company to him, null and void.
To the applicants, the whole matter revolves round the regularity or otherwise of an alleged meeting of the company held on 17 October 1966 at which Mr. Kuma was appointed director and one of the company’s shares allocated to him. But before dealing with this meeting, it is necessary to mention briefly, events preceding it.
Plastico Ltd. was formed by Dr. Dimitra Politis and Mr. George Constantine Michaelides in about June 1963. The company was registered with 5,000 shares, 2,850 of which were held by Dr. Politis who was the managing director, and the other 2,150 by Mr. Michaelides who was, and still is, a director of the company. On 1
[p.27] of [1967] GLR 24
October 1966 Dr. Politis died in Greece. It was in such circumstances that the controversial “meeting” of 17 October was held in Ghana by the sole surviving shareholder and director Mr. Michaelides, with the company secretary in attendance. By this time the personal representatives of Dr. Politis had not been appointed.
On these facts, Mr. Moore on behalf of the applicants contended that such a meeting had to be summoned in accordance with sections 150 and 271 of the Companies Code, 1963 (Act 179), but that this was not done. For our purposes the provisions which need mention are in subsections (2) and (5) of section 271. Section 271 (2) requires that the requisitions for a meeting of the company which must state the nature ofthe business to be transacted must be signed by the requisitionists. Section 271 (5) requires notices of the meeting to transact the business specified in the requisition to be given. According to counsel’s submissions there is nothing in the minutes of the meeting or anywhere else to show the member at whose instance the meeting was called. Neither were notices issued. Against this, counsel for the company (with whose arguments Mr. Kuma who appeared in person associated himself) submitted that the question of notice did not arise when there was only one person to transact the business of the meeting. At the time of the meeting there was no notification to the company that there was a legal personal representative of the deceased, and even if there was, he need not have been notified as he was not a member of the company.
The meeting, counsel for the company submitted, further was not a general meeting of the company but an extraordinary meeting of the surviving director. In my view, the meeting, whatever it was, was not a meeting of the company. It lacked the required notice even though this is explainable on the ground that there was no one else to give the notice to. Further article 5 of the articles of association of the company requires that two should form a quorum at a company meeting. If this purported to be a company meeting for the transaction of company business, it was void because there was no quorum. But the matter cannot be resolved so easily. Quite apart from the validity of the meeting, consideration has to be given to the two questions, namely, whether the appointment of Mr. Kuma and the allocation of shares to him were nevertheless legal. In determining these questions I do not think that considerations which apply to the one issue need necessarily apply also to the other. I shall therefore keep the question of the appointment of Mr. Kuma as a director distinct from the allocation of shares to him.
The appointment of directors is governed by section 181 of the Code. Subsection (5) of that section provides:
[p.28] of [1967] GLR 24
“181. (5) Notwithstanding any provision in the company’s Regulations, any casual vacancy in the number of directors may be filled by,
(a) the continuing directors or director notwithstanding that their number may have been reduced below that fixed as the necessary quorum of directors; or.
(b) by an ordinary resolution of the company in general meeting:
Provided that,
(a) in exercising their power to fill such vacancy the directors shall observe the rules laid down in sections 203 and 204 of this Code and shall not appoint any person to be a director unless they have taken reasonable steps to satisfy themselves that he is a person of integrity and suitable to be a director of the company;
(b) if the casual vacancy so filled is one which, under the terms of the company’s Regulations, should be filled by an appointment by any class of shareholders, debentureholders, creditors, employees or other person, the director appointed by the continuing directors or by an ordinary resolution of the company in general meeting, as the case may be, shall cease to hold office so soon as any other director is duly appointed in accordance with the Regulations.”This provision undoubtedly gives a sole surviving director power to appoint another to fill a casual vacancy. Mr. Moore therefore invited me to hold that the death of Dr. Politis did not give rise to a casualBvacancy, as the vacancy created by it was permanent. But the authorities are against this proposition. A casual vacancy is any vacancy other than one occurring by effluxion of time, or through the director retiring by rotation. In York Tramways Co., Ltd. v. Willows (1882) 8 Q.B.D 685 at p. 694, C.A. Lord Coleridge C.J said: “‘Any casual vacancy’ means any vacancy not occurring by effluxion of time, that is, any vacancy occurring by death, resignation, or bankruptcy.” And in Munster v. Cammel Co. (1882) 21Ch.D. 183 at pp. 187-188 “casual vacancy” was taken also to exclude a vacancy occurring through the retirement of a director by rotation. This view is also supported by the Final Report of the Commission of Enquiry into the Working and Administration of the Present Company Law of [p.29] of [1967] GLR 24 Ghana (the Gower Report.) In its comment on the proposed subsection quoted above, the report at p. 130 stated as follows:
“Subsection (5) provides that a casual vacancy in the number of directors may be filled either by the continuing director or by the general meeting. There is no need to say here that an appointee of the directors can subsequently be dismissed by the general meeting, since this follows from section 185. But proviso (ii) is necessary in order to cover the situation where, for example, the Regulations provide that debenture holders or preference shareholders shall have power to appoint a director. If the director so appointed dies or retires, the continuing directors or the general meeting can appoint to prevent a hiatus. But their appointee will retire if the debentureholders or the preference shareholders appoint someone else.” (The emphasis is mine.) I cannot, therefore, accede to Mr. Moore’s request. Thus upon the death of Dr. Politis, the sole surviving director had the power to appoint a director to fill the casual vacancy created. For this purpose, I do not think a meeting of the company was necessary. The Code confers power on him to make the appointment himself. I would therefore have held that the appointment of Mr. Kuma as a director was regular but for the fact that one statutory provision does not appear to have been complied with. Section 181 (1) prohibits the appointment of any person as a director of a company unless he shall prior to the appointment have consented in writing to be appointed. The consent in writing is an essential precondition of appointment. Although there is no penalty specifically attached to this subsection, this was only because as stated in the Gower Report at p. 129: “There is no need to provide here for a penalty for breach as this follows from section 179 (3).” Turning to section 179 (3) of the Code we find the provision that: “If any person, not being a duly appointed director of a company, shall hold himself out, or knowingly allow himself to be held out, as a director of the company, or if the company shall hold out such person, or knowingly allow such person to hold himself out, as a director of the company, such person or the company, as the case may be, shall be liable to a fine not exceeding one hundred pounds.”
The omission to give prior consent in writing therefore makes the appointment invalid in that the person so appointed cannot be described as a “duly appointed director.” And if he should knowingly hold himself out or be held out knowingly by the company as a director either he or the company is liable to a fine. One of the [p.30] of [1967] GLR 24 grounds on which Mr. Kuma’s appointment was challenged was that this statutory prerequisite, his consent in writing before appointment as a director, had not been fulfilled. The argument was that if there was consent it ought to have been included in the minutes recording the decision to appoint him. I would not go so far as to say that the consent in writing should invariably appear in the minutes of a meeting, if any, at which a director is appointed. If it does appear, of course, it would settle all questions, as to whether the requirement was fulfilled or not. But surely, the fact that the appointee did consent in writing before appointment could have been referred to in the minutes, or in the document which evidenced his appointment. In this particular case not only was it not referred to, but when the point was raised by counsel for the applicants, if failed to draw a reply from both counsel for the company and from Mr. Kuma himself. Counsel for the company (with whom Mr. Kuma associated himself) made a careful answer to the arguments on behalf of the applicants. Had there been such a piece of writing I am sure either he or Mr. Kuma or both of them would have produced it or explained why it was not referred to in the minutes and sought an adjournment to produce it. They did no such thing. I am therefore driven to the conclusion that the point was completely ignored because there was no such consent which could have been produced or discussed. In the absence of this, I am bound to declare that Mr. Kuma’s appointment as a director was invalid.
I do not share the view of counsel for the applicants that once the meeting of 17 October is declared invalid then the allocation of the first share to him was also invalid. The applicants said in their own affidavit that Mr. Michaelides transferred one of his own shares to him. The articles governing share transfers in the articles of association provide that: “(3) Any shareholder desiring to dispose of shares held by him shall first offer such shares to the directors of the company at the time such shares are for disposal and each director shall be entitled to purchase an equally proportionate part of the total number of shares for disposa
(4) It is provided that no transfer of shares shall be accepted or registered by the company unless all the directors for the time being shall consent to such transfer. It is further provided that any director shall have the right to refuse any application for registration of any transfer of shares from any member of the company and it is provided that such transfer shall not be registered and such shares shall not be transferred to the person or persons named as [p.31] of [1967] GLR 24 transferees of such share and that the said shares shall continue to be registered in the name of the said member of the company.”
At the time of the transfer of the share in question not only was Mr. Michaelides the shareholder desirous of transferring the share, he was also the sole director of the company. Not only could he not offer the share to any other director but there was no other director to raise any objection to the transfer. In my view if Mr. Michaelides chose to transfer one of his shares to Mr. Kuma at a time when he could not offer it to any other director, there could be no legal objection to it. In fact had Mr. Kuma’s appointment as director been regular, he was the only possible person at that time to whom the share could first have been offered.
The applicants’ request to this court however is not that it should declare that the transfer of the one share to Mr. Kuma was invalid but that the transfer of shares to him was. Though not much argument was addressed to me on the other shares a passing reference was made to them by Mr. Moore. And I feel constrained to comment on them because I take the view that once any suggestion of illegality comes to the notice of the court, it cannot stand by unconcerned but must take what action seems to it appropriate to ensure that justice is done. The memorandum of association of the company which was exhibited together with the articles showed that the company’s share capital was £G5,000 divided into 5,000 ordinary shares of one pound each. As pointed out earlier, Dr. Dimitra Politis held 2,850 of these shares and Mr. Michaelides the other 2,150. This continued to be the relative shareholdings of the parties until Dr. Politis died on 1 October 1966. On 17 October the decision was taken by Mr. Michaelides to let Mr. Kuma have one of his shares. Counsel for the company produced and showed me the register of members in the course of the application. It shows that in the period of about three months between 1 October 1966 when Dr. Politis died and the time of the presentation of this application great changes took place in the registered shareholding in the company. While the shareholding of Dr. Politis, the majority shareholder in the company at the time of her death, remained static, the register contains a registration increasing Mr. Michaelides’ share from that of the minority of 2,150 to that of 5,999 by 12 December 1966. As the original 5,000 shares had all been taken up, the increase in Mr. Michaelides’ shareholding obviously came out of a fresh issue of shares. Indeed it appears as if a new issue of 5,000 shares has been made, which on 12 December 1966, was distributed amongst Mr.
[p.32] of [1967] GLR 24
Michaelides, who took the majority, Mr. Kuma who took 741, and the new company secretary. By sections 56 (1) and 57 (1) (a) of the Code, a company may increase the number of its shares only by altering its regulations (an expression which covers the memorandum and articles of association). Yet the certified true copy of the memorandum exhibited gave no indication of any alteration in this respect. Further by section 204 of the Code the directors of a company are not only to act within their powers but must exercise them for a proper purpose. The power to issue shares is designed to enable the company to raise further capital if it needs it, but if this power is exercised by directors merely to maintain their own control even though they believe that to be in the company’s interest, it is improper: see Punt v. Symons & Co., Ltd. [1903] 2 Ch. 506 and Piercy v. Mills (S.) & Co. [1920] 1 Ch. 77. It is difficult, without more facts, to escape the conclusion in the circumstances of this case, that, even if there was a valid issue of new shares, this was done only to enable Mr. Michaelides to take advantage of an apparently favourable temporary situation to wrest control of the company from whoever succeeded to Dr. Politis and thereafter to maintain it. Further, section 202 (2) of the Code provides that: “202. (2) Notwithstanding any provisions of this Code or in the company’s Regulations or in any resolution of the company in general meeting, no new or unissued shares or treasury shares shall be issued to any director or past director of the company or of any associated company or to his nominee or to any body corporate controlled by him unless the shares shall first have been offered on the same terms and conditions to all the existing shareholders or to all the holders of the shares of the class or classes being issued in proportion to their existing holdings or, in the case of a public company, to members of the public.” At the time that the new shares were supposed to have been issued, that is on 12 December 1966, the applicants had already been granted letters of administration of the estate of Dr. Politis. And as I have said in my earlier ruling (p.9 supra) on the preliminary objection, they were entitled, by virtue of section 99
(3) of the Code, to the same dividends, interest and other advantages as if they were the registered holders of the shares and also had the same rights and remedies as if they were members of the company, save that they were before registration not entitled to attend and vote at meetings of the company. However, a look at the entries concerning the applicants in [p.33] of [1967] GLR 24
the register shows that not only have they not benefited from this new issue, but even the particulars of these shares which devolved on them as a result of the death of Dr. Politis are not entered.
The whole register of members’ shareholdings bears the signs of having been recently made up. Entries as far distant in time as June 1963 and January 1967 appear in ink of the same freshness and apparently in the same handwriting. And if the preliminary objection raised on behalf of the company that the applicants had no locus standi as they were not at the time registered members is anything to go by, then all the entries from 1963 to date must have been made after that submission was made on 10 January 1967. For the names of the applicants now appear in the register as having been registered on 23 December 1966, that is, on the face of it, over a fortnight before the submission challenging their standing was made. This is not condemning the company or any one in a position of authority in it. But I have, I think, said enough to show that it is desirable that the registrar of companies should be invited to consider whether or not to exercise his powers under section 219 (2) of the Code to inquire into the affairs of the company after 1 October 1966.
For the reasons given already I am of the opinion that the transfer of the one share by Mr. Michaelides toMr. Kuma which was registered on 9 November 1967 was legal. Although the motion paper prays for a declaration that the transfer of shares to Mr. Kuma is null and void I am not able to deal finally with the other shares which are now registered in his name because I do not know enough about the manner of their acquisition. An inquiry by the registrar should determine this. I am consequently unable to declare that the issue of shares to Mr. A.C. Kuma was ultra vires, null and void. But it is hereby declared that his appointment as a director of Plastico Ltd. was ultra vires, null and void.
DECISION
Appointment of director declared null and void.
Transfer of one share declared valid.
S.O
