BUSINESS RECOVERY AND INSOLVENCY ISSUES: THE ROLE OF A COMPANY SECRETARY by
Prince Adebajo A. Babington-Ashaye, FCA.
Past President
The Institute of Chartered Accountants of Nigeria.
At an 2009 Conference and Dinner Organized by THE INSTITUTE OF CHARTERED SECRETARIES AND ADMINISTRATORS OF NIGERIA Held at Sheraton Hotel and Towers, Abuja. On Thursday, October 22, 2009
PROTOCOLS
1. Let me begin by expressing how delighted and honoured I feel to have been requested by the Council of The Institute of Chartered Secretaries and Administrators of Nigeria (ICSAN) to share my thoughts with this distinguished audience on an interesting topic titled, ”Business Recovery and Insolvency Issues: The Role of a Company Secretary” at this Annual Conference and Dinner. I congratulate the planning committee and the Council of ICSAN for the success of this day.
The Profession of Company Secretaryship
2. The Profession of Company Secretaryship is an interesting and vibrant one. Its status and responsibilities have, expectedly, been changing with the size, nature and dynamics of business entities and activities. Only those involved in its practice or associated with its practitioners, will appreciate the importance of the calling and its immense role in corporate success. I congratulate all the practitioners for adhering to the ethics of the profession and for bracing up to the challenges of our peculiar business environment. I dare say that, you have only just begun. Your continued success will be guaranteed if all members of the profession resolve to continue to defend its ideals irrespective of the odds. As you collectively make that resolution, I wish you the very best.
3. The above assertion actually presumes that we all know who the company secretary is, what he does, what his/her fiduciary responsibilities are and are familiar with the challenges he faces as he relates to other stakeholders in the governance of corporate entities. For the avoidance of doubts, I will consider these issues in my discourse which is segmented as follows:
The Traditional Responsibilities and Status of the Company Secretary
4. As it is common knowledge, companies or business entities are creations of the law. As entities which only exist in the contemplation of the law, their policy decisions and governance are usually taken by persons with such responsibilities elegantly described as the Board of Directors. The policies formulated and approved by the Directors have to be given effect by the Management. The Company Secretary is the link between the Board and the Management which implements policy decisions. Thus, he needs to convey the policy decisions to the Management and staff as approved.
5. As Chief Administrative Officer of the organization, it is his lot to gather and provide all the information needed by the Board to take decisions as well as convey such policy decisions to the departments and persons who have the responsibility to implement them. Thus, in line with established tradition, the Company Secretary, as a principal officer of the organization, is saddled with the following key responsibilities:
Arrangement of meetings of the board of directors: he
prepares and Issues agenda of meetings in advance;
invites all members to the meeting and makes available to members all documents to be discussed including proposed resolutions;
attends all the meetings of the company including those of the board of directors and its committees;
renders secretarial services and advises on compliance with the applicable rules and regulations and ensures that proper procedures are followed, e.g., that a quorum is formed;
drafts and circulates minutes of previous meetings;
keeping, or arranging for the keeping, of copies of all members’ resolutions passed and minutes of all proceedings and general meetings;
disseminates decisions to stakeholders as required by the Board; &
provides auditors and regulators(where necessary) with passed resolutions and minutes of meetings.
Signing and authentication of documents: he
signs and supplies a copy of accounts to every member of the company, every debenture holder and every person who is entitled to receive the notice of meetings;
submits statutory documents to CAC
signs and affixes company seal to legal documents and also keeps custody of the company seal;
maintains the register of members, change of names and other records of meetings, etc, as required by the CAMA 1990 as amended;
ensuring that people entitled to do so can inspect company accounts.
Administrative Duties: he
ensures compliance to articles and memorandum of association
communicates with shareholders
administers the office, deals with staff matters including pensions, employment and disengagement benefits
6. From the above, it is indisputable that the Company Secretary has enormous responsibilities and therefore, he is a key personnel of the company who cannot be removed from office arbitrarily. Section 650 of CAMA has clearly stated that the Company Secretary is an officer of the Company unlike in the Common Law when he was regarded as not more than a servant or an office boy of the company. In a celebrated case in which the Managing Director of a company purportedly removed the Company Secretary in disregard of the Articles of Association, Longe, J. while holding the action of the managing director ultra vires, recognized the fact that, “the articles of Association as required by law has impliedly taken note of the important status of a Secretary to the company that it specifically provides a clause for his appointment and removal. Nobody can deny the fact that in any incorporated body, there are three important personalities: the Chairman, Managing Director and Company Secretary ”.
The Changing Roles of the Company Secretary
7. From the above, it should be clear that the status of a Company Secretary has changed beyond what it used to be. In fact, over the years, the Company Secretary was confused with the Secretary/typist who is a lower level staff. The Companies and Allied Matters Act, 1990 as amended has clearly made a distinction between both functions thereby reinforcing an earlier judicial precedent on the matter by the legendary Lord Denning.
8. Indeed, Lord Denning, M.R. in a revolutionary judgement had declared, “…but times have changed, a company secretary is a much more important person nowadays than he was 1887. He is an important officer of the company with extensive duties and responsibilities. This appears not only in the modern Companies Act but also by the role which he plays in the day-to-day business of companies. He is no longer a mere ’clerk’” .
9. Thus the CAMA extensively enhanced the status and role of the company secretary when it saddled the office with duties and responsibilities which only a person with integrity and acting in good faith can discharge. As the main custodian of the company’s vital records, information source and seals, he is expected to act with the highest degree of integrity and honesty whether the organization is experiencing prosperity or in receivership.
10. In spite of his changed status, he does not owe any fiduciary duties to the company. But where he is acting as its agent he shall owe fiduciary duties to it and shall be liable to the company where he makes secret profits or lets his duties conflict with his personal interests, or uses confidential information he obtains from the company for his own benefit.
11. However, in line with its changed status, the Company Secretary as an agent of the organization can undertake a binding contract on behalf of the company except he is expressly precluded from taking such decisions abinitio. And Section 298(2) clearly precludes him from discharging the duties of the board of directors without authority.
The Place Of A Company Secretary During Business Insolvency
12. On the appointment of Receivers and Managers, the status of the Board of Directors becomes ‘functus officio’ over the charged company’s assets and it’s business undertakings.
13. As we have noted above, the Company Secretary is the custodian of all registers of members and records of the organization. Such information must be made available to all who have the right to do so, including the receiver/manager. Thus, like the board members, the company secretary is important to the extent that he provides information about the assets and liabilities of the company in his capacity as the custodian of corporate information. In other words, he loses his importance when the company is under receivership as the manager/receiver is the defacto sole administrator of the company. He is required only to provide all the information about the company to the receiver/manager particularly in respect of obligations, debentures, deeds of conveyance, mortgages, shareholding in other entities, etc. His role is limited to what the receiver/manager expressly requires.
14. Very significantly, I must stress that, the Company Secretary as the link between the Board, shareholders and employees, he must act in the best interest of the company and its numerous stakeholders. In this respect, he must first and foremost authenticate the veracity of that instrument that appointed the receiver/manager by ensuring that it has been legally registered with the Corporate Affairs Commission as statutorily required. It is only when he has conducted this search and he is satisfied that he can part with corporate information to the receiver/manager. Although the receiver/manager is required to advertise his appointment in the press, it is imperative that the Company Secretary subsequently communicates the information to the shareholders, staff and other stakeholders of the organizations.
15. Most often, the company secretary, where he is an employee of the company rather than a corporate entity, would normally retain his/her job like all other employees since he is not a board member. The mode of appointment and removal is clearly defined by CAMA. This power unambiguously rests with the Board of directors as a group. However, during insolvency, the board and its powers are suspended and replaced by the sole administrator (the receiver/manager) through the instrument of his appointment. Since the powers of the board automatically vest on the sole administrator, he determines the continuity of the employment of the secretary and indeed, of all other staff. In many cases, the receiver/manager may choose to liase with the company secretary because of his knowledge of the company.
16. During insolvency, the company’s officers can be held criminally liable for fraudulent acts, malfeasance, breach of fiduciary or other duties, misconduct, falsification of the company’s books, etc. These officers include the Secretary and directors. It is therefore expedient for them to act with utmost faith and fidelity at all times in the interest of the company and avoid situations that may result in conflict of interests.
17. Concluding Remarks
Distinguished guests, ladies and gentlemen, I have not given the above scenario to scare existing or potential company secretaries. I have only brought to the fore the fact that the enormous glamour and prestige associated with the office of a company secretary, carries with it a lot of legal responsibilities. Therefore, how well the occupant plays his part will determine his profile and organisation’s success.
Distinguished Ladies and Gentlemen, thank you for your kind attention and God bless you all.
Prince Adebajo A. Babington-Ashaye, FCA.
Past President, Institute of Chartered Accountants of Nigeria.
October 22, 2009. |
