Nominee Directors in Nigeria: What should I know for free?

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Introduction

The concept of a “nominee director” is not strange to Nigeria but it is also not expressly provided in the principal legislation regulating the affairs of a company in Nigeria i.e. the Companies and Allied Matters Act 2020 “CAMA”.

The CAMA essentially recognizes every person duly appointed to direct and manage the business of the company as a director[1] or any person on whose instructions and directions the directors are accustomed to act as a director[2] of the company. Every director of a Nigerian company stands in a fiduciary relationship toward the company and must observe utmost good faith towards the company regardless of whether he is acting as a “nominee director” of a particular shareholder.

The concept of the nominee director under CAMA

The CAMA in the spirit of flexibility authorizes companies to prescribe regulations via the Articles of Association which will govern the affairs of the company. For instance, the CAMA provides that directors do not need to possess shares in a company in order to be qualified for appointment as directors of the company except the articles of the company provide that every director must possess shares in the company[3]. Again, the CAMA provides for 14 days’ notice to all directors for a board meeting except the articles of the company provide otherwise[4].

It is in this light that although the CAMA does not expressly provide for “nominee directors” which may also be referred to as “share representation” on the board, that some companies have incorporated the concept of “nominee directors” in their articles of association. It is worthy to note that there is a difference between “share qualification” and “share representation”. In the former, the directors ought to hold the shares in their personal capacity while in the latter, the shareholder simply nominates the director relying on the provisions of the articles of the company[5].

The two concepts must be incorporated in the articles of the company before they can be exercised in the affairs of the company. In relation to nominating a director by a shareholder, some of the general factors that should guide a shareholder should revolve around the skills, knowledge, network of the director and the structure and size of the company. Some companies in addition to the articles of the company also draft a board charter to evaluate the board and ensure nominations address the weaknesses of the board. Some additional factors the shareholder should consider include the character of the potential director, the financial exposure of the potential director, the pending petitions against the potential director, the probability of a settlement agreement with the potential director in the event of a dispute etc. One of the critical factors that must be considered is how the potential director intends to balance the fiduciary duty to the company and the shareholder. The failure to draw the line may be too expensive for the shareholder and nominee director.

In Central Bank of Ecuador & Ors v Conticorp SA & Ors (2015) UKPC 11, the Respondents (the nominated director and shareholder) were exposed to liability of about USD 190, 000, 000 jointly and severally for assisting the nominated director to enter transactions which were in breach of his fiduciary duty to the Corporation.

Conclusion

In Nigeria, the shareholder may, relying on the provisions of the articles of the company nominate a director to represent its interest on the board of the company and the nominated director must always act in the interest of the company as a whole[6], and must exercise that duty of care, diligence, and skill which a reasonably prudent director will exercise in comparable circumstances.

The content of this article is the view of the author and not necessarily that of the firm; and intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

[1] Section 269 CAMA

[2] Section 270 CAMA

[3] Section 277 CAMA

[4] Section 292 CAMA

[5] Article 22.5 of the SEC Code of Corporate Governance

[6] Williams v Adold/Stamm Int’l (Nig) Ltd (2022) 5 NWLR Pt. 1822 P. 23