Understanding the Law Under Act 992
Every year, thousands of companies are registered in Ghana, and almost all of them operate through a board of directors. Directors sit at the heart of corporate decision-making. They shape strategy, control resources, and act as stewards of the company’s affairs. But what happens when confidence in a director breaks down?
Ghana’s Companies Act, 2019 (Act 992) provides a clear legal framework for the removal of directors. Importantly, it also answers a recurring practical question in corporate governance: must shareholders give reasons before removing a director?
This article explains who directors are, how they are appointed, the lawful procedures for removing them, and whether reasons are legally required.
Who Is a Director Under Ghanaian Law?
A director is not defined by title alone. In Commodore v Fruit Supply (Ghana) Ltd [1977] 1 GLR 241, the court held that anyone who takes part in the administration of a company’s business may be treated as a director, even if they were never formally appointed. This principle is now reflected in section 170 of Act 992.
In practical terms, if a person acts like a director and holds themselves out as one, the law will treat them as such and subject them to the duties and liabilities of a director.
Act 992 requires every company to have at least two directors, although the company’s constitution may provide for more. Not everyone qualifies to hold office. Sections 173 and 177 disqualify certain categories of persons, including minors, persons of unsound mind, and persons convicted of offences involving dishonesty or fraud. These qualifications matter because loss of eligibility can itself trigger the termination of a director’s office.
How Are Directors Appointed?
Before discussing removal, it helps to understand appointment. Under sections 172 and 300 of Act 992, a person must consent in writing to act as a director, and that consent must be filed with the Registrar of Companies within 28 days.
In addition, the proposed director must make a statutory declaration stating, among other things, that within the past five years they have not been convicted of an offence involving fraud or dishonesty and have not acted as a director or senior manager of an insolvent company, or must disclose details if they have.
Directors may be appointed by promoters, members in general meeting, continuing directors where the constitution allows, specific classes of shareholders, or in limited cases, by the court.
Removal Versus Termination of Office
It is important to distinguish between removal and termination. Termination of office may occur automatically by operation of law or circumstance, such as death, resignation, or loss of capacity due to unsoundness of mind. Removal, on the other hand, is a deliberate act carried out by persons or bodies empowered by statute or by the company’s constitution.
The Power to Remove Directors
Section 176(1) of Act 992 gives members of a company a powerful right. Subject to limited exceptions, a company may, by ordinary resolution at a general meeting, remove any director from office, despite anything contained in the company’s constitution or in an agreement with the director. This means that even where a director was appointed for a fixed term, shareholders can remove that director before the term expires.
That power, however, must be exercised at a general meeting. Even unanimous agreement outside a general meeting is not sufficient. Where the procedure is not followed, the removal will be invalid.
It should also be noted that while shareholders may remove a director, section 176(9) preserves the director’s right to claim compensation for breach of contract where the removal violates the terms of a service agreement.
The Statutory Procedure for Removal
Act 992 sets out a detailed procedure designed to ensure fairness. A resolution to remove a director cannot be moved unless notice of the intention to do so is given to the company at least 35 days before the meeting. Where a meeting is convened within 35 days of the notice, the requirement is still deemed satisfied.
The company must then notify members of the proposed resolution in the same manner as notices of meetings, or at least 21 days before the meeting where that is more practical.
Once notice is received, the company must immediately send a copy to the affected director. That director is entitled to attend the meeting and be heard on the resolution, whether or not they are a shareholder.
Removal Under the Company’s Constitution
Removal does not always have to follow section 176. Section 29(2) of Act 992 recognises that a company’s constitution may confer the power to appoint or remove directors on a specific person or body, even if that person is not a member or officer of the company.
Where the constitution provides an alternative removal mechanism, and that mechanism affords the director a fair opportunity to be heard, removal in accordance with the constitution will be valid, even if it differs from the procedure under section 176.
Must Reasons Be Given for Removing a Director?
There is no clear answer under Act 992 on whether reasons must be given for the removal of a director. The Act is largely procedural, focusing on notice, meetings, voting, and the director’s right to be heard, rather than on the justification for removal.
Under the pre-Act 992 regime, the courts took a clear position. In Pinamang v Abrokwa and Asafu-Adjaye v Agyekum, the courts held that once the statutory procedure for removal had been complied with, the court would not inquire into the internal management of the company or the motives behind the shareholders’ decision to remove a director. Those decisions, however, were based on earlier legislation. Act 992 neither affirms nor rejects that position, leaving the law unsettled on the issue.
Despite this silence, it is prudent, as a matter of fairness and good corporate governance, to state reasons for removal. Since the Act entitles a director to notice and the opportunity to be heard, that right is better served where the basis for removal is known. Including reasons, particularly in the notice to the affected director, promotes transparency and reduces the risk of dispute.
In sum, while procedural compliance may still be sufficient to support a valid removal, best practice under Act 992 suggests that reasons should be given. The critical requirement remains strict adherence to the Act and the company’s constitution.
