The Supreme Court on 8th November, 2023 delivered a judgment in the case of Derick Adu-Gyamfi v. the Attorney General in which parts of some provisions in the Companies Act, 2019 (Act 992) on disqualification of persons who can be appointed directors have been declared as unconstitutional. It is important for lawyers, in particular, and businesses, in general, to understand the full import of the judgment.
The Claim: The plaintiff in the case claimed that specific provisions in the Companies Act that disqualify a person from being a director are unconstitutional. The disqualification criteria challenged are:
- Parts of section 13(2)(h)(i) and section 172(2)(a)(i), which disqualify a person charged with a criminal offence involving fraud or dishonesty;
- Parts of section 13(2)(h)(ii) and section 172(2)(a)(i), which disqualify a person charged with a criminal offence relating to the promotion, incorporation or management of a company
- Part of section 177(1)(c), which gives the High Court the power to restraint a person from being a director if that person has been found culpable of a criminal offence relating to a corporate entity, even where the person is not convicted; and
- Section 177(1)(e) which gives the High Court the power to restrain a person from being a director if that person is under ongoing investigation by a criminal investigation body or the Registrar of Companies or an equivalent foreign institution for offences stated in the subsection.
It was argued that since a person is presumed innocent until proven guilty and entitled to a fair trial, seeking to disqualify the person from being a director before actual conviction is unconstitutional.
The Decision: The Supreme Court agrees with the Plaintiff on the first and second claims that the disqualification under (a) and (b) above on mere charge is unconstitutional. However, the Supreme Court disagreed with the position in the third and fourth claims and held the provisions as constitutional since the determination will be made by the court and the affected is given a hearing. The section further allows the person to apply to the court for leave to be a director despite the restraint.
The Effect of the Decision on the Companies Act
Contrary to reports that subparagraphs (i) and (ii) of Section 13(2)(h) and subparagraphs (i) and (ii) of section 172(2)(a) of the Companies Act have been struck out, the subparagraphs are still in effect subject to deleting the words “charged with or” from sub-paragraphs. The affected subparagraphs will now read:
“13. (2) The application shall include:
(h) a statutory declaration by each proposed director of the proposed company indicating that within the preceding five years, that proposed director has not been
- convicted of a criminal offence involving fraud and dishonesty;
- convicted of a criminal offence relating to the promotion, incorporation or management of a company; or
- declared insolvent or if that proposed director has been insolvent, the date of the insolvency and the particulars of that company;”
“172 (2) A person shall not be appointed as a director of a company unless the person has, before the appointment
- made a statutory declaration submitted to the company and subsequently filed with the Registrar to the effect that, the person has not within the preceding five years of the application for incorporation been
- convicted of a criminal offence involving fraud or dishonesty;
- convicted of a criminal offence relating to the promotion, incorporation or management of a company; or
- a director or senior manager of a company that has become insolvent or if the person has been, the date of the insolvency and the particular company; and”
In sum, a person charged with a criminal offence involving fraud or dishonesty or relating to the promotion, incorporation or management of a company but not convicted is no longer automatically disqualified from being a director of a company. However, the person must still make a statutory declaration on the fact that he has not been convicted of any such offence.
The import of the Supreme Court holding that paragraphs (c) and (e) of section 177(1) are unconstitutional is that a person who has been charged with a criminal offence relating to a corporate entity or a person under ongoing criminal investigation can still be restrained by the High Court from being a director. Such a person need not be convicted. The court on its own can restrain such a person, or an action to restrain such a person can be instituted by the persons listed in section 177(6) of the Companies Act.
The Wider Implication of the Judgement
There are other statutes other than the Companies Act which have similar provisions that disqualify a person from holding a position or being able to act in some capacity on the mere fact of being charged with an offence, even though not convicted, without recourse to the court. For example, section 5(2)(a) of the Incorporated Private Partnership Act, 1962 (Act 152) gives the Registrar of Companies power to refuse to register a firm if a person named as a partner has “within the preceding five years, has been guilty of fraud or dishonesty, whether convicted or not, in connection with any trade or business”. [emphasis mine]. This and other similar provisions in statutes in force will be affected by the decision in the case of Derick Adu-Gyamfi v AG.
The judgement is a call on the Law Reform Commission to take steps to bring such statutes in line with the Constitution.
Ferdinand D. Adadzi is a partner with the Corporate & Finance Practice Group of AB & David Africa. He is based in the Accra office and works with the firm’s Corporate & Finance team, which advises on transactions across sub-Saharan Africa. He has advised several corporate entities and businesses on their corporate governance structure, structuring transactions, raising funding and partnership arrangements for projects. Ferdinand also lectures at the GIMPA Faculty Law in corporate law. He recently published a book titled “Modern Principles of Company Law in Ghana”.
Source: thebftonline.com