GHANA COURTS AND THE COMPANIES CODE* [1987-88] VOL.

XVI RGL 123147

MILLS J. E. A

INTRODUCTION

THE Ghana Institute of Chartered Accountants in celebrating its silver jubilee in 1988, decided
to examine the present state of our Company Law. This is hardly surprising. As a matter of fact,
both the Companies Code and the Institute are a quarter of a century old, both having been
outdoored in 1963. It therefore stands to reason that they should have a joint birthday party. But
certainly, the Companies Code is not the only piece of legislation that was introduced in 1963.
Why then should the Institute single out the Companies Code for this special honour and
treatment? In answering this question we should find most revealing the following statement by
Professor Gower, explaining why there was the need to have modern, up-to-date laws relating to
companies in Ghana in the early sixties:

The skill of African tradersmale and female - is proverbial but the great problem is to give
their businesses continuity. Almost invariably it is unincorporated and prove to be a one-
generation business only, the stock in trade being divided up among the family on the death of
the founder and a prosperous business thereby destroyed. This and the inability or unwillingness
to keep proper accounts are, as I see it, the principal obstacles in the way of developing business
enterprise the second aim that my terms of reference direct me to have in mind. There are, of
course, other obstacles, notably an apparent reluctance to pool resources, but the two already
referred to seem to be the most important and intractable.1

Naturally, therefore, any legislation, such as the Companies Code, that is aimed at forcing or
encouraging businesses to keep proper accounts should be of great interest to practitioners in the
field.

The most comprehensive legal document that we have, and have had since 1963, governing the
organisation and operations of companies in this country is the Companies Code, 1963 (Act
179). But as comprehensive and as far-reaching and lucidly-framed as its provisions
undoubtedly are, it cannot be denied that the Code only represents the skeleton of the law.
Indeed, as Professor Gower himself stated:

But Codes do not and should not stultify the growth of interpreting case law. Elaboration
through cases decided in the Courts is not only inevitable but desirable. In recommending
codification I am not attempting to suppress this, but merely to afford Ghana the opportunity of
starting with a relatively clean slate. It is to be hoped, however, that any legislation which is
passed and the case law interpreting it will be kept under review and amending legislation passed
as necessary."2

1
It is therefore the responsibility of our courts to supply the flesh to cover the bare bones of the
law. And the flesh thus supplied is as much a part of the body as the tibia and the fibula.

The purpose of this article is, therefore, to examine the type of flesh that our courts have, since
1963, attached to the bare bones of the Companies Code and to determine to what extent these
judicial transplants have been accepted or rejected by the Code. Our examination will be in three
parts: the first part will consist of general observations on the Companies Code, its nature and
origins; the second will be the review of some of the major court decisions under the Code; and
the final part, brief as it shall be, will be a summary of our concluding observations.

The Companies Code, Its Origin and AimsHistorical Background

The rapid development in the Gold Coast of cocoa, timber and mining industries in the early
twentieth century attracted into the Gold Coast from outside a number of general companies. The
need to provide a legal machinery to regulate their operations was therefore heightened. This
therefore, led to the enactment of the 1907 Companies Ordinance, which was based on the 1862
English Companies Act. Not only was the 1862 Act unsuited to the special circumstances
prevailing in the Gold Coast at the time, but even in its country of origin, namely, the UK, the
Act was considered obsolete and was about to be jettisoned with the passage of the Companies
(Consolidation) Act of 1908. According to Gower,3 therefore, the 1907 Ordinance was nearly
"fifty years behind the times when enacted" and by the 1960's it was a "century out of date."

In 1958 the Nkrumah government appointed a working party to revise this Ordinance, which it
described as "completely obsolete and quite unfitted to modern commercial needs."4
Unfortunately, the draft prepared by this working party was no more than a carbon copy of the
1948 Companies Act of the UK. But, as Fiadjoe5 explains, "[h]aving just cast off the umbilical
cord from the mother Parliament at independence, the country, not unnaturally, was in no mood
for the wholesale adoption of English statutes. " It was therefore rejected by the government as
not being suited to Ghanaian conditions.

In August 1958, Professor LCB Gower was appointed sole commissioner under the Commission
of Enquiry Ordinance6 with the following terms of reference:

"To enquire into the working and administration of the present Company Law of Ghana and in
the light of such enquiry to make recommendations for the amendment and alteration of the
Companies Ordinance and of such other laws of Ghana as the Commissioner may consider
necessary in regard to his conclusions concerning the said Companies Ordinance."

But even more relevant to our present discussion was the following term of reference:

"The Commissioner shall take into account and examine the laws of such other African states as
he may consider appropriate and shall be entitled to recommend that any existing or proposed
law in relation to companies enacted by or proposed to be enacted by any African state may be
adopted in whole or in part for use in Ghana."

2
In his final report, Gower7 explains that after examining the laws of other African states at the
time, he could not recommend the wholesale or even partial adoption of any, based as they all
were on either French or English statutes. He, however, admits that he found the uniform
Ordinance adopted by Kenya, Uganda and Tanganyika to be the most progressive and innovative
of the lot and that if he felt that he could recommend the adoption of an existing enactment, this
would have been the one. However, he refrained from doing so because, as he explains, "to a
very large extent this would result in the re-enactment of the English Act of 1948 (admittedly
with modifications) a solution which the government have, in effect, already rejected."8

In the end, Gower decided to recommend a new approach. In an answer to his own question as to
whether the recommended rules should be basically, English, French or something entirely
novel, Gower states as follows:

"As already pointed out, the present Company Law of Ghana is English law-though out-of-date
English law so far as the statutory rules are concerned. This English law is the law with which
Ghanaian lawyers, accountants and businessmen have become familiar. The judges, legal
practitioners and accountants have been trained in English law and the English legal tradition. To
attempt now to uproot the past completely and start from some new sources would cause endless
difficulty to all concerned and would handicap, instead of helping, the speedy development of
the Ghanaian economy. Also, it would discourage, rather than encourage, foreign investment."9

But the following note of caution sounded by Gower is as important today as it was in 1963:

"This, however, does not mean that the English law should be slavishly followed. Nor has it
been. Though much of the attached Draft Code will be reasonably familiar to those trained in the
English legal tradition or acquainted with the English Act, it differs from the latter quite
materially in both form and substance. My aim has been to try to produce a Code which, starting
from the fundamental principles of English law, yet borrows ideas from other systems when
these can be engrafted without distortion. And not only has there been grafting; there has also
been pruning-and ruthless pruning of rules which seemed to me to be bad, obsolete or unsuited to
Ghanaian conditions.

Nor are the ideas embodied in the Code merely the result of borrowings from elsewhere; some
are entirely novel. An attempt has been made to give Ghana an up-to-date streamlined system of
company law modelled to her requirements and better than that prevailing anywhere else.10

It is thus clear that our Code is in no way a carbon copy of the English law. While it preserves
many basic principles of English law, it nevertheless diverges from it in many material respects.

Let us consider briefly some of the basic innovations introduced by the Code. One of the most
noticeable is the adoption of a Code as opposed to an Act. This is perhaps the most radical
departure from the established English practice. What advantages are to be derived from the use
of a Code? In a speech he delivered in Malaya sometime ago, reported in the Malaya Law
Review,11 Gower gave the following answer:

3
"The English type Companies Act has never attempted to codify Company Law. It has merely
consolidated the statutory rules which are superimposed upon a body of common law and equity
embodied in decided cases (mainly English) extending back a century or more. No one who
reads the Act can really understand it unless he is reasonably familiar with those decided cases.
Many of the most vital principles are never embodied in the Act at all, though often exceptions
from them and corollaries to them are stated. It presupposes the existence of the basic principles
which it never states. For example, nowhere you will find a statement of the ultra-vires doctrine;
of the rules relating to the raising and maintaining of capital; of the famous rule in Royal British
Bank v Turquand; of the rule in Foss v Harbottle or of the duties of directors. These are based
solely on case law and they have to be extracted from a study of innumerable decided cases,
some of them virtually irreconcilable, and the true position emerges, if at all, only when this Act
is studied against the background of these decisions. This makes for difficulty in England where
there are plenty of trained lawyers and accountants and plenty of libraries. It makes for still
greater difficulty in Afro-Asian countries where these facilities may be lacking."

Of codification itself, the learned Professor was to say:

"Secondly I say that the company law should be codified. This is a suggestion which will shock
the orthodox, for codification is not of fashion in the common law world today. But afterall, here
we have a branch of commercial law which should be reasonably intelligible not only to the
lawyer but also to the accountant, to the company secretary, and to the company director. At
present it is a jungle through which he certainly cannot find his way. And even the lawyer cannot
find the answer except by delving into a mass of alien case law. It seems to me quite lamentable
that, countries which attain independence should remain saddled with Companies Acts which are
only intelligible in the light of foreign decisions over the last two centuries. Some will say that it
would not be possible to codify without, producing an Act which would be enormously long.
This I do not believe. The new Australian Model Bill is very much shorter than the English Act.

It is by no means a complete Code; on the other hand, it does enact a number of rules which
hitherto have been left to judge-made law. It sets out briefly the fiduciary duties of the directors,
for example. In Israel (another country which at the moment has, an Act based on the English
Act of 1929), there has been prepared a very interesting and comprehensive draft code which is
considerably shorter than any English-type Act. The draftsman has achieved this by adopting a
civil law technique of draftsmanship stating broad principles in short pithy sentences. Frankly, I
am somewhat doubtful myself whether this would work in a country where the judges and
lawyers have been brought up in the English legal tradition and expect statutes to spell out the
law in some detail. Accordingly, in the draft Code which I prepared for Ghana, I have spelt
matters out in some detail. Even so, in length (if in no other way) it compares favourably with
the English Companies Act. In other words, it can be done and I think it should be done."12

Other innovations include the introduction of one-man companies, the combination of the
Memorandum and Articles of Association into one document, the Regulations, the prescriptions
of minimum capital for companies before they commence business, the adoption of no-par value
shares, the virtual abolition of the ultra vires rule as it affects third parties, and the ability of
companies to ratify pre-incorporation contracts.

4
The Legal Status of the Companies Code and Gower's Final Report

The primary source of company law in this country is the Companies Code (Act 179) which
came into operation on 1 July 1963. And except otherwise provided, it applies to all companies
formed in Ghana, whether before or after the commencement of the Code.13 Section 6 of the
Code, however, provides that "nothing in this Code shall abrogate or affect any special
legislation relating to companies carrying on the business of banking, insurance or any other
business from time to time subject to special regulation. " In due course, we shall consider the
meaning of this provision. Also recognised as sources of company law are "the rules of equity
and of common law applicable to companies, except so far as they are inconsistent with the
provisions"14 of the Code. The legal status of Gower's Final Report, however, is not the same as
that of the Code itself. In section 2 of Gower's draft bill he provided that: The Code and every
provision thereof shall receive such liberal construction as will best ensure the attainment of the
objects thereof according to their true intent, meaning and spirit, and in aid of construction and to
ascertain the objects of this Code and its several provisions reference shall be made to the Report
dated the 6th day of April, 1961 of the Commission of Inquiry into the Working and
Administration of the Company Law in Ghana and the Government Statement thereon dated."

This recommendation to the effect that the Report be made a mandatory aid in construction of
the Code was, according to Gower, the result of information he had "that judges would welcome
power to refer to the Report and indeed, that it would be preferable if the operative parts of the
Code expressly directed that reference should be made to it."15 This recommendation, if it had
been accepted, would certainly have accorded the Final Report a much higher legal status than
that of an ordinary aid in construction under section 19 of the Interpretation Act. Indeed, it
would have put the Final Report on the same legal pedestal as the Code itself. Fortunately or
unfortunately, this recommendation was not accepted by Parliament. Thus, as authoritative and
as comprehensive and educative as the Final Report clearly is, it is still to be treated as any other
report of a Commission of inquiry. Even then, we must admit, it still remains a very useful tool
in the hands of our judges, students and practitioners.

The Courts and the Companies Code

As indicated by Gower in his report, the adoption of the Code should not stultify the growth of
interpreting case law. Elaboration through cases, he admits, is not only inevitable but desirable.
As we shall see in due course, our courts have not shirked their responsibility to do just that.
Indeed, there has been developed by our courts a sizeable body of case law to cover the bare
bones of the Code. A cursory glance through our law reports indicates that our courts have so far
decided many cases under the Code, dealing with many aspects of our company law.
Unfortunately, constraints of space makes it impossible to comment upon and discuss all these
cases within the scope of this article. It has therefore been decided to focus attention on the
following four areas of the Code which have engaged the attention of our courts:

(1) priority between a debentureholder secured by a floating charge and an execution-creditor;

(2) protection against oppressive action;

5
(3) the liability of the company for the acts of its officers and employees; and

(4) the appointment of directors.

Priority between a debenture-holder secured by a floating charge and an execution-creditor

We begin with this, not because it is the subject-matter of one of the earliest cases decided under
the Code, but because it should be a matter of great interest to our financial institutions and
accountants.

Borrowing by companies to finance their operations is certainly not unusual in Ghana. Indeed,
given the prevailing economic conditions and the periodic downward "adjustments" in the value
of the cedi, we should not be surprised to see many more companies, especially those which need
foreign "inputs" for their operations, resorting to borrowing, from either the financial institutions
or private individuals, in order to discharge their financial obligations. One of the popular ways
of raising corporate finance through borrowing, especially on a long-term basis, is by the issue of
debentures to lenders. Technically, nothing prevents a company from borrowing without creating
any charge over its property through the issue of naked debentures.

However, pressure from lenders and the realities of today's money markets are such that not even
well-established and prosperous companies can hope to attract the desired volumes of credit by
resorting to the issue of naked debentures.

Consequently, the creation by companies of charges over their properties to secure their
debentures has now become more the rule than the exception. The usual charges created by
companies are of two kinds: a fixed charge and a floating charge. A fixed charge is a normal
legal or equitable mortgage over specific assets of the company and it usually precludes the
company from dealing with such assets without the consent or permission of the holders or their
trustees. The holder of a fixed charge takes precedence over all other creditors, and so the
enforcement of this type of charge usually creates no problems for its holder. A floating charge,
on the other hand, is an equitable mortgage over the assets of the company (usually its stock-in-
trade) but, unlike a fixed charge, it allows the company to deal with the charged assets in the
ordinary course of its business without any interference by the holder. This concession to the
company, however, ceases to operate when the charge becomes crystallised or fixed. It must be
apparent from this brief description of the floating charge that it is not a "normal," equitable
mortgage. As we shall see it possesses "certain peculiarities" and the holder's ability to realise the
assets secured thereby is dependent on a number of factors.

It was the determination of the exact nature of this type of charge and the rights of its holder
under our Code that Edusei J, as he then was, sitting in the High Court, Accra, was called upon to
make in the case of George Cohen (WA) Ltd v Comet Construction Co., Ltd; Ghana Commercial
Bank (Claimants),16 one of the very first cases to be decided under our Code.

The brief facts of the case were as follows: In June 1964 George Cohen (WA) Ltd. obtained
judgment in the High Court against Comet Construction Co., Ltd for a certain sum of money.
Not having received payment, George Cohen (WA) Ltd, issued a writ of fi fa against two

6
vehicles of the judgment-debtors. The sale of these vehicles was scheduled for 6 July 1966.
When the Ghana Commercial Bank became aware of this fact, they interpleaded on the ground
that by virtue of a debenture dated 1 February 1963, created in their favour by the judgment-
debtors, the said vehicles, among other properties of the execution-debtors, were secured to
them.

The following facts were established by the court: First, the type of debenture in issue was one
secured by a floating charge; second, a receiver and manager of the assets charged in the
debenture had been appointed on 12 August 1963, by the claimants in accordance with the terms
of the debenture, and notice thereof had appeared in the Commercial and Industrial Bulletin of
10 January 1964; and third, the particulars of the said debenture were registered with the
Registrar of Companies on 4 October 1963, a period of almost 30 months after the creation of the
charge.

The question before the court was whether, on these facts, the execution creditor or the
claimants, Ghana Commercial Bank, had a prior claim to those vehicles. Quoting from
Charlesworth's Company Law17 and Gower's Company Law18 the learned judge correctly
stated the following as the salient principles governing the floating charge:

(1) unlike a fixed charge, a floating charge does not fasten on any definite property, but is an
equitable charge on property which is constantly changing;

(2) the charge allows the company to continue to deal with that property in the ordinary course
of business;

(3) if the holder, on the happening of some event stated in the debenture takes steps to have the
charge crystallised, it then becomes specific or fixed and the mortgagor loses his right to deal
with the assets; and

(4) crystallisation occurs, inter alia, when a receiver or manager is appointed.

Applying, therefore, the ratio decidendi in the case of Evans v Rival Granite Quarries Ltd,19 the
learned judge correctly ruled that, by reason of the appointment of a receiver by the claimants
well before 1432 seizure by the execution-creditors, crystallisation of the charge preceded the
issue of the writ of fi fa and therefore, the claimants had a prior claim to those vehicles.

As already indicated, this ruling by the learned judge is in accord with the relevant provisions
under section 87 of our Code, even though he did not advert to this section of the Code. There
are, however, two rulings made by the learned judge in the case which, it is respectfully
submitted, are at variance with the provisions of the Code. The first is the following opening
statement by the learned judge in relation to the rights of the holder of a floating charge:

"This question compels me to examine the exact nature of the rights of the holders of such a
debenture. That the debenture, if valid undoubtedly creates a charge on the assets of the company
is now well established ever since: See Re Standard Manufacturing Co. and Re Opera Ltd.

7
These cases decide that such charges prevail as against an execution creditor if the debenture is
valid."20

This statement, innocuous as it may seem, it is submitted, is misleading and not an accurate
interpretation of the Code, in so far as taken on its face value, it purports to suggest that the
creation of a valid debenture simpliciter vests a right in its holder over the charged assets. Little
wonder that this dictum was to be the subject of adverse comment by Taylor J, as he then was, in
a later case.21

Even though through his subsequent amplification of this statement Edusei J was to redeem
himself, it would appear that that attempt was not enough to erase the erroneous impression
created by it. That statement, as we shall see later, constituted a trap which the unwary circuit
court judge in the James Town case could not avoid. Luckily, however, Edusei J did not apply
this dictum in deciding the case before him. Another criticism that may be levelled against
Edusei J's judgment was his suggestion that the case of Davey & Co v Williamson & Co, Ltd;
Richards (Claimants) supported the contention of the claimants, Ghana Commercial Bank.22 We
join issue with the learned judge on this score, not only because he incorrectly stated the ratio
decidendi of the Davey case, but because it has long been established under English law that the
Davey case is bad in law and should not be followed.

Much more serious and unsupportable, however, is the learned judge's ruling on the question as
to whether or not registration of the charge was necessary. Incidentally, section 107 of the Code
provides that every charge created by a company after the commencement of the Code shall be
void as a security on the property charged unless the particulars of the charge are registered with
the Registrar of Companies within 28 days after its creation.

In spite of the fact that registration of the particulars of the charge was effected almost 30 months
after creation, the learned judge ruled that the charge was not void. In so holding, the learned
judge first referred to section 6 of the Companies Code, which he interpreted to mean that
banking companies were in no way governed by the provisions of the Code. According to him,
such companies were governed only by special pieces of legislation governing their activities.
And since he could find in the Bank of Gold Coast ordinance Of 195223 and the Ghana
Commercial Bank (Amendment) Ordinance, 195724 no specific legal obligation on banks to
register their debentures, as is required under the Code, non-registration of the charge did not
affect its validity.

It is submitted, with respect, that the learned judge's interpretation of section 6 of the Code was
wrong. Section 6 of the Code, it is humbly suggested, does not mean that all the provisions of
the Code are inapplicable to companies specialising in the businesses specified thereon. The
provisions of the Code, it is submitted, are inapplicable to such companies only to the extent that
those provisions are inconsistent with the provisions of any special legislation governing the
operations of such companies. So rather than argue that because there is no express provision in
those pieces of legislation requiring registration, such companies did not have to register their

8
debentures, he would have been perfectly correct if he had stated that he had found an express
provision in the special legislation exempting such companies from registration.

To conclude therefore that in the absence of any express provision requiring registration banking
companies are thus exempt is to misinterpret our law. Interestingly enough, section 46 of the
Banking Act, 1970 (Act 339) to which Taylor J referred in the James Town case states in very
clear terms as follows:

"This Act shall be in addition to the Companies Code, 1963 (Act 179) and shall not, except
otherwise as expressly provided in this Act, derogate from the provisions of that Code."

But even if Edusei J's interpretation of section 6 was correct, it is still submitted that he was
wrong to rule that the non-registration of the charge did not affect its validity. This is because
the duty of registration spelt out in section 107 of the Code relates to the creator of the charge, in
this case, Comet Construction Co, a non-banking company, and not to the beneficiary, the Ghana
Commercial Bank.

Thus the failure to register within the stipulated time rendered the debenture null and void.
Annan J, as he then was, therefore clearly hit the nail right on the head when in the case of
Ashanti Curls and Lumber Producers Ltd v Management Committee of Ghana Timber Marketing
Board 25 he observed that:

"(2) By virtue of sections 107 and 111 of Act 179, the statutory obligation to register charges
placed on a limited liability company, is not nullified merely because the company chooses to
transact business with a body not subject to the Code. When a limited liability company creates
a charge on its property by way of legal mortgage, the other party to that transaction may be an
individual or another limited liability company or a statutory corporation like the defendants, and
whatever the character of that other party the requirement for registration under section 107 of
Act 179 still stands and is not affected by the nature of the legal personality with which the
limited liability company chooses to transact business. Section 107 does not place any duty on a
statutory corporation to register charges created by it but then it does not exempt from
registration charges created by a limited liability company in favour of a statutory corporation. "

In the light of the foregoing, we cannot help but agree with Taylor J that this case was wrongly
decided and consequently it was wrong for the learned judge to have ordered the release of the
vehicles from attachment.

Luckily for students of company law, in the subsequent case of Republic v James Town Circuit
Court Judge; Ex parte Annor,26 Taylor J, as he then was, succeeded brilliantly in repairing the
damage done by Edusei J. This was another High Court case whose facts were similar to those in
the George Cohen case. Judgment obtained by the landlord of the business premises of a
company for arrears of rent, mesne profits and costs in respect of those premises not having been
satisfied, the landlord took in execution under a writ of fi fa, certain assets of the company.
These assets, which included some of the company's factory equipment were to be auctioned.
The Ghana Commercial Bank, claiming to be the holder of an unregistered debenture with a

9
floating charge over the stock-in-trade and factory equipment of the company, interpleaded. A
clause in the debenture provided as follows:

"If executions shall during the continuance of this security have been levied against the said
equipment of the [company] under any judgment at law then and in any such case, it shall be
lawful for the bank, its servants or agents without previous notice to the customer to seize and
take possession of any of the said equipment included in the security in whatever place or places
they may happen to be and after the expiration of five (5) clear days from the day of seizure may
sell the said equipment by public auction or private contract on or off the said premises and
retain of the proceeds so much of the said principal sum and expenses which the bank may incur
as aforesaid and the expenses of sale and also any rent, rates and taxes which the bank may pay
in respect of the premises where the said equipment may be and the surplus (if any) shall be paid
to the customer."27

A motion filed by the landlord execution-creditor before the circuit court seeking the rejection of
the bank's claim was dismissed on the grounds that (a) by virtue of section 6 of the Companies
Code and section 46 of the Banking Act, 1970, non-registration of a debenture created by a
company in favour of a bank did not render the debenture void; and (b) the rights of debenture-
holders prevailed over those of execution-creditors. The circuit court therefore ordered that the
properties seized should be released from attachment and the landlord execution-creditor should
pay the auctioneer's costs.

Dissatisfied with this ruling, the landlord execution-creditor applied to the High Court for
certiorari to quash the circuit court's decision and for such further orders as the court might see
fit. Taylor J overruled the decision of the circuit court, holding, inter alia, that (a) the mere
existence of a floating charge does not vest any rights in the holder until there is crystallisation,
and (b) that the non-registration of a debenture created in favour of a banking company renders it
null and void. He therefore granted the certiorari.

One of the main conclusions arrived at by Taylor J in the case was that:

On a consideration of the case law I find that it is not completely correct to hold that the rights
of debenture holders in a floating charge prevail simpliciter over those of execution-creditors."
28

With this statement, Taylor J put to rest the principle supposedly established by Edusei J in his
opening statement in the George Cohen case, and upon which the circuit court judge had
confidently relied. An examination of the relevant decided English cases shows clearly that
Taylor J's conclusion was an accurate exposition of the law. Students of company law should,
therefore, be grateful to Taylor J for setting the records straight.

Deserving of even greater commendation are the learned judge's exhaustive examination of the
relevant case law and his description of the case of Davey & Co v Williamson & Son Ltd 29 as a
"somewhat unsatisfactory decision." Indeed, Fletcher Moulton LJ's description of the case was
no less harsh. Observed the learned judge:

10
"This was a very peculiar case . . . I must confess that I have great difficulty in understanding the
ground of the decision . . . We are, however, not bound by that decision, and if it means that the
mere existence of the debenture was an answer to the claim of the execution creditor it was in my
opinion wrongly decided."30

The issue in the Davey case was "whether the rights of the claimant, claiming for himself and
other holders of debentures of the defendant company (the judgment-debtors) to certain goods
seized under a writ of fi fa by the sheriff prevailed over the rights of the plaintiff, the execution-
creditors, even though the charge had not crystallised."31 Lord Russell purporting to rely on
decided English cases on the point, ruled that the rights of the debenture-holders prevailed over
those of the execution-creditors.

As Taylor J clearly established in his examination of the case law, the English courts have come
to accept the Davey case as a bad precedent which ought not to be followed. As already pointed
out, the Davey case is a man-hole which the circuit court judge in the James Town case could
have evaded if he had been more thorough in his examination of the case law.

That Taylor J's brilliant and well-reasoned judgment in the case immensely contributes to our
understanding of this area of our company law is undisputed. We must nevertheless express our
dissatisfaction with the learned judge's total reliance on English case law to resolve the issue of
priority without even a passing reference to the relevant provisions in section 87 of the
Companies Code. In so far as the learned judge, by his ruling, purported to hold out the case law
as the only relevant source of law, his ruling, it is humbly submitted, is rather misleading. As
already indicated, the Code constitutes the primary source of our company law. The rules of
equity and of the common law, ie the case law applicable to companies, are only secondary
sources of law. Where, therefore, as in the James Town case, there exists statutory provisions on
an issue, our courts are in duty bound to apply them. Even if, as in the James Town case, those
statutory provisions merely codify the case law, that fact, it is suggested, must first be
acknowledged before proceeding to apply that case law. It should be remembered that, to
students of law, the question of what law to apply is more important than the decision reached by
the court. In all legal matters the means should justify the end and not vice versa.

Having referred to Taylor J's authoritative and definitive judgment on the issue of priority, all we
need do now is to refer to Annan J's decision in Ashanti Curls and Lumbers Producers Ltd v
Management of Ghana Timber Marketing Board, decided in the High Court, Kumasi, on 12 June
1969 as having conclusively settled the question as to which companies are required to register
under section 107 of the Code, debentures created by them.

Protection Against Oppressive Action

Oppression, whether of the minority by the majority or vice versa is one phenomenon which has
been known to mankind for generations. Indeed, as a nation our own political history is replete
with cases of resistance against this type of conduct. It is therefore understandable that in
drafting the Code, Gower should feel the need to embody provisions aimed at bringing to an end
a course of conduct which, without being definitely illegal, is nevertheless oppressive of

11
shareholders who lack control of the company, whether they be a numerical majority or minority.
Section 218 of the Code therefore provides, in part, as follows:

"218. (1) Any member or debentureholder of a company . . . may apply to the Court for an order
under this section on the ground-

(a) that the affairs of the company are being conducted or the powers of the directors are being
exercised in a manner oppressive to one or more of the members or debentureholders or in
disregard of his or their proper interests as members, shareholders, officers, or debentureholders
of the company;. . .

(2) If on such application the Court is of opinion that either of such grounds is established, the
court may, with a view to bringing to an end or remedying the matters complained of, make such
order as it thinks fit . . . "

As Apaloo JA, as he then was, rightly observed in the case of Mahama v Soli and Another, 32
"the word oppressive' in section 218 (1) of Act 179 is not a term of art . . . the word must be
construed in its ordinary sense and means, burdensome, harsh and wrongful." The question is,
how have our courts applied this section?

In Vambaris v Altuna & Anor,33 decided in the High Court, Accra, on 30 March 1973, by
Hayfron-Benjamin J, as he then was, the court established the principle of "caveat professional
Ghanaianses. The message conveyed by the case is that professionals, especially lawyers, who
get involved professionally in the formation and subsequent operations of companies must be
careful in accepting "free" gifts from its companies, especially when they occupy influential
positions in the company.

The facts of the case were briefly as follows: Two alien businessmen sought legal advice from a
legal practitioner and his senior partner which led to the formation of the company of which the
two men and the senior partner became the shareholders and directors. The legal practitioner was
first appointed the paid solicitor secretary to the company and later, on the advice of his senior
partner cum director, was made a director and also given free shares by the company. No general
meeting was held, nor was there a resolution of a general meeting to support the legal
practitioner's appointment as a director or his acquisition of free shares.

One of the businessmen applied under section 218 alleging that the manner of appointment of the
legal practitioner and the redistribution of shares amounted to an oppressive action against him.
The court ruled that the solicitor-client relationship was a fiduciary one imposing special
obligations on the solicitor. In his dealings with the client, the solicitor must exercise the utmost
good faith, and that transactions between him and his client should not be upheld unless it could
be established that they were effected by the exercise of the client's will and without influence on
the part of the solicitor. Since the legal practitioner's appointment as director and the giving of
the shares to him, observed the court, were effected on the advice of his senior partner, who was
also a director, the advice given to the company could not be independent legal advice without
influence. The court therefore held that there was oppressive conduct on the part of the senior

12
partner and therefore made an order setting aside the legal practitioner's appointment as director
and declaring invalid his acquisition of "free" shares.

The following excerpt from the judgment leads one to conclude that the learned judge would
have extended the principle to cover the senior partner also if he had been given the chance:

"The circumstances under which he became a director at the outset of the formation of the
company have not been scrutinised because no complaint or claim has been made against his
directorship or his shareholdings. I shall therefore make no order in these proceedings in respect
of him. The lay shareholders are free if so advised to pursue any remedies if any available to
them in respect of him."34

It is indeed difficult to challenge this decision on any legal grounds. And the principle
established there is wide enough to cover all professionals, including accountants, who stand in a
fiduciary relationship towards their clients. So the moral in this case is that professionals must
beware of their clients when they come bearing gifts of free shares and directorships.

The next case to be considered is that of Okudjeto and Others v Irani Bros and Others,35 decided
by the same judge Hayfron-Benjamin J, as he then was, in the High Court, Accra, on 30 March
1973. The facts were as follows: two non-resident shareholders owning between them 41 per
cent of the share capital of a flour-milling company based in Tema and incorporated in Ghana,
brought, through their lawyer, an application under sections 218 and 220 of the Code.

The application for an order under section 220 was based on the discovery of a notebook
containing particulars of flour evacuations during a visit they paid to Ghana. The external
directors compared the entries of flour evacuations in the said notebook with the company's
official records of flour evacuations and detected considerable discrepancies between the two
sets of figures which, according to them, were suggestive of theft and other malpractices by the
resident directors. They therefore applied to the court to order the Registrar to appoint
investigators to investigate the affairs of the company and report, and that any moneys found to
have been appropriated by the resident directors be refunded to the company. Other remedies
sought by the applicants under section 218 were (1) an order that the directors be restrained from
removing the applicants' lawyer as a director of the company and (2) the removal of the three
resident directors as directors of the company.

On the question of an order for investigation by the Registrar under section 220 of the Code the
judge correctly ruled that the type of evidence required to support any such application is legal
evidence and not mere suspicion, however strong. Since it had no legally admissible evidence as
to where the notebook came from or what it represented, the court rejected that application.

In support of their application under section 218 the grounds relied upon by the applicant were
(1) allegations of discriminatory and oppressive acts by the respondents in removing an external
director as a director of the company and attempts to prevent the representation of the applicants'
lawyer on the board of directors; and

13
(2) allegations of conduct generally aimed at preventing the minority shareholder from knowing
how the company was being run.

After carefully considering the evidence adduced by the applicants, the learned judge, correctly
in our view, dismissed the application under section 218 on the grounds that the evidence was
not such as to warrant the granting of any of the reliefs sought by them. The learned judge,
however, referring to the power of the court under section 218 (2) of the Code, and in response to
certain points raised by the respondents against the applicants in their affidavit in opposition,
went on to order that the company should purchase the applicants' shares at a valuation, "in order
to avoid the bickering and controversy between the shareholders of the company engaged in this
vital and essential industry."36

That this last ruling was wrong in law was amply demonstrated by the Court of Appeal in
Okudjeto and Others v Irani Brothers and Others.37 In its decision, delivered by Anin JA, the
Court of Appeal unanimously upheld the contention of the appellants that, the learned trial judge,
having dismissed their application for the reliefs claimed, had no legal power to order the
purchase by the company of their shares on account of points raised by the respondents in their
affidavit filed in opposition to their (appellants') application. The reasons advanced by the Court
of Appeal in support of its decision may be summarised as follows:

(i) an order falling under section 218 (2) (c) of the Code is a consequential relief only granted
upon the successful establishment of any of the grounds set out under section 218 (1).
Consequently, where, as in the case, the application is properly dismissed, no order can legally
be made;

(ii) no order could be made in favour of the respondents since they themselves had made no
application under section 218 (1). The affidavit filed in opposition by the respondents, did not
amount to an application;

(iii) even if the affidavit filed by the respondents could be construed as an application, the order
was still invalid because the affidavit was filed on behalf of the company and under section 218
(1) an application could properly be made by a either member or a debentureholder of the
company, but not by the company itself,

(iv) the applicants had made no offer for the sale of their shares which could be legally accepted
by the company and made the basis of an order under section 218 (2) (c);

(v) the three resident directors, even though members of the company, could not successfully
invoke section 218 because the acts of the applications they complained of in the affidavit
affected them qua directors and not qua members or debentureholders.

Their Lordships, no doubt, deserve commendation for their bold and successful attempt to throw
more light on this dark but important area of our company law. Anin JA's lucid and well-
reasoned judgment is not only pleasant to read, but also substantially contributes to our

14
understanding of some of the essential principles of our law. It is, however, submitted with the
greatest respect that the last ground for dismissing the appeal, as indicated in later cases, was
wrong. Though our section 218 is similar to section 210 of the English Companies Act, 1948,
the two provisions are by no means the same. As Gower indicates in his report,38 our section
218 is much wider in scope than its English counterpart under section 210, and this is the result
of his adoption of "much of the wording recommended by the Irish Committee,39 " which had
been highly critical of the actual wording of the English section. Thus, while under section 210
of the 1948 English Act, correctly interpreted in the case of Elder v Elder and Watson Ltd,40 a
decision upon which Anin JA erroneously and unfortunately relied, the acts complained of by the
member or the debentureholder must affect him in that capacity under section 218, the acts
complained of may affect the debentureholder or a member either in his capacity as such or in his
capacity as an "officer", defined to include secretary, director or employee of the company.41

Characteristic of our courts, however, this damage was to be repaired by the High Court later,
though being a lower court its decision can obviously not supersede that of the Court of Appeal.
In Aboagye v Tetevi and Others42 Edusei J, as he then was, did not hesitate to dismiss a
preliminary point raised by counsel that an application brought under section 218 (1) be
dismissed in limine on the ground that the matters complained of by the applicant, though a
member, affected him in his capacity as director. In his ruling,43 the learned judge correctly
observed, referring to section 218, that:

"This section is very wide indeed. It simply says that where the powers of the directors are being
exercised in an oppressive manner, or in disregard of the interests of a member, a shareholder, an
officer or a debentureholder, an application may be brought to court for certain reliefs. The
question is - who has the right to come to court under section 218 (1) (a)? It is clear that a
member of debentureholder can, in the circumstances envisaged by section 218 (1) (a), come to
court. I also think that where the powers of the directors are being exercised in disregard of the
interests of an officer of the company, such an officer who is a member can equally proceed
under the section. And an officer has been defined in relation to body corporate to include 'any
director, secretary or employee of that corporate body. . .

In my view a member or shareholder who is also director or secretary or employee can bring an
application under section 218, to protect his interest in the company; . . . If a shareholder or
debentureholder has the right to come to court under section 218 then plain commonsense shows
that a director-cum-shareholder should also have this right."

The case of Mahama v Soli and Another44 is noteworthy for three main reasons, apart from the
obvious and expected one that Apaloo, JA's, as he then was, judgment was characteristically
brilliant. The first is that the Court of Appeal held that a minority shareholder-cum-director can
be guilty of conduct oppressive of his majority shareholders-cum-directors. The grounds for the
holding were that (i) although in terms of voting power the respondent was a minority
shareholder, he arrogated to himself the powers of the board of directors; (ii) he refused to attend
board meetings; (iii) he denied co-directors the opportunity of looking into and considering the
company's accounts; and (iv) he used the company's properties for his own purposes.

15
The second is the dismissal of the contention of counsel for the respondents that the application
had been irregularly brought because the complaints of the applicants related to their position as
directors and not as members. On this issue, Apaloo JA rightly observed as follows 45:

"Although section 218 of the Companies Code, 1963 (Act 179), which provides remedy against
oppression has its origin in section 210 of the English Companies Act, 1948, and relief under that
Act can only be granted if the complaining members show that they were oppressed qua
members, the ambit of our section 218 is wider and clearly designedly. While the complainants
must be members of debentureholders, they are entitled to relief even if the act complained of is
also oppressive of them as shareholders or officers of the company."

The third is the court's ruling that a company need not be made a party to an application brought
under section 218. Again, Apaloo JA observed 46:

"There is no warrant for this complaint. No provision of section 218 lays down this procedural
requirement and no reason was suggested why the company should be made a party to an
application in which no relief is sought against it. Although the result of the application may
benefit the company, there is no reason why it should be made to litigate a plaint, which the law
has, in its wisdom, left to be agitated by complaining members. In any case, this argument is a
technicality of dubious value and we are unimpressed by it."

The Liability of the Company for the Acts of its Officers and Servant

A company, as we all know, is only an artificial legal entity. It cannot talk; it cannot think; it
cannot breathe. And yet, like the human being, the company is both criminally and civilly liable
for its acts. Sections 139 and 140 of the Code contain detailed provisions dealing with the
question of whose acts are regarded as acts of the company, and for which the company assumes
responsibility. How have our courts interpreted these provisions?

Commodore v Fruit Supply (Ghana) Ltd47 was a case in which the name of a non-shareholder,
who had never been appointed as such, appeared on the company's letterheads as a director of the
company. Moreover, he was allowed to transact all kinds of business on behalf of the company.
The Court of Appeal held that not only was he a director within the meaning of section 179 of
the Code, having been held out as such, but that his acts were binding on the company, unless the
person dealing with him knew or ought to have known of the irregularity.

The issue in Maxwell Ltd v The Republic48 was whether the company could be held criminally
liable for the acts of its illiterate foreman, through whose negligence there occurred a serious
motor accident resulting in the tragic death of one of the best legal brains this country has
produced. Taylor J, as he then was, sitting in the High Court observed that, even though the
foreman was neither the members in general meeting, the board of directors nor the Managing
Director of the Company, as an agent or officer of the company, his acts could have bound the
company if he had been expressly or impliedly authorised by any of the afore-mentioned three
organs to so act. The learned judge, however, could find no evidence to establish that he had
been so authorised.

16
Considering our criticism of Taylor J's judgment in the James Town case as having been based
solely on English case law without any reference to our Code, we should find the following
excerpt from the learned judge's judgment in this case both refreshing and gratifying. He noted:

"It seems to me that our statute law on the matter is in accordance with these English principles
and it is therefore necessary to advert to our statutory provisions. In our Companies Code, 963
(Act 179), elaborate and unambiguous provisions have been made for corporate liability and as
was held in Wallace-Johnson v R (supra) there is therefore no need to have recourse to English
principles. I have only made reference to these English decisions to show that in mechanically
referring to them the district magistrate did not adequately consider them."49

Similarly, in Bousiako Co, Ltd v Ghana Cocoa Marketing Board; Kwabo Sekyere Construction
Works Ltd v Ghana Cocoa Marketing Board (Consolidated)50 Osei Hwere J, as he then was,
sitting in the High Court, Accra, ruled that the acts of a member of a three-man Interim
Management Committee of the CMB who was not the Chairman, was binding on the CMB.
Clearly, the IMC member was one of the directing minds of the CMB.

Appointment of Directors and Company Meetings

The acceptance under the Code of one-man companies and its prescription of a minimum of two
directors for companies have given rise to certain issues, some of which were determined by
Amissah JA in the case of Politis and Another v Plastico Ltd (No 2).51 The facts of the case were
briefly as follows: A company was formed by P and M who were its only shareholders and
directors. P was also the Managing Director. The company was registered with 5,000 ordinary
shares, of which P held 2,850 and M, the remaining 2,150. P died and M, the surviving
shareholder-cum-director, purported to hold a meeting with the company's secretary in
attendance and appointed K a director of the company and allocated him one of his (M's) shares.
No notices were issued for the meeting, and there was no quorum at the meeting, as required by
the company's regulations. Later M unilaterally increased the company's shares and increased
his own shareholding from 2,150 to 5,999 while allocating 74 shares to K. Around the same time,
the applicants in the case obtained letters of administration to administer P's estate and were later
registered as members. They then applied for a declaration that the appointment of K as director
and the transfer of shares to him were null and void.

The three issues that Amissah JA therefore had to determine were:

(1) the validity or otherwise of Ks appointment as director; (2) whether or not the transfer to K
by M of one of his shares was valid; and (3) the validity of the allocation to K of the 74 "new"
shares.

On the first issue, namely K's appointment as director, the learned judge ruled that the purported
meeting was irregular on the grounds that (1) it lacked the required notice even though it was
explainable on the ground that there was no one to give notice to; and (2) it lacked a quorum
because the articles of association of the company required a quorum of two. But as the learned

17
judge stated, the fact that the meeting was invalid did not necessarily mean that K's appointment
was null and void. Referring to section 181 (5) of the Code, which deals with "casual vacancies"
on the board, the learned judge correctly stated that this provision gives the sole surviving
director power to appoint another to fill the casual vacancy. The death of P, he stated, created
such a vacancy and for the purpose of this appointment a meeting of the company is unnecessary.
He nevertheless ruled that K's appointment was invalid because of his failure to comply with
section 181 (c) of the Code which requires that any person appointed a director shall prior to
such appointment have consented in writing to be appointed.

On the question of transfer to K by M of one of his shares, the learned judge first referred to the
company's articles of association, which stated that any shareholder who wanted to dispose of his
shares must first offer such shares to the directors of the company at the time such shares are for
disposal. But as the learned judge noted, at the time in question M was the sole director, and
could therefore not have offered the shares to any other director. The learned judge therefore
ruled that the transfer of the one share to K was valid.

On the last issue, namely, the allocation of 74 fresh shares to K, the learned judge, even though
he finally decided that the Registrar was to investigate the circumstances surrounding their
acquisition, clearly indicated that, on the facts available to him, this would be invalid. His
grounds for so concluding were as follows: (1) there was no indication that the company's
regulation had been altered, as required by sections 56 (1) and 57 (1) of the Code, to allow the
increase in the number of shares; (2) the increase in the number of shares had been effected by M
for an improper purpose, namely, to enable him acquire control of the company, a violation by
M, a director, of a duty imposed on him by section 204 of the Code; and (3) since the applicants
had at the time been granted letters of administration they were, by virtue of section 99 (3) of the
Code, entitled to the same interests and other advantages as if they were registered holders of the
shares. Consequently, as demanded under section 202 (2) of the Code, the new shares should first
have been offered to them on the same terms and conditions.

Concluding Observations

It is quite clear from our discussion that our courts have so far admirably discharged the duty
imposed on them to see to the growth of interpretation of case law. As has also been shown,
whatever lapses have occurred have been quickly rectified by the self-correcting mechanism in
our judicial system. That these judicial transplants have been so successful without any signs of
rejection is largely attributable to the ingenuity, clarity of thought and the high professional
standards of the judges who have undertaken these judicial surgeries. It is hoped that, in
accordance with Gower's recommendation, in interpreting the Code, the development of the case
law will be kept under constant review and amending legislation passed as necessary. For the
moment, however, we do not think that there has been built up enough case law to warrant the
passage of any amending legislation now. It is our hope that our present and future judges will
follow slavishly the trail blazed by their illustrious predecessors.

Finally, in the light of the Chief Justice's revelation recently that there are still thousands of cases
pending before our courts, with no hope in sight for their expeditious disposal, we do not think it
would be inappropriate now to revive the suggestion, made almost twelve years ago by Dr A K

18
Fiadjoe,52 for the establishment of a commercial court to deal, inter alia, with company law
cases. In his own words:

"The arguments for the creation of the commercial court may be summed up as follows: Firstly,
the courts as presently constituted take too long to try cases and are thus not the best suited to
deal expeditiously with business disputes. Secondly, the whole procedure of the courts is
designed to deal with disputes between hostile adversaries. But this is not entirely appropriate to
most commercial situations. Thirdly, litigation under the present system tends to be rather
expensive. Fourthly, commercial men generally resent publicity . . . and cross-examination in
open court."53

He further put forward the following proposals to govern the operation of the commercial courts:

"(a) Pleadings in this present form should be abolished except when the judge of the commercial
court otherwise directs.

Greater use ought to be made of originating summonses and originating notice of motion.

(b) The rules of evidence should be considerably relaxed. For example, the hearsay rule must not
be applied in all its rigidity.

(c) Except where the dispute is grave and serious, the case should be dealt with summarily and
quickly by the judge.

(d) Where necessary, the court should consider sitting in camera to prevent needless publicity for
defamatory, embarrassing or vexatious proceedings except where the public interest requires
otherwise. In such a case, it should be open to any aggrieved party or the Press to apply for the
case to be tried in open court.

(e) The main approach for the court should be conciliatory and where desirable the court should
appoint official referees to assist in the solution of the case. So, for example, an official referee
skilled in company accounts could be appointed ad hoc to assist the judge whenever an
application is made to the court by an auditor for directions in the discharge of his duties.54

FOOTNOTES

*Being an edited version of a lecture delivered at the 25th anniversary celebration of the Ghana
Institute of Chartered Accountants.

1. Gower, L C B, Final Report of the Commission of Enquiry into the Working and
Administration of the present Company Law of Ghana, Accra, 1961, hereinafter referred to as
The Final Report, p 2. (Author's emphasis. )

2. The Final Report, at 8.

3. Ibid.

19
4. Report of the Working Party, 1958 (Government Printer) at p 1.

5. Fiadjoe, A K, "A Century of Company Law-An Overview," Essays in Ghanaian Law, Accra,
1976, p 223.

6. Cap 249 (1951 Rev).

7. Final Report, p 3.

8. Ibid.

9. Final Report, p 4.

10. Ibid.

11. Gower, L C B: "Company Law Reform," Malaya Law Review, Vol 4, No 1 p 38.

12. Gower, op cit, p 41.

13. Companies Code, 1963 (Act 179), s 3 (1).

14. Ibid, s 7.

15. Final Report, p 23.

16. [1966] GLR 777.

17. (7th ed) at p 242.

18. (2nd ed) at p 390.

19. [1910] 2 KB 979, CA.

20. [1966] GLR 777 at 778-779 per Edusei J.

21. Republic v James Town Circuit Judge; Ex parte Annor [1978] 1 GLR 453.

22. [1966) GLR 780.

23. No 49 of 1952.

24. No 19 of 1957.

25. (1969) CC 224 at 226.

26. [1978) 1 GLR 453.

20
27. Ibid at 462.

28. Ibid.

29. (1898) 24 QBD 194.

30. [1910] 2 KB at 997.

31. (1898) 24 QBD 194 at 199 per Lord Russell

32. [1977] 1 GLR 215 at 234.

33. [1973] 2 GLR 41.

34. Ibid at 46.

35. [1974] 1 GLR 374.

36. Ibid, at 388, per Hayfron Benjamin J.

37. [1975] 1 GLR 96: coram Sowah, Anin and Kingsley Nyinah JJA.

38. Final Report at 161.

39. Ibid.

40. [1952] SC 49.

41. See First Schedule to the Code.

42. [1976] 1 GLR 217.

43. Ibid at 218-219.

44. [1977] 1 GLR 215.

45. Ibid at 236.

46. Ibid.

47. Ibid at 241.

48. Ibid at 336.

49. Ibid at 343.

21
50. [1982-83] GLRD 82.

51. [1967] GLR 24.

52. Dr Fiadjoe, A K: "A Century of Company Law-An Overview," in Essays in Ghanaian Law,
Legon, 1976, at pp 221-232.

53. Ibid at 230-231.

54. Loc cit at 231-232.

22