Majority Rule and Minority

Protection and Investigation of

Companies
1. Codification of Rule in Foss v
Harbottle
2. Exceptions
3. Minority protection under
Unfairly prejudicial rule
4. Minority Protection in
various parts of CAMA
5. Investigation by CAC
Facts

 Some directors sold their personal

properties to the company at an
inflated price, used inside information
about the company and engaged in
insider dealings and made profits.
2 shareholders brought an action
against the directors who committed
the fraud against the Company
Court Decision

 TheCourt held that although the

directors committed a wrong but the
wrong was against the Company.
 TheCompany is the proper party to
bring this action
 The Act of the directors were capable
of affirmation by the Majority, thus,
the Court would not interfere.
The Rule Codified in CAMA 2020

 Section 341

where an irregularity is made
in the course of a company's
affairs or If an actionable
wrong has been done to a
company whether arising from
statute, contract, tort or the
fiduciary position of the party
in breach, the company is the
proper person to seek a
remedy for the breach.
BASIS AND THE SCOPE OF THE RULE

The questions are: –

(1) Who is the proper
plaintiff?
(2) Are there any sufficient
reasons for the court to
interfere with the way the
company is run?
BASIS AND THE SCOPE OF THE RULE

 GOMBE V P.W. (NIGERIA) LIMITED

(1995) 7 SC 1
 Foss v Harbottle: (1843) 2 Hare 461
 Elufioye& Others v. Halilu & Others
[1993] 6 N.W.L.R (pt 301) 570 and
 Abubakri& Ors v Smith & Ors (1973]
NSCC 451
 Shell Petroleum v. Nwawka-(see
facts in notes) [2001] F.W.L.R. (pt.
48) 1363
Basis
The principle of corporate
sovereignty is such that the
courts will not interfere in
the internal affairs of a
company, because it should
be within the competence of
most of the shareholders to
determine their company's
course and direction.
Reasons for the rule are:
i. It is the logical
consequence of the fact that
a company is a separate legal
person. It is the company
that has suffered a wrong,
therefore it is the company
which seeks a remedy.
ii. It preserves the principle
of majority rule.
Reasons for the rule are:
 iii.It prevents multiple and futile
actions. If each shareholder were
permitted to sue, the company
might be subjected to many
lawsuits started by numerous
plaintiffs.
 If the wrong can be ratified by the
company in general meeting, it
would be futile to have litigation
about it
Exceptions to Majority Rule
 Illegal or Ultra Vires Acts :
section 343(a)
 Section 44(4)(b) – Secured
debentures can challenge on
this ground
 Parke v. Daily News [1961]
1W.L.R. 493-
 Yalaju-Amaye v Associated
Registered Engineers Co
Ltd
Irregular procedure

s 343(b) a company purporting to

do by ordinary resolution any act
which by its articles or CAMA
requires to be done by special
resolution. Edwards v Halliwell
[1950] 2 All ER 1064-
 Non-compliance with the laid
down procedure on how to arrive
at a decision would give rise to
this protection
 MacDougall v Gardiner (1875) 1 Ch
D 13, - breach of internal
procedure – not within
Infringement of personal rights

 Acts or omission affecting the

applicant’s rights as a member
 Examples of members rights?
 section 343(c).Pender v
Lushington (1877) 6 Ch D 70,
46.
Fraud on the Minority Section 343(d).
 Committing fraud on either of the
company or the minority where the
directors fail to take appropriate
action to redress the wrong done
 Parke v. Daily News [1961] 1W.L.R.
493 Omisade v Akande
 Example; Misappropriation of the
company's property.
 Cook v. Deeks [1916] 1 A.C. 554
Fraud on the MinoritySection
343(d).

 What to Prove:
 what was taken belonged to the
company;
 it passed to those against whom
the claim is made or their
protégé
 those who appropriated the
company's property are in
control of the company.
Fraud on the MinoritySection 343(d).

 Anor e.g.
 Expulsion of minority. This will
amount to fraud unless it is done
bona fide and for the benefit of the
company.
 Brown v British Abrasive Wheel Co
[1919] I Ch 290
 Calling of company meeting

Section 343(e)
 where a company meeting cannot
be called in time to be of practical
use in redressing a wrong done to
the company or to minority
shareholders;
 Directors deriving profit or benefiting from
their negligence

 Section 343(f)
 Daniels v Daniels: [1978] Ch 406,
 Negligentin performing their duties
as directors
Interest of Justice
any other act or omission,
where the interest of justice so
demands. Section 343(g)
Types of Actions

 PersonalAction/Representative
Action- Section 344
 Derivative Action
 Application
for Relief on the
grounds of unfairly prejudicial and
oppressive conduct
Personal/Representative
Action –Section 344
 Members can bring personal or
representative action to enforce any
right due to them
 Member includes
a) Personal rep of a deceased member
b) Any person to whom shares have
been transferred or transmitted by
operation of law – Section 345
Reliefs for Personal/Rep Actions

 By s 344. an action under this

heading will entitle the aggrieved
shareholder to—
(a) damages for any loss incurred
on account of the breach of that
right; or
(b) declaration or injunction to
restrain the company or the
directors from doing a particular
act.
Reliefs Contd.
 The Court may find the directors
personally liable in damages to the
aggrieved member- S 344(2)
 The Court may also award costs to
him personally whether or not his
action succeeds- S 344(3)
 Or order that the member shall
give security for costs- S 344(4)
 Who can sue

Members- Section 105

 Including those defined under
Section 345 can sue under ss343-
344
Derivative action S 346
 Here the plaintiff's right of
action derives from that of
the company.
 Unlike personal action,
derivative action seeks to
protect the Company
 Any benefit obtained will
accrue to the company:
section
 No gain no damages only
injunction or other reliefs
Commencing derivative action

 An applicant applies to FHC for

leave to bring derivative action in
the name of the company, or to
intervene in an action or defend or
discontinuing the action on behalf
of the company.: section 346(1)
 Agip
(Nig) Ltd v Agip Int’l (2010) 5
NWLR (Pt.1187) 349
Requirement for granting
Leave – S 346(2)
 a cause of action has arisen from an actual or proposed
act or omission involving negligence, default, breach of
duty or trust by a director or a former director of the
Company;
 the applicant has given reasonable notice to the directors
of the company of his intention to apply to the Court;
 the directors of the company do not bring, diligently
prosecute, defend or discontinue the action;
 the notice contains a factual basis for the claim and the
actual or potential damage caused to the company;
 the applicant is acting in good faith; and
 it appears to be in the best interest of the company.
Orders the Court can make in
Derivative Action- S 347
 authorising the applicant or any other person to
control the conduct of the action;
 giving directions for the conduct of the action;
 directing that any amount adjudged payable by a
defendant in theaction is paid, in whole or in part,
directly to former and present security
 holders of the company instead of to the company;
and
 requiring the company to pay reasonable legal fees
incurred by the applicant in connection with the
proceedings
 Interim costs- S 351
Will the approval of the
shareholders affect derivative
action?
 Section 348
 Approvalcan be taken into account
by the Court
Discontinuance of a
Derivative action- S 349
 Court’s approval is required
 No security for cost- S 350
Who can bring a derivative
action?
 Who can bring a Derivative Action- Section
352
 a registered holder or a beneficial owner and a
former registered holder or beneficial owner
of a security of a company;
 a director or an officer or a former director or
officer of a company;
 the Commission; or
 any other person who in the discretion of the
Court, is a proper person to make an
application under section 346
Tittle of Court Process in
Derivative Action
 TheCompany/Applicant as the
Plaintiff/Applicants
 TheDirectors,third party, wrong
doer as the defendant/Respondent
Mode of Commencing
Derivative Action
 Originating Summons – Agip v Agip
 Rule 2 CPR
Distinguishing features
between Personal act and
Derivative Action
 No Leave/Leave
 Security for Cost/No security for
Cost
 Shareholder(s) – Claimant(s) in
Personal while Company is claimant
in Derivative action
Unfairly Prejudicial and Oppressive
Conduct: s. 353-354

 Anapplication by way
petition could be made to
the court on the grounds
that the affairs of the
company are being,
conducted in an oppressive
unfairly prejudicial manner.
Who can Petition- S353

 a member of the company;

 Including members under S353(2)
 a director or officer, former director or
officer of the company;
 a creditor;
 the Commission; or
 any other person who, in the discretion of
the Court, is the proper person to make an
application under section 354
Action by members-S354(2)

 member of the company who alleges that-

i. the affairs of the company are being or have been
conducted in a manner that is oppressive or unfairly
prejudicial to, or unfairly discriminatory against, a
member or members, or in a manner that is or has
been in disregard of the interests of a member or the
members as a whole, or
ii. an act or omission or a proposed act or omission, by
or on behalf of the company or a resolution, or a
proposed resolution, of a class of members, was, is or
would be oppressive or unfairly prejudicial to, or
unfairly discriminatory against, a member or
members or was, is or would be in a manner which is
in disregard of the interests of a member or the
members as a whole
Action by other Persons
mentioned in S353(1)
 who alleges that—
 (i) the affairs of the company have been or are being conducted in a manner
oppressive or unfairly prejudicial to or discriminatory against or in a manner
in disregard of the interests of that person, or
 (ii) an act or omission, or a proposed act or omission was, is or would be
oppressive or unfairly prejudicial to, or unfairly discriminatory against, or
was or is in disregard of the interests of that person, or
 (c) the Commission in a case where it appears to it in the exercise of its
powers under the provisions of this Act or any other enactment that—
 (i) the affairs of the company were or are being conducted in a manner that
was or is oppressive or unfairly prejudicial to, or unfairly discriminatory
against a member or members, or was or is in disregard of the public
interest, or
 (ii) any actual or proposed act or omission of the company, including an act
or omission on its behalf which was, is or would be oppressive, or unfairly
prejudicial to, or unfairly discriminatory against a member or members in a
manner which was or is in disregard of the public interest.
Orders the Court may make-
S355
 that the company be wound up ;
 for regulating the conduct of the
affairs of the company in future ;
 for the purchase of the shares of any
member by other members ofthe
company;
 for the purchase of the shares of any
member by the company and for the
reduction accordingly of the
company’s capital;
Orders the Court may make
Contd.
 directing the company to institute,
prosecute, defend or discontinue specific
proceedings, or authorising a member or
the company to institute, prosecute,
defend or discontinue specific proceedings
in the name or on behalf of the company;
 varying or setting aside a transaction or
contract to which the company is a party
and compensating the company or any
other party to the transaction or contract;
Orders the Court may make
Contd.
 directing an investigation to be made
by the Commission;
 appointing a receiver or a receiver and
manager of property of the company;
 restraining a person from engaging in
specific conduct or from doing a
specific act or thing ; or
 requiring a person to do a specific act
or thing
STATUTORY PROTECTION AGAINST
UNFAIR PREJUDICE
 OMOLOLU-MULELE Vs. IJALE
PROPERTIES CO. LTD. (2000)
FWLR Pt.5 709
 ReH R Harmer Ltd [1958] 3 All
ER 689
 Personal, derivative and
representative actions

 Anaggrieved minority can bring one

action or combine three types of
actions i.e. Personal, derivative and
representative actions:
Major asset transaction:
s342
 Innovation of new CAMA, a
company cannot, without the
approval of its shareholders, sell
or buy assets having a value of
more than 50% of the total
assets of the company.
 Major asset transactions must
be approved by a special
resolution, unless the company's
articles permit the company to
approve such transactions by an
ordinary resolution.
Major asset transaction

 the directors will recommend the

proposed major asset transaction for
approval of members in a general
meeting. Notice of the transaction,
including a summary of the transaction
and the recommendation of the board of
directors, shall be given to all members
entitled to the notice of meeting and to
vote. – (special Resolution)

 The approval of major assets

transactions by private and/or small
companies s.259 can be done via
circular written resolutions signed by all
members
OTHER STATUTORY MINORITY PROTECTION
s 142, where the class rights
are being varied, fifteen per
cent of the issued shares of
that class may apply to FHC to
cancel
s 51, dissenting shareholders
– minimum of 15% in nominal
value of the company's issued
share capital may apply to
FHC to cancel
Re-registration of a public as private limited
by shares:

 Members holding 5 per cent of the

issued shares may apply to the
court to cancel the change: section
64
Requisition of a meeting:

 Holders of not less than 1/10 of a

company’s paid up capital can
requisition a meeting: section
239(2)
Winding Up

 Winding up on the "just and equitable"

ground:
 Any member may present a
petition for the compulsory
winding up of the company on the
"just and equitable" ground:
section 571
Investigation of Companies

 The CAC can appoint competent

inspectors to investigate the affairs
of a company and to report on them
in such manner as it may direct S
357(1) –
 (NB: Came out in last years exams)
Who can apply for Investigation S
357(2)
Upon application by members
holding not less than one-quarter
of the class of shares issued; or
in the case of a company ltd. By
guarantee by one-tenth of the
company's members; or
The Company itself; or
If the court so orders S 358(1)
CAC suo motu S 358(2)
Circumstances that may warrant
CAC to investigate suo motu- S
358(2)
 CAC can suo motu investigate if it appears
that there are circumstances suggesting that-

 a. the company’s affairs are being or have

been conducted with intent to defraud its
creditors or the creditors of any other
person, or in a manner which is unfairly
prejudicial to some part of its members;
 b. any actual or proposed act or omission of
the company (including an act or omission
on its behalf) is or would be so prejudicial,
or that the company was formed for any
fraudulent or unlawful purpose;
Circumstances that may
warrant CAC to investigate
suo motu
 c. persons concerned with the company’s
formation or the management of its affairs
have in connection therewith been guilty
of fraud, misfeasance or other misconduct
towards it or towards its members ; or
 d. the company’s members have not been
given all the information with respect to
its affairs which they might reasonably
expect.
Powers of the Inspectors

 Can
investigate the subsidiary
company or Holding company- S359
 Demandthe production of any
document or information –S360
 Call
for directors bank account –
S361
Obstruction of the Inspectors

 To be Treated as Contempt- S 362

Inspector’s Reports- Section
363
 Interim Report
 Final Report at the conclusion of the
investigation
 CAC may direct the report to
forwarded to the registered office of
the Company
 Interested persons can apply on the
payment of the prescribed fee for a
copy of the report
Inspector’s Report

 CAC can institute civil proceedings against

the company based on the inspector’s
report s. section 321
 If crime is committed then CAC to inform
A.G. Federation to prosecute:Section 322
 CAC can petition for winding up on just
and equitable ground pursuant to the
inspector’s report- Section 366
 Can be used as an evidence in any legal
proceedings – Section 368
Investigation of Ownership of
a Company – Section 369
 CAC may appoint inspectors to
investigate and report on the
membership of any company, and
otherwise…for the purpose of
determining the true persons who are
or have been financially interested in
the success or failure (real or
apparent) of the Company or able to
control or materially to influence the
policy of the Company.
Q&A
THANK YOU