CORPORATE GOVERNANCE ESSENTIALS: BEST PRACTICES FOR DIRECTOR REMOVAL AND TERMINATION

Nigeria’s evolving corporate landscape, particularly within growth-driven sectors such as finance, technology, and digital sectors, demands increased scrutiny of governance standards concerning director removal, internal investigations, and executive discipline. Recent corporate controversies have revealed a recurring governance flaw, organisations sometimes act without complying with statutory procedures or their internal constitutional frameworks.

This newsletter outlines the core legal and governance principles that companies, boards, and executives must understand when addressing suspensions, investigations, and the removal of directors.

Understanding Corporate Authority: Appointment and Removal Powers. Authority in company law is generally divided between:

1. The General Meeting (Shareholders): primarily responsible for major structural decisions, including appointing (and ordinary removal) of directors; and
2. The Board of Directors: responsible for the management of the company and the appointment of executive directors such as the MD/CEO, CFO, COO. A single individual may therefore hold two distinct positions:

• Director (appointed by shareholders), and
• Employee/Executive Officer (appointed by the board). Consequently:
• The Board may dismiss or reassign a person from their executive role;
• However, only Shareholders may remove that person from the office of director, except where the company’s Articles of Association provides a distinct framework.

Governing Frameworks for Director Removal Under section 288(1) CAMA 2020, the statutory right of members to remove a director by ordinary resolution is non-excludable, regardless of what the Articles or any contract of employment states. Section 288(1) CAMA grants members a non-excludable right to remove a director by ordinary resolution before term expiry, overriding contrary Articles or contracts. Articles or service contracts may add alternative removal methods (per s.288 (6) and s.46 (3)), but cannot eliminate this statutory baseline in CAMA. Companies must notify the Corporate Affairs Commission (CAC) of director changes within 14 days using prescribed forms.

1. Contractual or Articles Precedence A company’s Articles of Association or service contract may vest the power of removal in various parties, including:

• An individual who is not a member of the company
• A shareholder or creditor
• A subset of directors
• An individual shareholder

Furthermore, the Articles of Association or a service contract may permit removal procedures that do not require notice or a hearing, provided such mechanisms are consistent with CAMA and general principles of fair hearing. However, the statutory procedural rights under Section 288; special notice, the right to make representations, and the right to be heard, remain mandatory whenever the statutory removal route is invoked. Alternative removal mechanisms are valid, but they must still comply with CAMA and withstand scrutiny under basic fair hearing principles.

2. Default Statutory Procedure for Removing a Director (Section 288, CAMA 2020).Where the Articles contain no relevant provisions, the following statutory procedure applies:

1. Special Notice: A special notice of the resolution to remove a director (or appoint a replacement) must be issued.
2. Notification to the Director: The Company must promptly send a copy of the notice to the concerned director.
3. Right to Be Heard: The director is entitled to address the general meeting on the resolution.
4. Written Representations: If the director prepares written representations and requests circulation, the company must notify members and circulate the representations with the meeting notice.
5. Reading of Representations: Where circulation is impracticable, the director may request that the representations be read at the meeting.
6. Ordinary Resolution: Removal is effected by an ordinary resolution passed by a simple majority.
7. Filling the Vacancy: The meeting may immediately fill the vacancy or allow it to be treated as a casual vacancy

It is important to note that a court may set aside the requirement to circulate or read representations if they are being abused for needless publicity of defamatory matters.

3. Investigation and legal Consequences a. Investigation of Conduct

i. Executive/Employee Termination: Fair hearing, disciplinary processes, and investigation are strongly expected, unless the contract expressly waives them. ii. Director Removal: An investigation is not a statutory requirement, and a director may be removed even without an allegation of wrongdoing.

While not legally mandatory for removal as a director, the failure to investigate, especially when misconduct is alleged, carries significant reputational, governance, and employment-law risks. Investigation remains an element of good corporate governance.

b. Consequences of Non-Compliance: Director removal can occur at any time for any reason, but such removal demands precise compliance with statutory or contractual paths, considering regulatory and sector nuances. Recent high-profile cases underscore how procedural lapses may lead to disputes or court intervention. Non-compliance with the statutory or contractual procedure entitles the aggrieved director to seek redress, including: – Compensation or Damages. – Reinstatement Order from the court, where the director’s office is statutorily protected and the removal was not legally effected. – Board or shareholder actions taken on the basis of an improperly executed removal may be challenged.

Key Governance Pillars for Corporate Action

To prevent public relations crises, shareholder disputes, or regulatory scrutiny, companies, especially high-growth and fintech organizations, must ensure a careful, well-documented, and contract-aligned approach.

1. Review Governing Documents: The Articles (MEMART) and Service Contracts should be reviewed to accurately specify procedures for director/executive suspension and removal. Where silent, strictly follow CAMA’s default rules. b. Verify Contractual Authority for Suspension: Directors cannot be suspended unless explicitly permitted by the Articles. Employees can be suspended if the contract allows. c. Address Allegations: Even where not legally required for removal, conducting a fair and transparent review protects the company and mitigates future disputes. d. Communication: All decisions, especially concerning board positions, must be communicated correctly to avoid reputational damage and legal vulnerabilities. e. Documentation: Notices, responses, board resolutions, general meeting minutes, and filings with the Corporate Affairs Commission (CAC) must be documented.

In Conclusion, in light of recent events involving a high-profile removal of a director in a leading Nigerian fintech, where employment was terminated amid allegations of misconduct and reputational concerns, reportedly before an investigation concluded and without a clear hearing, it has become painfully evident how a hastily executed removal can be for any company.

Director’s removal is one of the most sensitive corporate actions. While the CAMA and the company’s constitution provide both statutory and contractual mechanisms for removal, the critical task is determining which framework applies in each circumstance then following it to the letter. Companies must balance protecting their best interests with respecting contractual and statutory obligations, guided by sound corporate governance.

A poorly handled removal process can quickly escalate into shareholder disputes, regulatory intervention, or reputational damage. A careful, documented, and legally compliant approach remains the most effective safeguard for all parties involved.