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J U D G M E N T
SOPHIA A. B. AKUFFO, J.S.C.
In this judgement the
Plaintiff/Appellant/Respondent
herein will be referred to as
‘the Respondent’, and the
Defendants/Respondents/Appellants
will be referred to as ‘the
Appellants’. The 1st
Appellant will also be referred
to as ‘the Company’.
The brief facts underlying this
appeal are that the Company was
incorporated sometime in April
1991 as a limited liability
company with 1,000,000 shares of
no par value. Exhibit 1, the
Regulations of the Company,
shows that the subscribers to
the Company were the 2nd
Appellant, who subscribed to
600,000 shares for which the
consideration payable in cash
was ¢600,000.00, and Nana Osei
Afriyie and the Respondent, each
of whom subscribed to 200,000
shares for which the
consideration payable in cash,
in each case, was ¢200,000.00.
According to Exhibit 1, the
first Directors of the Company
were the three subscribers and
one D. Patrick Ewusi Sekyi.
Sometime after the Company
commenced its operations,
problems developed between the 2nd
Appellant and the Respondent the
nub of which was that, whilst
the Respondent claimed that he
was a fully paid-up member of
the Company and entitled to
participate in the day to day
running of the Company, the 2nd
Appellant insisted that the
Respondent had not paid for any
of his shares. Matters came to a
head when, by a letter dated 1st
November, 1995 (Exhibit Q), the
solicitors for the Company
informed the Respondent that he
(the Respondent) was only a
‘nominal shareholder’ of the
Company. The letter also
purported to offer to the
Respondent 20% shares in the
Company, in consideration of
which he must pay an unspecified
sum of money that he was to
ascertain by contacting the
office of the Managing Director
within 14 days, failing which
the shares would be offered to
someone else. This letter was
immediately followed by another
communication from the 2nd
Appellant, dated 3rd
November 1995 (Exhibit R),
referring to the solicitors’
letter and informing the
Respondent that, according to
the Company’s auditor’s report,
the net value of the Company’s
assets was ¢237,051,291.00. The
letter also informed the
Respondent that, ‘as a nominal
shareholder’, he had not paid
for his shares and, in order to
become a fully-fledged
shareholder, he must pay an
amount of ¢47,410,258.20, being
20% of the current net value of
the company’s assets. The
Respondent referred the matter
to his solicitors.
The record shows further, per
Exhibit 3, that on 31st
October 1995, the 2nd
Appellant filed at the Companies
Registry a form of Notification
of Change of Directors which
notified the Registrar of
Companies of the appointment of
5 new Directors. No
shareholders’ resolution was
exhibited and there is no other
evidence that these appointments
were made by the shareholders in
general meeting, as required by
sections 181 and 272 of the Code
and regulation 59 of the
Company’s Regulations.
On 10th June 1996,
the Respondent issued a Writ of
Summons in the High Court
against the Appellants, claiming
the following reliefs:-
-
“A declaration that the
Plaintiff is a paid-up
member or shareholder of the
said Limited Liability
Company and holds 20% of the
total shares of the said
company for which shares the
Plaintiff has more than
fully paid for.
-
“A declaration that the call
or demand by the defendants
that the plaintiff pay the
further sum of
¢47,410,258.20 for the
Plaintiff’s said shares is
totally illegal and has no
legal or other justification
or foundation whatsoever.
-
“A declaration that the
purported treatment or
declaration of the Plaintiff
as an alleged nominal member
or shareholder of the
company by the Defendants
and the Defendants’ threat
to exclude or expel the
plaintiff from the said
company on the aforesaid
score or grounds is illegal,
oppressive and without any
legal or other justification
whatsoever.
-
“An Order of Injunction
restraining the defendants
from carrying out their said
illegal or oppressive action
against the Plaintiff, and
-
“Any further or other
reliefs or orders as shall
be just in the circumstances
of this case, and in terms
of Order 63 Rule 6 of the
High Court (Civil Procedure)
Rules.”
In view of the rather narrow
scope of the issues arising in
this appeal, we do not deem it
necessary to set out the details
of the pleadings; suffice it to
say that although, in the
Summons for Directions, 6 issues
we set down for trial, the
parties, during the course of
the trial, focused on issue 4
and, therefore, the learned High
Court Judge, in his judgement
concentrated (correctly in my
view) primarily on this issue.
Issue 4, as set down, was as
follows:-
“Whether or not the Plaintiff is
a fully paid-up
member/shareholder of the 1st
Defendant Company and also a
director of the 1st
defendant company.”
In his judgement, delivered on 2nd
September 2002, the trial Judge
concluded that:-
“On a careful perusal and
scrutiny of the entire evidence
on the record, and the documents
tendered herein, I am satisfied
that the Plaintiff has failed to
produce sufficient evidence to
prove that he has fully paid for
his 20% shares in the 1st
defendant company. I am
satisfied that the Plaintiff has
failed to discharge his burden
of persuasion by a preponderance
of probabilities. He has failed
to prove by evidence … to
convince me that he is a fully
paid-up member/shareholder of 1st
defendant company. In
conclusion, I hold that the
Plaintiff is not a fully paid-up
member/shareholder of the 1st
defendant company…. I find and
hold that the Plaintiff is not a
shareholder and a Director of
the 1st defendant
company.”
Dissatisfied with this decision,
the Respondent appealed to the
Court of Appeal on the grounds
that the trial judge erred in
law when he held that, despite
the Respondent being a
subscriber to the regulations of
the Company, he is not a member
or shareholder of the Company.
He also added the usual
portmanteau ground that the
judgement was against the weight
of the evidence.
This appeal is against the
majority decision (Gbadegbe and
Addo JJA; Asiamah J.A.
dissenting) delivered by the
Court of Appeal on 10th
April, 2003, whereby the court
upheld the Respondent’s appeal
against the judgement of the
High Court, and granted him the
following reliefs:-
-
a declaration that the
Respondent herein is a
shareholder and member of
the Company and
-
a declaration that the
demand made on him by the
Company is wrong.
In his appeal herein, the
Appellant filed no additional
grounds and, as a result, the
only grounds before us are those
set out in the Notice of Appeal
filed on 23rd May
2003 as follows:-
“a The majority
erred by holding that the
Plaintiff/Appellant/Respondent
is a Shareholder in the 1st
Defendant/Appellant Company even
though it is clear from the
record that he did not pay for
the shares allotted to him and
was also not issued with any
share certificate.
“b. The majority
erred by holding that the
Appellant/Respondent became a
member of the 1st
Defendant Company upon
subscription despite the
evidence to the effect that the
alleged expenses which the
Plaintiff/Appellant/Respondent
claimed to have incurred at the
formation stage of the Company
was not ratified by the company
after its formation.
“c. The judgement
is against the weight of the
evidence.”
In his Statement of Case herein,
Counsel for the Appellant made
the following submissions:-
-
In the absence of the
payment of any consideration
in cash, or a contract in
writing evidencing any
payment in kind, for his
shares, or otherwise
satisfying the relevant
provisions of the Companies
Code, 1963 (Act 179)
(hereinafter referred to as
‘the Code’), in respect of
payment for shares, the
Respondent is, at best, only
a promoter of the company
and cannot be deemed to be a
shareholder ‘whether
ordinary or fully paid.’
-
The Respondent is at best an
allotee and not a
shareholder, since he has
not fully paid for his
allotted shares.
-
Furthermore, the mere fact
that his name appears in the
Regulations as a subscriber
and member of Company does
not make the Respondent a
fully paid-up member or
shareholder. Therefore, he
is not entitled relief (b)
that was granted to him by
the Court of Appeal.
-
Since the Court of Appeal
endorsed the High Court’s
evaluation of the evidence
and application of the law,
there is no legal basis for
upholding any of the
Respondent’s claims.
For his part, Counsel for the
Respondent in his Statement of
Case submitted that:-
-
The Appellants have taken a
very narrow view of the
import of legal effect of
Sections 21, 30(1)-(3) and
(5) of the Code.
-
Since the evidence showed
that the Respondent is an
original subscriber to the
Regulations of the Company,
he is by such subscription,
a member and shareholder.
-
Under the Code, there are
two kinds of members, i.e.
Members who were original
subscribers to the
regulations of the company,
and members who later
acquire shares in the
company. Hence, as a
subscriber, the Respondent
belongs to the first
category of shareholders,
and is by operation of law a
member of the company.
-
The Court of Appeal, having
competently and fully
considered whether or not
there had been compliance
with Section 30 of the Code,
was correct in holding that
there had been no lawful or
valid forfeiture of the
Respondent’s shares and,
therefore, correct in
granting relief (b) of the
Respondent’s claim.
It is important at this juncture
to emphasise that the
Respondent’s appeal before the
Court of Appeal was not against
the High Court’s finding that he
is not a paid-up (fully or
otherwise) shareholder of the
Company; rather, it was against
the Court’s conclusion that, in
spite of the Respondent being a
subscriber to the Company’s
Regulations, he is not a
shareholder. This was the crux
of the Respondent’s appeal.
Therefore, the issue of whether
or not the Respondent is a
paid-up member did not arise
before the Court of Appeal and
also does not arise in the
instant appeal. It must be taken
as settled by the trial court
and no longer in dispute amongst
the parties herein.
Thus, the only issue properly
arising herein is whether, given
the evidence on record and the
applicable provisions of the
Code and the Regulations of the
Company, the Court of Appeal was
correct in granting to the
Respondent the reliefs that it
did. To resolve this issue,
there is, in our view, the need
to determine the following
matters:-
-
In accordance with the Code,
did the Respondent, by
reason of his subscription
to the Regulations, become a
member and shareholder of
the Company? If so,
-
Has he, legally ceased to be
a member of the Company?
These are purely questions of
law governed by the Code and the
Regulations of the Company.
In arriving at their decision,
the majority of the Court of
Appeal endorsed the Trial
Judge’s evaluation of the
evidence before him. They
however, faulted the Learned
Judge’s conclusion that, because
he had not paid anything for his
shares, the Respondent was not a
shareholder or director of the
Company. Addo, J.A. in his
learned opinion expressed
himself thus:-
“In my respectful view, the
trial judge came to the right
conclusion when he held that the
Plaintiff (the Respondent
herein) is not a fully
paid-up member or shareholder of
the 1st defendant (the
1st Appellant herein)
company. But he fell into grave
error when he held that the
Plaintiff is not a shareholder
and Director of the 1st
defendant company. In the Court
below, the question whether the
Plaintiff is a shareholder and
Director of the 1st
defendant company did not arise
at all.”
For the purposes of this appeal,
our starting point must be
Section 30 (1)-(5) of the Code,
which deals with the
constitution of membership of a
company and provides as
follows:-
“(1) The subscribers to the
Regulations shall be deemed to
be members of the company and on
its registration shall be
entered as members in the
register of members referred to
in section 32 of this Code.
“(2) Every other person who
agrees with the company to
become a member of the company
and whose name is entered in the
register of members shall be a
member of the company.
“(3) Every member shall
have such rights, duties and
liabilities as are by this Code
and the Regulations of the
company conferred and imposed
upon members.
“(4) In the case of a
company with shares each member
shall be a shareholder of the
company and shall hold at least
one share, and every holder of a
share shall be a member of the
company.
“(5) Membership of a
company with shares shall
continue until a valid transfer
of all the shares held by the
member is registered by the
company, or until all such
shares are transmitted by
operation of law to another
person or forfeited for
non-payment of calls under a
provision in the Regulations, or
until the member dies.”
Accordingly, counsel for the
Respondent is correct in his
submission that under the Code,
there are two kinds of members
of a company; those who become
members at the inception of a
company by subscribing to its
Regulations and those who, after
the company comes into
existence, agree to become
members. The membership of a
subscriber is, by legal
prescription and, in the absence
of a valid forfeiture, is not
predicated on full or partial
payment of the consideration for
the shares taken. Indeed, even
in the case of a non-subscribing
member of a company, his
membership is not dependent on
whether or not he is fully
paid-up.
From his submissions, counsel
for the appellant appears to be
under the impression that,
legally, the company may
classify its members into those
whose shares have been paid for
and those whose shares have not
been paid for. Thus, according
to Counsel, the Respondent is at
best an allottee of shares,
since he has not paid for any of
his shares. Such an impression
is entirely misguided. Although
section 46 of the Code makes it
possible for the Regulations of
a company to make provision for
different classes of shares,
such differentiation do not
relate to membership, but rather
to the rights and liabilities to
be enjoyed by members holding
such classified shares (see
Sections 46 of the Code and 9 of
the Regulations). Admittedly
also, under sections 31 and 160,
a shareholder’s right to attend
and vote at meetings of a
company may be affected by his
paid-up status, and under
regulation 28 a company has a
lien on unpaid shares and
dividends in respect thereof.
However, such limitations on
rights can occur only after a
valid call has been made and the
shareholder has failed to pay,
or other sums presently payable
by the shareholder in respect of
his shares remain unpaid.
Certainly, nowhere in the Code
or Exhibit 1 is there created
any class of members known as
‘allottee’ or ‘nominal’
shareholders; and in view of the
clear provisions of section 30,
it is doubtful if a company’s
Regulations could legally create
such borderline memberships.
Consequently, under the law,
there is nothing anomalous about
a person being considered a
shareholder of a company merely
because such a person has not
yet fully paid for his shares.
Furthermore, contrary to what
may be implied from the first
ground of appeal, the issue of a
share certificates is not a
precondition to membership in a
company. Section 53 of the Code,
requires every company to
deliver a share certificate to
the registered holder, within
two months of the issue of
shares or registration of
transfer of shares. This is the
company’s obligation, and, by
virtue of 53(3), the company,
and any defaulting officer of
the company, is liable to a
penalty in the event of any
non-compliance. Therefore, the
fact that the Respondent has not
been issued with a share
certificate cannot be a valid
ground for challenging his
membership of the Company.
Rather, it is a reflection of
the failure by the Company and
its officers to comply with the
dictates of the Code. Moreover,
under section 54 of the Code,
the function of a share
certificate is to serve as ‘prima
facie evidence of the title
to the shares of the person
named therein’. This means that
other evidence may be adduced by
a person claiming to be a
shareholder to establish his
shareholding. Therefore, the
mere fact that a person claiming
to be a shareholder of a company
has not been issued with any
share certificates, is not
material to that person’s legal
status as a member and
shareholder. In the case of a
subscriber, by the combined
effect of sections 21 and 30 of
the Code, subscription to the
Regulations of the company
serves an identical evidentiary
purpose. In a similar vein,
there is also the need to
reiterate that registration of
the name of a subscriber in the
company’s register of members is
also not a condition precedent
to membership (see In the
Matter of Northern Engineering
Co. Ltd. and In the Matter of
the Companies Code, 1963 (Act
179) Section 217 and Luguterah
v. Northern Engineering Co. Ltd.
and Others, [1979] GLR 477).
Section 21 of the Code shows
that the Regulations of a
company is no mean document. It
is the registration of the
Regulations that brings the
company into existence as a body
corporate (see section 14 (d) of
the Code). Once registered, the
Regulations have (inter alia)
the effect of a contract under
seal between:-
i.
the company and its members
ii.
the company and its officers
iii.
the members and the officers of
the company
iv.
the members of the company inter
se and
v.
the officers of the company
inter se
As a subscriber, therefore, the
Respondent’s shareholding, as
well as the consideration
payable by him therefor, is
contractual. He does not need to
be issued with a certificate for
his membership to take legal
effect.
Consequently, there is, no doubt
whatsoever that, since the
Respondent is a subscriber to
the Regulations of the company
(as evidenced by Exhibit 1), he,
pursuant to section 30(1),
became a member of the Company
right from the date of its
incorporation, holding 200,000
shares as indicated against his
name on page 10 of the said
exhibit. As a member, he also
became shareholder, pursuant to
section 30(4), and as such, his
membership of the company may
cease only upon the occurrence
of one of the eventualities
stipulated in section 30(5).
By the terms of the Code, until
all of his shares are forfeited
for non-payment of a validly
made call (or until the
occurrence of any of the other
said eventualities), a
subscriber remains a
fully-fledged member and
shareholder of the company, even
if he has not paid a pesewa for
his shares. The Code does not
prescribe any mode for
forfeiture of shares and rather
leaves this to be spelt out in
the Regulations of the company.
In respect of the Company, the
relevant provisions are
regulations 15-27 which
prescribe the processes that
must be followed. Firstly there
must be a call on the shares.
For such a call to be valid:-
-
The call must be authorised
by a resolution of the Board
of Directors and the date of
the resolution is deemed to
be the date of the call.
-
The shareholder must be
given not less than 14 days’
notice ‘specifying the time
or times and place of
payment’ as well as the
amount called upon the
shares.
-
If the terms of allotment or
issue of any shares
stipulate a particular date
for payment of such shares
or any part thereof, then a
call is deemed to have been
duly made and the payment is
deemed to be payable on such
fixed date.
If the shareholder fails to pay
on due date for the shares on
which a call had been made (or
shares on which a call is deemed
by the Regulations to have been
made) then the forfeiture
procedure, set out in the
Regulations comes into effect.
Even then, there are prescribed
steps the Company must take
before shares are forfeited.
These are:-
a.
The Board of Directors must
serve on the defaulting
shareholder a notice requiring
payment of the amount, together
with any interest due thereon
under regulation 18.
b.
The notice must name a date on
or before which the payment must
be made, which payment date
should not be less than 14 days
from the date of service of the
notice.
c.
The notice must also state that,
in the event of non-payment on
or before the payment date, the
shares upon which the call was
made will be liable to
forfeiture.
d.
If no payment is made in
accordance with the notice, the
shares affected by the call may
be forfeited, but such
forfeiture must be by a
resolution of the Board of
Directors.
There is nothing on the record
to show that there was any
agreement made at anytime
between the 1st
Appellant and the Respondent
whereby the Respondent became
liable to pay for his shares on
any fixed date. As a result, it
is only by a formal call that
any amount may become due on any
of his shares. However, the
record is totally devoid of any
evidence, whether in the form of
minutes of a director’s meeting,
or in the form of a signed
resolution, that the Company
went through, or even made any
pretence of going through, the
processes prescribed by its
Regulations, before purporting
to forfeit the Respondent’s
shares.
In the governance of a company,
the best evidence of proceedings
and decisions of the Board of
Directors is the minutes of its
meetings and any resolutions
reflected therein, or a signed
resolution of the Directors
(pursuant to section 200(j) of
the Code). Thus, regulations 66
and 67 stipulate that
proceedings of the Directors of
the Company are regulated by
section 200 of the Code, and
minutes of Directors’ meetings
must be kept in accordance with
section 201. Section 201 obliges
the Directors to keep minutes of
their meetings (including
committee meetings) which, when
signed by the chairman of the
proceedings, constitute prima
facie evidence of the
proceedings. The critical
importance of this obligation
may be gleaned from section
201(4) which imposes a penalty
of a fine on a company and every
defaulting officer in the event
of non-compliance.
There is no evidence of any such
minutes or resolutions on the
record before us. We only have
exhibits Q and R, whereby the
Company’s solicitors purported
to offer the Respondent 20%
shares in the Company for which
he must pay an unnamed price
within 14 days, and the 2nd
Appellant, in his capacity as
the Managing Director of the
Company, demanded from the
Respondent the sum of
¢47,410,258.20. These letters,
whatever their purport, cannot
constitute valid calls, or
effectively result in a valid
forfeiture of any shares.
Clearly, therefore, at all
material times, no valid calls
have been made on the
Respondent’s shares, and they
have not been validly
forfeited.
Consequently, even though the
Respondent had not paid for his
shares nor been issued with any
share certificate, in law, he
has never ceased to be a member
of the company and he remains a
shareholder thereof. The Court
of Appeal was, therefore, right
in granting the Respondent the
reliefs that it did and did not
commit any errors whatsoever.
Before concluding, there are a
couple of other matters we need
to comment upon. The first is
the amount of ¢47,410,258.20 the
Company purported to demand from
the Respondent as consideration
payable for his shares.
According to Exhibit R, the
Appellants arrived at this
amount by apportioning the value
of the fixed assets, which was
stated in the Audited Accounts
(Exhibit B) to be
¢237,051,291.00, amongst the
shareholders according to their
subscribed shareholding. This is
not a legal mode for
ascertaining shareholder
liability on unpaid shares,
which is solely referable to the
subscription to the Regulations,
or the agreement under which
shares are issued.
The Respondent, by subscribing
to the Regulations of the
Company, contracted to pay, in
consideration of his 200,000
shares, an amount of
¢200,000.00. Since there was no
other agreement under which the
Respondent agreed to pay any
other amount in consideration
for his said shares, that is the
extent of the liability the
Respondent undertook when he
subscribed to the Regulations.
As has already been pointed out
above, this is an agreement
under seal and is binding not
only as between the Respondent
and the Company, but also
between the Respondent and other
members as well as between him
and the officers of the company.
The value of the Company’s fixed
assets is irrelevant to the
ascertainment of the
consideration payable by the
Respondent or any of the other
subscribers, for that matter,
for their shares in the Company,
since it was fixed in the
Regulations and there was no
evidence that any part of the
shares were to be paid otherwise
than in cash. The value of such
assets would be relevant only if
the company were to issue
additional shares to the
existing members or new
shareholders. In that event,
such value may be taken into
account to determine the price
at which such new shares would
be issued. However, in view of
the fact that all the authorised
shares stipulated in regulation
7 were fully subscribed upon
incorporation, the Company
cannot even do this, without
first altering its Regulations,
in accordance with Section 22(b)
of the Code.
Now, when a person agrees to
subscribe to the Regulations of
a company, or become a member of
an existing company, what he
undertakes to do is to
contribute to the stated
capital, in cash or in kind, the
amount agreed to be the value of
the number of shares he has
agreed to take. For that reason,
section 66(1) of the Code states
that:-
“the stated capital of a company
with shares shall consist of the
sum of the following items, that
is to say,
(a)
the total proceeds of every
issue of shares for cash,
including any amounts paid on
calls made on shares issued with
an unpaid liability, without any
deductions for expenses or
commissions;
(b)
the total value of the
consideration, as stated in the
agreement, received for every
issue of shares otherwise than
for cash
(c)
the total amount which the
company by special resolution
shall have resolved to transfer
to stated capital from surplus,
as defined in section 69 of this
code, including the credit
balance on the share deals
account….”
Taking into account the fact
that i) according to
exhibit B, the Company’s stated
capital continued to be
¢1,000,000.00, ii) the
shares of the Company were fully
subscribed from inception, and
iii) there is no evidence
that there was any increase in
the authorised shares of the
Company in respect of which the
Respondent agreed to take
additional shares, there was no
legal or justifiable basis
whatsoever for the amount
demanded by the Appellants.
It is apparent from the record
that the 2nd
Appellant became concerned that
he had, allegedly, in the
operations of the Company,
utilised a significant amount of
his own resources towards the
operation of the Company, over
and above the amount due from
him by virtue of his
subscription. Unfortunately for
the 2nd Appellant,
this concern cannot be legally
addressed by a revaluation of
the subscribed shares.
The second matter is in respect
of the question of the
Respondent’s directorship in the
Company. It is clear from
Regulation 4 of Exhibit 1 that
the Respondent was one of the
first Directors of the company
and this was reflected in
exhibit D. It is clear from
regulation 61 of Exhibit 1 that
a Director of the Company need
not be a shareholder. Thus, as
far as the Company is concerned,
there is no nexus between
shareholding and directorship.
By virtue of regulation 62, a
director may cease to hold the
office only in accordance with
section 184 or 185 of the Code,
i.e. either by vacation (by
operation of law or resignation)
or by removal (pursuant to a
resolution of the members in
general meeting). There is
nothing on record that
establishes that the Respondent
has by any means vacated his
office, nor is there any
evidence that he has been
validly removed as a Director
and it is quite baffling that
the trial judge held that he has
ceased to hold such office.
S. A. B. AKUFFO(MS)
JUSTICE OF THE SUPREME COURT
W. A. ATUGUBA
JUSTICE OF THE SUPREME COURT
G. T. WOOD (MRS)
JUSTICE OF THE SUPREME COURT
DR. S. K. DATE-BAH
JUSTICE OF THE SUPREME COURT
PROF. T. M. OCRAN
JUSTICE OF THE SUPREME COURT
COUNSEL:
Frank Yankey for
Plaintiff/Respondent/Respondent.
Tanko Amadu for
Defendants/Respondents/Appellant.
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