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          An Assessment of Sanctions and Liabilities regimes for Private Companies under the Companies Act, 2019 (Act 992)

          My Story Magazine by My Story Magazine
          November 20, 2020
          in Business, FACTS
          Reading Time: 11min read
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          An Assessment of Sanctions and Liabilities regimes for Private Companies under the Companies Act, 2019 (Act 992)
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          In my most recent article, I discussed the duties of directors of private companies under the Companies Act, 2019 (Act 992). However, directors are not the only officers or persons with duties imposed by Act 992 – mandatory or permissive. Act 992 also imposes duties on a company itself, members, officers and other persons concerning the formation, management and winding up/liquidation of private companies.

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          As a regulatory framework, Act 992 provides for some standard obligations all persons who act for a company must perform at all times regardless of the size of the company – big or small. 

          To ensure compliance with these standard regulatory obligations either as pertains to statutory reportingrequirements and/or company management practices, Act 992 provides for sanctions and liabilities in the event of the failure(s) to comply with duties imposedunder the Act.

          Generally, the sanctions and liabilities regimes of Act 992 can be categorised into civil and criminal liabilities. One can anticipate the primary purpose ofsanctions or liabilities under Act 992 is to punish the affected person for the failure to perform a duty imposed or for acting in ways not permitted by the Act – although the existence of sanctions/liabilities provisions may serve other preventive purposes. 

          The severity of a sanction/liability highlights the impact of its non-compliance on the general management of companies in Ghana. 

          In this article, I shall discuss some of thesesanctions/liabilities and demonstrate how they relateto a company itself, members, officers and otherpersons.

          WHO IS LIABLE UNDER THE SANCTIONS/LIABILITIES REGIMES?

          Mostly, officers owe the primary obligation for the performance of duties imposed on a company. Nonetheless, Act 992 provides for other persons, to perform certain duties on behalf of a company. It is key to understand the extent of liability for these persons where there is the failure of performance of obligations imposed by Act 992 or the registered constitution of a company.a. PROMOTERS

          A company before incorporation has no existence. Persons responsible for bringing it into existence are called Promoters. Act 992 defines a promoter as a person who is or has been engaged or interested in the formation of a company except for persons acting in their professional capacities. A promoter is mandated to perform all acts incidental to the incorporation process including the acquisition of properties, help in raising working capital, running of errands among others. A promoter stands in a fiduciary relationship to a company and alwaysexpected to observe the utmost good faith towards the company in all transactions with the company or on its behalf. 

          In instances where a promoter fails on this obligation, such promoter becomes personally liable to compensate the company for any loss suffered. Also, a promoter is to account for any profit he/shemay have made from the use of properties or information in circumstances where it was his/her duty as a fiduciary to acquire the property or information on behalf of the company. 

          A company has the right to rescind any transaction between a promoter and itself unless the transaction has been entered into or ratified on behalf of the company by the board of directors independent of the promoter, all members and the company at a general meeting in line with the provisions of Act 992. Unless ratified, a promoter in the absence of an express agreement shall be personally liable for the contract(s)/transaction(s) as well as its benefits. 

          Also, a company has the right to bring an action to enforce any civil liability against a promoter and such actions shall not be affected by any period of limitation (6 years as in civil matters). b. COMPANY ITSELF

          A private company is a body formed and registeredper the provisions of Act 992. On incorporation, itacquires the full capacity to carry on or undertake any business or activity, do any act, or enter into any transaction. Also, a company secures full rights,power and privileges to perform any such transaction, business or activity. However, it may be restricted by its registered constitution. Nonetheless,such restrictions do not limit the capacity and power of a company or that an act is not or would not be, in the best interest of the company. 

          Therefore, acts of a company, a contract or other obligations entered into, shall not be invalid by reason only of the fact that it was done in contravention of restrictions on a company. To this extent, conveyance or transfer of property to or by a company can also not be invalidated by reason of the fact that the act, conveyance or transfer was not done or made for the furtherance of any of the authorised businesses or the company was otherwise exceeding its objects or powers. 

          The consequence is that a company may by its actsbecome liable for acting in excess of its objects, powers or capacity. Where this occurs, the extent of liability will be dependent on the nature of transaction, act, conveyance or transfer undertaken by the company.

          Contracting 3rd parties are the beneficiaries in such circumstances as they are still able to enforce legal remedies against the company – payments for due liabilities, specific performance or any other transactional remedy.

          Additionally, the Act prohibits a private company from making an invitation to the public to acquire itsshares or debentures and also to deposit money for fixed periods or payable at a call whether bearing interest or not. The Registrar will sanction any private company for the breach of these provisions although the specific sanction(s) have not been expressly provided for under the Act.

          Further, the Registrar may levy the payment of an administrative penalty by a company jointly with other persons in the following circumstances –- on the detection of errors or omissions in documents containing particulars for incorporation, – on the failure to give notice on the alteration of objects or business within the specified period of the Act, – on the failure to change a misleading name within the time specified by the Act, – on the failure of payment for shares and return of issues, – on the failure of issuance of share certificates, – on the refusal of inspection of a true copy of a share deals account,- on the failure to return to the Registrar in a prescribed form the amount of money raised in respect of stated capital, – on the failure to file annual returns among others. 

          The above is not an exhaustive list of obligations on a company for which the Registrar could sanctionadministrative penalty for failures. 

          The payment of administrative penalties could be fixed in penalty units or requires the payment of the penalty for the continuous period of the defaulting obligation.

          Civil liabilities are not the only type of sanctionsavailable against a defaulting company. Also, Act 992 provides for criminal liabilities in some circumstances. Criminal liability implies the prosecution and conviction of a company howeverpunishable by a fine – due to the artificial person nature of a company.

          A company may become vicariously liable for criminal acts of members in a general meeting, of the board of directors or its managing director whilst carrying on business in their usual way(s). Likewise, a company may become liable on summary conviction to a fine (varying penalty units) where it fails to keep copies of instruments creating a charge requiring registration in Ghana at its registered office or any other office in Ghana among others. c. MEMBERS/SHAREHOLDERS

          Membership of a private company includes signedsubscribers to its documents at incorporation and persons whose names are entered in the register of members and shareholders. Nonetheless, membership is not only limited to natural persons –an artificial person could also become a member/shareholder.

          The nature of an incorporated private company determines the extent of civil liabilities for its members. A limited liability company offers its shareholders protection against personal responsibilities for company liabilities. Members liabilities are only to the extent of loss of capital contributed or unpaid amount on their shares. 

          On the other hand, an unlimited liability company offers no protection against personal liabilities of its members. All liabilities of an unlimited liability company are potentially the personal liabilities of its members, where liabilities cannot be honoured by the company.

          The liabilities of a member of a company limited by guarantee are to the extent of amounts guaranteed at registration. Members will be called upon to honour their pledges (guarantees) where the company is unable to meet its liabilities in the event of winding up. Further, where a company limited by guarantee carries on business for profit other than for the furtherance of its objects, members who are cognizant of this fact become jointly and severally liable with other officers for the payment and discharge of debts and liabilities incurred in carrying on such businesses. Additionally, the Registrar may levy administrative penalties.

          Generally, members/shareholders play limited roles in the management of companies. Largely, the duties of members are restricted to the exercise of rights atGeneral or Extraordinary Meetings. At these meetings, members act as the final approvingauthority for acts of the company. In the exercise of their duties, members will be required to:- approve all transactions including major transactions, – pass resolutions authorising the doing of certain acts, – approve payment of recommended dividends, – approve strategic plans, – approve the decision of directors to wind up a solvent company- approve all dealings in shares – and other permissive approvals under Act 992 and/or the Registered Constitution of the company.

          Members may also become liable civil or criminallywhere their approval power is exercised in contravention of the law or the registered constitution of the company.d. OFFICERS

          Act 992 defines officers of a company to include its directors, secretary or employees and a receiver and manager of a part of the undertaking of a company – appointed under a power contained in an instrument and a liquidator appointed in a voluntary winding up. Each of these officers has been given distinct or collaborative roles under the Act or as may be complemented by the registered constitution. 

          Equally, sanctions have been provided for the failure or omission to perform assigned duties. In some instances, officers bear liabilities jointly and severally and in others, personally. Civil liabilitiesrange from the payment of administrative penalties, liability for debts and liabilities incurred, the return of distribution with interest and other civil remedies as may be available against the officer by the company or contracting 3rd party.

          Officers also bear criminal liabilities for their actions or inactions. In the performance of their duties, officers could be summarily convicted to fines – in penalty units or terms of imprisonment or both. Infractions involving dishonesty on the part of an officer in the discharge of his/her duties will also make him/her criminally liable under the general criminal law provisions. Further, an officer could bebanned from the management of companies in criminal circumstances. e. OTHER PERSONS

          Act 992 imposes duties on other persons. These persons include a receiver, a receiver and a manager appointed by the Court, an auditor, a registration officer and others as may be appointed by a company as its agents. Civil and criminal liabilities could lie against these persons for the failure of duties or things done in contravention of Act 992, the registered constitution or the general laws of Ghana.

          Similarly, the Registrar could levy administrative penalties against these persons, or they could become liable either jointly or severally with other officers of the company in respect of other civil liabilities. 

          This group of persons are not excluded from criminal liabilities resulting from any commission of prohibited conducts whilst acting for a company. 

          CONCLUSION 

          The Companies Act, 2019 (Act 992) creates a management structure for the administration of an artificial person – the company. To effectively manage the affairs of a company, Act 992 creates offices/positions with duties. In its bid to ensure compliance with imposed duties, Act 992 provides for sanctions and liabilities regimes in the nature of civil and criminal liabilities. It is imperative for each person assigned a duty under the Act to understand the extent of his or her liabilities where such duty is not performed or performed in contravention of the requirements of the Act, the registered constitution of the company or the general laws of Ghana. 

          The Author is Richard Nunekpeku, a lawyer at E.L Agbemava Law Office. He is reachable at Richard.nunekpeku@outlook.com

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