Board Approval and Directors’ Duties Under CAMA 2020

A major transaction is placed before the board. The directors deliberate. A resolution is passed. The contract is signed. The transaction is completed. Then, eighteen months later, a shareholder challenges the transaction. The question is no longer: “Was it approved by the board?” It is:

“Was the decision made in accordance with the directors’ statutory and fiduciary duties?”

BOARD APPROVAL IS NOT A BLANK CHEQUE

A board resolution establishes that the board approved a decision. It does not automatically establish that the decision was: within the company's powers; made for a proper purpose; free from undisclosed conflicts; in the company's best interests; properly authorised; or compliant with applicable statutory requirements. Under section 305 of CAMA 2020, directors stand in a fiduciary relationship towards the company and are required to observe utmost good faith in transactions with or on behalf of the company.

THE DIRECTOR'S DUTY IS TO THE COMPANY

A director does not sit on the board merely to represent whoever appointed them.

Under CAMA 2020, the director owes duties to the company as a whole.

Section 305 requires directors to act in what they believe to be the best interests of the company, including preserving its assets, furthering its business and promoting the purposes for which it was formed.

This matters particularly where a director's personal interests, shareholder interests or external relationships pull in another direction.

WHEN A DIRECTOR HAS AN INTEREST IN THE DEAL

Consider a company approving a ₦500 million supply contract. The supplier is owned by a company in which one of the directors has a significant interest. The transaction may still be commercially sensible. But the director cannot simply remain silent because the board ultimately approved it.

Under section 303 CAMA 2020, a director who is directly or indirectly interested in a transaction or proposed transaction with the company is required to notify the directors in writing, specifying the particulars of that interest. Failure to comply constitutes an offence.

Disclosure is a legal obligation not a courtesy.

DISCLOSURE DOES NOT MEAN “I TOLD THEM INFORMALLY.

CAMA requires a sufficiently formal disclosure. A director cannot necessarily rely on: “Everyone already knew.” “I mentioned it before.” “It was obvious that I was connected to the company.” The statutory requirement is designed to place the relevant interest formally before the board and create an appropriate corporate record. Where a conflict exists, the minutes matter. So do the notices, board papers and declarations.

THE PROBLEM WITH “THE BOARD APPROVED IT”

Imagine:

A director owns 30% of the proposed supplier. The interest is not properly disclosed. The director participates in the negotiations. The director votes in favour of the contract. The board approves it. The company later discovers that the supplier was paid substantially above market value. The resolution does not make the underlying governance problem disappear.

The inquiry becomes:

What did the director disclose?

What did the board know?

Was the decision properly made?

Was the transaction in the company's interests?

Was the director exercising the company's powers for a proper purpose?

NOT EVERY BAD BUSINESS DECISION IS A BREACH

This distinction matters. A director does not become personally liable merely because a commercial decision later turns out to be unsuccessful. Boards are allowed to make commercially difficult decisions. The legal concern arises where the decision involves, for example: bad faith; an improper purpose; undisclosed interests; misuse of company property or information; diversion of corporate opportunities; breach of statutory duties; or conduct falling outside the director's lawful authority.

THE CONSEQUENCES CAN FOLLOW THE DIRECTOR

Where a director breaches applicable duties, the consequences may extend beyond criticism at the next AGM. Depending on the facts and applicable law, the company or other eligible parties may pursue remedies including: - Recovery of improperly obtained benefits - Claims for loss suffered by the company - Injunctive or declaratory relief - Proceedings to challenge or restrain unlawful conduct - Derivative proceedings in appropriate circumstances And where the conduct constitutes an offence, separate statutory consequences may arise.

THE BOARDROOM RECORD MAY BECOME EVIDENCE

This is why sophisticated boards do not treat minutes as administrative paperwork. When a transaction is challenged, the record may become critical: Board papers Conflict disclosures Valuation reports Legal advice Due diligence Minutes Voting records Commercial rationale A well-run board should be able to demonstrate not only what it decided, but why and how it reached the decision.

THE CORPORATE GOVERNANCE TEST

Before approving a significant transaction, the board should be able to answer: 1. Does the company have authority to enter into it? 2. Does any director have a direct or indirect interest? 3. Has every relevant interest been properly disclosed? 4. Is the proposed transaction commercially defensible? 5. Is the board exercising its powers for a proper corporate purpose? 6. Have the necessary approvals been obtained? 7. Is the decision properly documented?

FOR FOUNDERS, INVESTORS AND DIRECTORS

A board resolution is not the end of the governance analysis.

It is part of the evidence of how the company exercised its powers.

For founders and investors, this means board governance should be treated as an asset—not an administrative burden.

For directors, it means understanding that corporate authority comes with corporate responsibility.

THE TAKEAWAY “THEBOARDAPPROVEDIT”ISNOTTHE ENDOFTHELEGALANALYSIS.

A defensible corporate decision requires more than a vote. It requires: Proper authority. Proper purpose. Proper disclosure. Proper process. Proper documentation. Under CAMA 2020, the quality of a board decision is measured by more than the resolution that records it. Good governance is what makes a corporate decision defensible when the deal is later questioned.