Directors' Liability Under Nigerian Company Law: A Practical Guide

The enactment of the Companies and Allied Matters Act (CAMA) 2020 marked the most significant overhaul of Nigerian corporate law in three decades. Among its many reforms, the provisions governing directors' duties and personal liability deserve particular attention from boards, executives, and their advisers.

The Statutory Duties Framework

CAMA 2020 codifies directors' duties in terms that are more explicit than its 1990 predecessor. Section 305 requires every director to act in what he believes to be the best interests of the company. Section 306 imposes a duty to exercise reasonable care, skill and diligence — assessed both subjectively (the director's actual knowledge) and objectively (the standard expected of a reasonably diligent person with similar responsibilities).

Personal Liability for Company Obligations

The general principle that a company is a separate legal person from its directors remains intact. However, CAMA 2020 pierces the corporate veil in several circumstances that directors frequently underestimate:

• Fraudulent trading (Section 572): where a director knowingly carried on business with intent to defraud creditors, the court may declare them personally liable for all debts.
• Wrongful trading (Section 573): a director who continued to incur debt when they knew or ought to have known that insolvent liquidation was unavoidable may be liable to contribute to the company's assets.
• Insolvent trading: where a director takes money from the company's accounts knowing it to be insolvent, personal recovery orders may follow.

Governance Structures That Mitigate Risk

The single most effective protection for a director is a well-maintained record of board deliberation. Minutes that show genuine consideration of risk, independent professional advice obtained, and dissents recorded are invaluable in demonstrating that a director discharged the duty of care. Boards should also ensure that management accounts are presented at every meeting, that the company's statutory filings at CAC are current, and that the company maintains adequate Directors and Officers (D&O) insurance.

The Related-Party Transaction Trap

CAMA 2020 tightened the disclosure requirements around related-party transactions. A director who fails to declare a material interest in a contract to which the company is a party not only risks the transaction being voided but may face personal liability for any loss suffered by the company as a result.

Practical Takeaways

Every director — executive or non-executive — should obtain independent legal advice on the scope of their personal obligations upon appointment. The era in which a non-executive directorship was treated as a ceremonial title is over. CAMA 2020 does not distinguish between executive and non-executive directors when imposing liability.