 Title: The Bank Director and the Law
Author: Prof. Oserheimen Osunbor
Publishers: FITC, Lagos
Pagination: 362 pages
Price: Not stated
Reviewer: Rev. Udo Ibuot
BANKING occupies a very prominent place not only in the economic development of the nation but also in the lives of virtually every citizen. Because it serves as the fulcrum upon which prosperity of the nation
revolves, it has become necessary for operators in the sector to become conversant with legal principles that drive its corporate governance. Equally, because of its role, operators in the industry as well as their customers and shareholders ought to have more than a passing knowledge about how their investments are managed in the light of the distresses that became associated with the banking industry in the 1990s. This appears to be rationale for this publication.
Its author, Professor Oserheimen Osunbor, former dean of the faculty of law at the Lagos State University, senator, and current governor of Edo State has, however, excluded the technical details which are the daily fairs of professional bankers. His focus is on legal principles that are associated with the practice. The book is a collaborative effort between the author and the Financial Institutions Training Centre (FITC), Lagos and was first published in 1997. This second edition has accommodated virtually all the contemporary legislations and changes in the intervening period.
The book which has 15 chapters is divided into three parts. The first part has seven chapters with the first examining the evolution of bank directorships in the country. Banks established in the country by indigenous as well as foreign organizations between 1892 and 1975, before the Indigenisation Act (Nigerian Enterprises Promotion Act) of 1977 replaced its predecessor of 1972, and was itself repealed by the Nigerian Enterprises Promotion (Amendment) Decree of 1989. The chapter also examines licensed banks and associated regulatory institutions such as the Central Bank of Nigeria, Nigeria Deposit Insurance Corporation, Corporate Affairs Commission, Securities and Exchange Commission as well as the Nigeria Stock Exchange. The others are the Technical Committee on Privatization and Commercialization, and the Nigeria Investment Promotion Commission.
The second chapter examines legal characteristics of a bank. The issues in perspective here are those that border on the establishment of a bank as a company, obtaining a banking licence, the position of specialized banks and non-financial institutions, the concept of corporate personality and lifting the veil of incorporation. Chapters three and four deal with the constitution of a bank.
While the former examines memorandum of association and its contents, the latter deals with the articles of association: its meaning and nature. In the articles, the contents, transfer of shares and such issues as effects of the memorandum and articles of association on the operation of a bank.
Chapters five and six treat issues relating to conduct of meetings. Types of meetings examined include statutory meeting, annual general meeting and extra-ordinary general meeting. Other associated issues are convening of meeting, place of meeting, notices, quorum, voting and resolutions. Meetings of the board of directors, proceedings of the board, validity of board meetings and directors’’right of access to company documents as well minutes are some of the other issues treated. The last chapter in the first part of the book focuses on the structure of the board of directors. The meaning, appointment and disqualification of bank directors as well as alternative and associate directors are discussed offices of the board listed and examined are the chairman, managing director and company secretary, as well as functions of committees and relationship between the board of directors and the members in the general meeting.
The second part which covers chapters eight to 13 focuses on the legal liabilities of banks and their directors with emphasis on those affected by recent banking legislations. Chapter eight examines the legal duties of bank directors. These are treated under two auspices: the fiduciary duty, and the duty of care, skill and diligence. Fiduciary duty of bank directors is explained as that which derives from the fact that in the eyes of the law, bank directors occupy a position which is analogous to that of trustees. Its associated dimensions are acting in the best interest of the company, exercising of power for proper purpose, unfettered discretion and guarding against conflict of interest. The chapter also states the duties of bank directors under banking legislations. These include duties under the BOFIA, the Bank Employees, etc (Declaration of Assets) Decree 1986; under the CBN Act, Money Laundering (Prohibition) Act 2004 or Money Laundering Act
(Amendment) Bill 2002. Others are Economic and Financial Crimes Commission (Establishment) Bill 2002, Banks and other Financial Institutions (Amendment) Bill 2002. It also analyses enforcement of breaches of directors’’duties in criminal cases and civil cases, and remedies for breach of duty.
Chapter nine examines the personal liability of bank directors under the CAMA and under other banking legislators such as the Failed Banks (Recovery of Debts) and Financial Malpractices in Banks Act 18 of 1994. Jurisdiction of the tribunal in the recovery of debts and trial of offences as well as the general assessment of the Act are reviewed. The tenth chapter reviews bankers’’corporate liability to customers, liability in tort, vicarious liability, as well as corporate liability for the acts of its officers. This principle arises from the fact that any action of the members of the board of directors or management of a company are supposedly treated as the act of the company. The doctrine, according to the author, abolished the doctrine of constructive notice which provided that anyone having dealings with a company was deemed to be aware of the contents of such company’s memorandum or articles and other public documents even though he might not have
seen them. In Chapter 11, the author lays bare the legal requirement for filing of financial statements, viz: accounting records, audit and annual returns to appropriate government departments annually. What constitutes accounting records are discussed, while annual accounts and contents of directors reports are also specified. The requirement for appointment of auditors, their independence and resignation as well as auditors’ liability for negligence are equally given adequate treatment.
Majority rule and oppression of minorities is treated in the twelfth chapter. It is appropriate that the author examines this issues because it is one of the major factors that lead to conflict in board rooms of banking organisations. Techniques of oppression are discussed and these include squeezing-out of the minorities through dismissal from positions, expropriation of shares, setting up of rival companies, denying access to books, etc. Equally discussed in this chapter are remedies available to the oppressed minority shareholders. These include reliefs against unfairly prejudicial, unfairly discriminatory and oppressive conduct; investigation of a company, and winding up.
The thirteenth chapter examines the issue of dissolution or winding up of a bank. The modes of winding up under CAMA - voluntary winding up, winding up subject to court’s supervision and compulsory winding up by the court are discussed. The chapter analyses steps involved where the revocation of licence and winding up is made under BOFIA. These steps are listed as special investigation under section 32 of BOFIA, and CBN’s statutory application to the federal high court for a winding up order. The second leg of the winding up order is under the NDIC Act. Loss of insured banks’ status as ground for winding up, and under capitalization as ground for winding up are the two platforms treated by the author under the NDIC Act.
The third part of the book deals with some elements of labour law and property law, both issues of concern to bank directors and managers. Labour law and industrial relations which is the subject matter of chapter 14 considers the contract of employment between the bank, directors and employees. Employment contracts; their nature, forms and content, the rights and duties of employees and employers, as well as termination of service contracts are dealt extensively in this chapter. Operations of trade unions, trade disputes, collective bargaining, legal consequences of a strike and steps involved in settlement of disputes are also listed. The chapter ends with and overview and highlights of the Pension Reform Act of 2004.
The last chapter which deals with property law classifies it as personal property consisting of tangible things which can be taken possession of physically and choses in action which are intangible rights that can only be enforced by legal action such as debt, shares and stocks, and intellectual property.
Real property or real estate, on the other hand, according to the author, comprises land and interest in land such as freehold or leasehold and a right of occupancy acquired under the Land Use Act of 1978. Intellectual property that can serve as security are listed as copyright, patents, designs, trade marks, etc. Types of securities for lending also examined in this chapter are debentures, insurance policy, guarantee, stocks and shares, bills of sale, land or real property. Problems of mortgage as security are also discussed in view of the requirements for consent, procedure for obtaining consents and consequences of failure to obtain consent. The
author ends with an advice to bank directors on acceptance of mortgages under the Land Use Act. He lists three pitfalls which bankers should be aware of. These are: non-compliance with provisions of the Act may result in loss of the security; banker as mortgagee cannot receive compensation if the land is acquired by the government or revoked for overriding public interest; and, where alternative accommodation is given by government to the occupier of a residential building on land, this can hardly avail the banker.
Three appendices are published as part of this edition. The first is the Banks and other Financial Institutions Decree 25, 1991, enacted to regulate banking and other financial institutions along with its associated amendments. Appendix two is on Nigeria Deposit Insurance Corporation Act, established, among other things, for the purpose of insuring all deposit liabilities of licensed banks and other financial institutions. The third appendix is the Failed Banks (Recovery of Debts) and Financial Malpractices in Banks Decree 18 of 1994, with the attendant amendments.
The Bank Director and the Law is an eminent testimonial of the academic erudition of the author, for the benefit of bank directors and managers alike. Written in simple, easy to read format, without excessive use of legal jargons or technicalities, the author has offered the banking industry its first extensive legal work of record for effective operations. Bank directors and managers who invest their time on this book are bound to be richer in knowledge of banking laws and will certainly add value to their decision making processes.
I recommend this work not only to bank directors and senior managers, but also to junior managers and students of banking and finance in our tertiary institutions. Their understanding and application of the codes of practice, body of laws regulating banking, their obligations and rights as practitioners which Prof. Oserheimen Osunbor has dutifully imparted in this work, will certainly revolutionalise the practice of banking in Nigeria.
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