"The second arm of the issue at hand deals with crucial question on the validity of the contract of guarantee executed by the Appellant. The crux of this issue however revolves around the interpretation and application of Sections 159, 160, 161, and 270 of the Companies and Allied Matters Act, Cap C.20, L.F.N., 2004.
For easy comprehension, the provisions are set out herein: 159 (1) in this section, financial assistance includes a gift, guarantee, security or indemnity, loan, any form of credit and any financial assistance given by a company, the net assets of which are thereby reduced to a material extent or which has no net assets. (2) Subject to the provisions of this section - (a) Where a person is acquiring or is proposing to acquire shares in a company it shall not be lawful for the company or any of its subsidiaries to give financial assistance directly or indirectly for the purpose of that acquisition before or at the same time as the acquisition takes place; and (b) Where a person has acquired shares in a company and any liability has been incurred (by that or any other person), for the purpose of this acquisition, it shall not be lawful for the company or any of its subsidiaries to give financial assistance directly or indirectly for the purpose of reducing or discharging the liability so incurred. (3) Nothing in Subsection (1) of this section shall be taken to prohibit - (a) The lending of money by the company in the ordinary course of its business, where the lending of money is part of the ordinary business of a company; (b) The provision by a company, in accordance with any scheme for the time being in force, of money for the purchase of or subscription for, fully-paid shares in the company or its holding company, being a purchase or subscription by trustees of or for shares to be held by or for the benefit or employees of the company, including any director holding a salaried employment of office in the company; (c) The making by a company of loans to persons, other than directors, bona fide in the employment of the company with a view to enabling those persons to purchase or subscribe for fully-paid shares in the company or its holding company, to be held by themselves by way of beneficial ownership; (d) Any act or transaction otherwise authorized, by law. (a) If a company acts in contravention of this section, the company and every officer of the company who is in default shall be liable to a fine not exceeding N500. 160. (1) Subject to the provisions of Subsection (2) of this section and its articles, a company may not purchase or otherwise acquire shares issued by it. (2) A company may acquire its own shares for the purpose of - (a) Setting or compromising a debt or claim asserted by or against the company; or (b) Eliminating fractional shares; or (c) Fulfilling the terms of a non-assignable agreement under which the company has an option or is obliged to purchase shares owned by an officer or an employee or the company; or (d) Satisfying the claim of a dissenting shareholder; or (e) Complying with a Court order. (3) A company may accept, from any shareholder, a share in the company surrendered to it as a gift, but may not extinguish or reduce a liability in respect of an amount unpaid on any such share, except in accordance with Section 106 of this Act. 161.
Notwithstanding any provision in the articles, a company shall not purchase any of its own shares except on compliance with the following conditions, that is - (a) Shares shall only be purchased out of profits of the company which would otherwise be available for dividend or the proceeds of a fresh issue of shares made for the purpose of the purchase; (b) Redeemable shares shall not be purchased at a price greater than the lowest price at which they are redeemable or shall be redeemable at the next date thereafter at which they are due or liable to be redeemed; (c) No purchase shall be made in breach of Section 162 of this Act. 270. (1) It shall not be lawful for a company to make a loan to any person who is its director or a director of its holding company, or to enter into any guarantee or provide any security in connection with a loan made to such a person as earlier mentioned by any other person; provided that nothing in this section apply - (a) subject to Subsection (2) of this sections, to anything done to provide any such person as mentioned in this subsection with funds to meet expenditure incurred or to be incurred by him for the purposes of the company or for the purpose of enabling him properly to perform his duties as an office of the company; or (b) in the case of a company whose ordinary business includes the lending of money or the giving of guarantees in connection with loans made by other persons, to anything done by the company in the ordinary course of that business. (2) Proviso (a) to Subsection (1) of this section shall not authorize the making of any loan, or the entering into any guarantee, or the provision of any security except - (a) with the prior approval of the company given at a general meeting at which the purposes of the expenditure and the amount of the loan or the extent of the guarantee or security, as the case may be, are disclosed; or (b) on condition that, if the approval of the company is not given as in Subsection (1) of this section at or before the next following annual general meeting, the loan shall be repaid or the liability under the guarantee or security shall be discharged, as the case may be, within six months from the conclusion of that meeting. (3) Where the approval of the company is not given as required by any such condition, the directors authorizing the making of the loan, or the entering into the guarantee, or the provision of the security, shall be jointly and severally liable to indemnify the company against any loss arising therefrom." (Underlining Mine).
It is evident from the above provisions of C.A.M.A., particularly Section 270 thereof, that the Act merely prohibits the giving of loan or entering into guarantee in certain circumstances, without the prior approval of the company given at a general meeting or where the approval was not obtained at the annual general meeting, on condition that the loan shall be repaid or the liability under the guarantee or security shall be discharged within six months from the conclusion of the annual general meeting of the company. The consequence of non-compliance with Subsection (1) and (2) of Section 270 is aptly stated in Subsection (3) which is to the effect that "the directors authorizing the making of the loan or the entering into the guarantee, or the provision of the security shall be jointly and severally liable to indemnify the company against any loss arising therefrom." This provision is devoid of any ambiguity and will be accorded its ordinary literal meaning. See AJISEGIRI v. F.R.N. (2010) LPELR-3676 (CA); ABAYOMI BABATUNDE v. PAN ATLANTIC SHIPPING AND TRANSPORT AGENCIES LTD & 2 ORS (2007) ALL FWLR (Pt. 372) 1721 at 1752; ALHAJI SHEHU ABUL GAFAR v. THE GOVT. OF KWARA STATE & 2 ORS (2007) ALL FWLR (Pt. 360) 1415. It is certainly not the duty of the Court to interpret the unequivocal provision of the statute so as to avoid its consequence. See dictum of MUHAMMED, JSC when he stated in AMAECHI v. I.N.E.C. (2008) 5 NWLR (Pt. 1080) 227 SC; (2008) LPELR-446 (SC) "It is certainly not the duty of a Judge to interpret a statute to avoid its consequence. The consequences of a statute are those of the legislature, not the Judge. A Judge who regiments himself to the consequences of a statute is moving outside the domain of statutory interpretation. He has by that conduct engaged himself in morality which may be against the tenor of the statute and therefore not within his judicial power." The draftsmen thought it wise and for good reason to make the directors who authorized the giving of the loan or executed the guarantee, to be jointly and severally liable to indemnify the company, in the event that the company is found to be liable under such guarantee executed with a third party, as in the instant case; thus being a loss to the company. It is certainly not the purport of that provision that the company shall avoid liability; rather the scope is that the directors shall be liable to the company for any loss suffered as a result of its liability under the contract of guarantee. To bow to the submission of the Appellant would amount to making nonsense of the plain provisions of the statute. The Learned Author, Professor Joseph Abugu, in his text, Principles of Corporate Law in Nigeria, Lagos: MIJ Professional Publishers, 2014, at page 490 under the topic "LOANS TO DIRECTORS" comprehensively considered the purport of Section 270 of the Companies and Allied Matters Act, when he enumerated thus: "By Section 270 of CAMA, it is unlawful for a company to grant a loan to its director or director of its holding company or to provide security for a loan made to such person. This is a rule of maintenance of capital. Loans to directors have the potentials of undermining capital. They readily create a conflict of interest situation giving rise to liabilities for breach of fiduciary duties. The prohibition does not draw any distinction between loans to executive and non-executive directors. Executive directors in addition to statutory obligations as directors also work under contracts of employment with the company. Under such contracts loans such as these for cars, housing, furniture and other employment benefits may be granted in advance. These are not affected by Section 270 as the root of such facilities is in employment law by virtue of their employment contracts and not in their capacity as directors simpliciter.
Notwithstanding, Section 270 provides for a few exceptions to the prohibitions. Firstly, loans may be granted to provide funds to enable a director meet expenditures incurred for purposes of the company or to enable him to perform his duties properly. Also where the ordinary business of the company includes the lending of money or giving of guarantees for loans made by other persons. In the second case, the loan or guarantee must first be approved by the company in general meeting or a condition imposed that if it is not approved at or before the next general meeting, the loan must be repaid or the guarantee discharged within six months from the conclusion of the meeting." I am therefore not hesitant to conclude that the provision of Section 270 of C.A.M.A. does not ipso facto render any guarantee executed without complying with the provision, illegal and unenforceable but merely renders the Directors/themselves who authorized it liable to the company for losses arising therefrom. In other words the loan/guarantee shall not be affected by the reason of failure to obtain prior approval of the members in general meeting."
Per OBASEKI-ADEJUMO, J.C.A. IN DAILY TIMES v. SKYE BANK CITATION: (2017) LPELR-43539(CA)
