- 8 Marks
Question
Bala and Yesufu are joint directors and shareholders of YEBA Limited, which was incorporated in 2015. Yesufu was appointed the Managing Director, and Bala, the Operations Director. The Articles of Association of YEBA Limited were silent on directors’ remuneration, and there was no written agreement to pay remuneration to the directors of the company.
Bala had attended several board meetings from 2015 to 2017, travelling from Abuja to Lagos at his own expense. In 2018, Bala wrote to YEBA Limited through Yesufu, claiming N2 million annual director’s remuneration for years 2015 to 2017, as well as a total sum of N2 million reimbursement of his travelling expenses for the same period.
YEBA Limited has refused to pay both claims, insisting that there is no agreement for such payments to be made to the directors of the company. Bala is aggrieved and intends to take legal action against YEBA Limited.
Required:
Advise Bala, stating the legal issues involved.
(8 Marks)
Answer
The legal issues involved in this case relate to the entitlement of a director to remuneration and reimbursement for expenses in the absence of any explicit agreement or provision in the company’s Articles of Association.
- Directors’ Remuneration:
According to company law, directors are not automatically entitled to remuneration unless it is expressly provided for in the Articles of Association, or there is a specific agreement to that effect. Since the Articles of Association of YEBA Limited are silent on directors’ remuneration, and there is no written agreement, Bala may face challenges in claiming the N2 million annual remuneration for the years 2015 to 2017. His claim would not be enforceable unless he can prove a precedent or implied agreement for such payments. - Reimbursement for Expenses:
With respect to the N2 million reimbursement for travel expenses, Bala may have a stronger case. Directors are typically entitled to reimbursement for reasonable expenses incurred in the course of performing their duties, even if there is no formal agreement. If Bala can demonstrate that his travel expenses were necessary for attending board meetings and were incurred in the course of his duties, he may be entitled to reimbursement based on equitable principles or customary practice.
- Tags: Articles of Association, Company Law, Director Remuneration, Reimbursement
- Level: Level 1
- Topic: Company Law
- Series: NOV 2019
- Uploader: Dotse