All questions

Corporate leadership

In line with international practice, companies in Namibia are represented by two bodies, namely the shareholders, who ultimately own the company, and the board of directors, which is responsible for managing the company. The relationship between the company, its shareholders and the board of directors is determined by common law, the Companies Act and the articles of association of the company. Often, the shareholders of a company will also enter into a shareholders' agreement, which amplifies the roles and responsibilities of shareholders and directors in respect of the company.

i Board structure and practices

In Namibia, companies usually have a one-tier structure. The Companies Act does not make provision for a two-tier structure. Nor does it deal with the powers and functions of the chairperson (even though it refers to a chairperson of the board); these are usually dealt with in the articles of association of each company. The Companies Act does not refer specifically to chief executive officers, although most companies in Namibia have one.

The NamCode recognises what happens in practice and states that each board should elect a chairperson, who should be a non-executive director. Furthermore, each board must appoint a CEO and establish a framework for the delegation of authority. The CEO may not be the chairperson. The NamCode sets out in detail the responsibilities of the chairperson and the CEO, and states that the board must consist of a majority of independent, non-executive directors.

The legal position of directors in relation to the company is not settled under Namibian law. Directors have been referred to as agents of the company, trustees and managing partners. The better view, however, is that the directors stand in a unique or sui generis relationship to the company and should not be forced into a specific role or position (although they do reflect various characteristics of each of these roles). Each director, as an individual member of the board, has certain rights and responsibilities. These rights and responsibilities are set out in the Companies Act, common law, the articles of association of the company and, where applicable, the shareholders' agreement.

The board of directors acts primarily in the interest of the company and then in the interest of individual shareholders, in keeping with the duty of good faith that each director owes towards the company. Although directors are appointed by the shareholders or a class of shareholders, directors should not place the interests of the shareholder or class of shareholders who appointed them above the interests of the company. This is confirmed in the NamCode as well.

The Companies Act does not provide for delegation of authority to committees established by the board, although the articles of association normally provide for the establishment of committees and delegation of authority to committees. The NamCode also obliges the board to delegate certain functions to well-structured committees without abdicating its own responsibilities.

Under the NamCode, the board, its committees and individual directors should be subject to annual performance evaluations. Induction of directors as well as ongoing training and development must be conducted through formal processes.

Remuneration of board members is not dealt with in the Companies Act, and often also not under the articles of association. There is no indication in law that a person who acts as a director is entitled to remuneration. Remuneration must be provided for in the articles of association or authorised by the shareholders in general meeting. The board of the company cannot authorise payment of remuneration to board members. Typically, the articles of companies will state that board members are entitled to such remuneration as may be authorised by the shareholders in general meeting. The NamCode provides certain guidelines as to the remuneration of board members and senior executives. The NamCode also states that companies must disclose the remuneration of each individual director. Shareholders must approve the company's remuneration policy.

ii Directors

Section 1 of the Companies Act defines a director as '[including] any person occupying the position of director or alternate director of a company, by whatever name that person may be designated'. The importance of this definition is that a person will, for purposes of the Companies Act, be a director if, objectively speaking, that person occupies the position of director, regardless of what title he or she has.

In general, two types of director may be distinguished: executive and non-executive directors. Executive directors are employees or members of the management team of a company who are appointed to positions on the board. They therefore come from within the company and are involved in the day-to day running of the company. Non-executive directors have no vested interest in the company as they are not involved in the day-to-day running of the company; nor are they employed by the company. They are independent and serve as impartial arbiters. A distinction is often also made between non-executive directors and independent non-executive directors: while neither come from within the company or have any vested interest in the company, an independent non-executive director has no existing or prior business, employment, consultancy or other relationship with the company.

The rights of directors are derived from various sources, including the Companies Act, common law, the company's memorandum and articles of association, and agreements concluded between the company and the director (such as service or employment agreements). Sometimes, the rights of directors are also contained in agreements entered into between shareholders.

Under the Companies Act, every public company must have at least two directors and every private company must have at least one director. Until directors are appointed, every subscriber to the memorandum of incorporation of a company is deemed to be a director of the company. The majority of the subscribers may, in writing and subject to the articles of association of the company, determine the number of directors and the appointment of the first directors. After every change in the board of directors, the company must lodge Form CM29 with the Registrar of Companies. Any person who is appointed as a director or officer of a company at any time after the company has become entitled to commence business must, within 28 days of the date of that appointment or within a further period that the Registrar may allow if a good reason is provided and on payment of the prescribed fee, lodge with the company his or her written consent to that appointment on the prescribed form (Form CM27). This does not apply to the reappointment of a retiring director. The acts of a director of a company are valid notwithstanding any defect that may afterwards be discovered in his or her appointment or qualification.

The Companies Act disqualifies certain persons from being appointed or acting as a director of a company, and no person falling within this category may assume the position of a director within the Republic of Namibia. Furthermore, the Companies Act also provides for the disqualification of directors by an order of the High Court. Any person disqualified from being appointed or acting as a director of a company, and who purports to act as a director or directly or indirectly takes part in or is concerned with the management of any company, is committing an offence and is liable to a fine of up to N$8,000 or to be imprisoned for a period not exceeding two years, or both. The statutory disqualifications do not prohibit a company from providing in its articles of association for any further disqualifications for the appointment of, or the retention of office by, any person as a director of that company. Furthermore, the High Court of Namibia may make an order directing that, for any period specified in the order, a person, director or officer must not, under certain circumstances, without the leave of the Court be a director of a company or in any way, whether directly or indirectly, be concerned or take part in the management of any company.

Every company must keep a register of directors, officers and corporate secretaries at its registered office. The register must be kept in English and must contain the information prescribed by the Companies Act. Except when closed under the Companies Act and subject to any reasonable restrictions that the company may impose in a general meeting, so that not less than two hours in each day is allowed for inspection during business hours, the register of directors of a company must be open to inspection by any person upon payment for each inspection of the prescribed amount or any lesser amount that the company may determine. Any company that fails to keep a register is committing an offence, and is liable to a fine of up to N$2,000, and an additional fine that cannot exceed N$40 for every day the offence continues.

The shareholders of a company may, at a general meeting and notwithstanding anything in its memorandum or articles of association, or in any agreement between it and any director, remove a director by ordinary resolution before the expiry of his or her period of office. Special notice must be lodged with the company of any proposed resolution to remove a director under this Section, or to appoint any person in the place of a director so removed at the meeting at which he or she is removed, and, on receipt of notice of the proposed resolution, the company must, as soon as is reasonably possible, deliver a copy of the notice to the director concerned who is, whether or not he or she is a member of the company, entitled to be heard on the proposed resolution at the meeting. Special notice means that notice of the intention to move the resolution must be given at least 28 days before the meeting at which it is moved. If special notice is given, and the director concerned makes written representations (which should not exceed a reasonable length) to the company and requests their notification to members of the company, the company must, unless the representations are received by it too late for it to do so, in any notice of the resolution given to members of the company state that representations have been made and send a copy of the representations to every member of the company to whom notice of the meeting is sent, whether that notice is sent before or after receipt of the representations by the company. If a copy of the representations is not sent because it was received too late or because of the company's failure to do so, the director concerned may, without prejudice to his or her right to be heard orally, require that the representations be read at the meeting. A copy of the representations must not be sent out and the representations need not be read out at any meeting if, on the application of the company or of any other person who claims to be aggrieved, the court is satisfied that the rights conferred by this Section are being abused to secure needless publicity for defamatory matter. None of the above, however, is to be construed as depriving a person removed from office of compensation or damages that may be payable to him or her in respect of the termination of his or her appointment as director. For example, if the removal of the person as director amounted to a breach of contract, the person so removed may separately claim damages for the breach. The former director may also claim damages as a result of the termination of any other appointment he or she held that terminated with the appointment as director. Furthermore, none of these provisions should be read as derogating from any power to remove a director that may otherwise exist.

iii Rights of directors

The rights of directors are derived from various sources. These may include the Companies Act, common law, the company's articles of association and any agreement entered into with the director, such as employment or service agreements.

A director has the right to exercise the powers of his or her office. Each director therefore has the right to be given notice of and attend board meetings, the right to vote at such meetings and the right to take part in the management of the company. Included in the right to be given notice of board meetings is the right to all information required for the director to make an informed decision, as well as the right to be given time to consider the information. Other directors may not exclude a director from exercising his or her functions (e.g., by holding meetings without notifying a director).

Every director has, under common law, a personal right to inspect the accounting records of the company. This enables the director to make informed decisions and to act for the benefit of the shareholders. The right of a director to inspect the accounting records is also contained in the Companies Act. To exercise this right, the director has the right to procure the assistance of an accountant, provided that the company may, if good cause exists, object to the use of an accountant or demand an undertaking from the accountant that he or she will not disclose any information gained in the process. A director is not required to give reasons for wanting to exercise his or her right to inspect the records of the company. Furthermore, although they have a right to inspect the accounting records, they are not obliged to do so. A managing director, however, is required to examine the correctness of the more important entries in the books of the company.

Directors are not legally entitled to directors' fees, unless the fees are authorised by the company's articles of association or by the shareholders in general meeting. A director's remuneration may take one of two forms. First, it can be consideration for services rendered as a director, in which case it is referred to as a director's fees. Secondly, it can take the form of consideration for services as an employee, in which case it is referred to as a director's salary.

iv Powers of directors

As with the rights of directors, the powers of directors may be found in various sources, including common law, the Companies Act, the articles of association and any agreement entered into with the director. Certain powers are reserved for the members, who exercise these powers at general meetings of the company. Other powers may be exercised by the members or the board of directors, depending on the division of powers in the company's articles of association and the provisions of the Companies Act. Where powers are vested in the board of directors, the directors alone can exercise these powers. A director may not place him or herself in such a position that his or her personal interests conflict or may possibly conflict with his or her duty to act in the best interests of the company.

Under common law, directors are empowered to do whatever is reasonably incidental to the management of the company's business. This may include the power to enter into contracts, appoint employees and even cease business operations. The articles of association of a company usually provide for the specific powers of the directors. The articles of association may also impose restrictions on the powers of directors. The powers of the board of directors are exercised by means of resolutions passed at meetings of directors.

Under Section 39 of the Companies Act, where the objects of a company are stated in its memorandum, there must be included in those objects unlimited objects ancillary to those stated objects. For example, the memorandum for a company whose object is investing in property must state 'Investing in property and all objects ancillary thereto'. A company has, unless limited by the Companies Act, plenary powers to enable it to realise its objects and ancillary objects, except those specific powers that are expressly excluded from or qualified in its memorandum. These plenary powers are set out in Schedule 2 to the Companies Act.

The Companies Act places various restrictions on the powers of directors. These restrictions apply notwithstanding anything to the contrary contained in the memorandum and articles of association of the company. For example, the directors of a company have no power to allot or issue shares of the company without the prior approval of the company in a general meeting. Any director of a company who knowingly takes part in the allotment or issue of any shares in contravention of this Section is liable to compensate the company for any loss, damages or costs that the company may have sustained or incurred thereby, but proceedings to recover any such loss or those damages or costs must be commenced no later than two years from the date of the allotment or issue.

Another example of where a director's powers are limited relates to share option plans in which the director is interested. An option or a right given directly or indirectly to any director or future director of a company in terms of any scheme or plan, to subscribe for any shares of that company or to take up any debentures convertible into shares of that company on any basis, is not valid unless authorised in terms of a special resolution of that company. This, however, does not apply where those shares or debentures are allotted or issued in proportion to existing holdings, on the same terms and conditions as have been offered to all the members or debenture holders of the company, or to all the holders of the shares or debentures of the class or classes being allotted or issued. An option or right is not invalid in terms of this Section if that director or future director of the company holds salaried employment or office in the company and is given that option or right in his or her capacity as an employee.

A director of a company who purchases a right to make delivery or call for delivery at a specified price, within a specified time, of a specified number of shares or a specified amount of debentures listed by a stock exchange, is committing an offence and is liable to a fine of up to N$4,000 or imprisonment for up to one year, or both. This restriction should not be taken as penalising a person who buys a right to subscribe for shares or debentures of a body corporate or buys debentures of a body corporate that confer on the holder of the right a right to subscribe for shares of that body corporate, or to convert the debentures in whole or in part into shares of that body corporate.

The directors of a company have no power, save with the approval of a general meeting of the company, to dispose of the whole or substantially the whole of the undertaking of the company or the whole or the greater part of the assets of the company. A resolution of the company approving such a disposal has no effect unless it authorises or ratifies the terms of the specific transaction.

v Personal liability of directors

Section 56 sets out instances where, in respect of company names, a director acting on behalf of the company commits an offence. Where the offence concerns a bill of exchange, promissory note, cheque or order for money or goods and the offence leads to the default of payment in that document, the person who committed the offence is liable for the amount stated on the document. The first of these offences involving a company's name is where the director uses or authorises the use of any seal purporting to be the seal of a company where the name of the company is not engraved on that seal in legible characters. The second offence is where a director issues or authorises the issue of any notice or other official publication of the company, or signs or authorises the signing on behalf of the company of any bill of exchange, promissory note, endorsement, cheque or order for money or goods where the name of the company and registration number is not in legible character on the document. The third offence is where a director issues or authorises the issue of any letter, delivery note, invoice, receipt or letter of credit of the company where the name and registration number of the company is not on these documents in legible characters.

Under Section 430, if it appears (whether in a winding-up procedure, judicial management procedure or otherwise) that any business of the company was or is being carried on recklessly, or with the intent to defraud creditors of the company or creditors of any other person or for any fraudulent purpose, the court may, on the application of the master, the liquidator, the judicial manager, any creditor or member or contributory of the company, declare that any person who was knowingly a party to the carrying on of the business in that manner is personally responsible, without any limitation of liability, for any or all of the debts or other liabilities of the company as the court may direct. Without prejudice to any other criminal liability incurred, where any business of a company is carried on recklessly or with the aforementioned intent, every person who was knowingly a party to the carrying on of the business in that manner is committing an offence and is liable to a fine of up to N$8,000 or imprisonment for up to two years, or both.