Director's Corporate Opportunity and Related-Party Service Agreement
Cedar Health Ltd is a private diagnostics company with five directors. Bolanle, its managing director, learns that a distressed clinic will sell a licensed radiology suite for about ₦90 million. In March 2024, while Cedar's board is still negotiating, Bolanle incorporates Cedar Radiology Ltd, in which she holds 90% and her sister 10%, and buys the suite for ₦85 million with her own funds. She then causes Cedar Health to sign a five-year service agreement with Cedar Radiology at 30% above market rates. She does not disclose her interest at the board meeting; two directors are her nominees and vote in favour; one director abstains. A 15% shareholder, Ms Eze, obtains the registers and the service agreement. Cedar Health has paid ₦120 million under the agreement. The board now proposes to ratify the arrangement at a general meeting.
1. Identify the fiduciary and statutory issues arising from Bolanle's conduct.
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Bolanle is both managing director and a shareholder of the counterparty. Her conduct raises: (i) duty of good faith and acting in Cedar Health's best interests; (ii) duty to avoid conflicts of interest; (iii) duty not to divert a corporate opportunity that Cedar Health was actively pursuing; (iv) duty to disclose her interest in the service agreement to the board and, where required, to members; (v) duty not to make secret profits; and (vi) fair dealing on terms. Under CAMA 2020, directors' duties are codified and include care, good faith, and disclosure of interests. The purchase of the radiology suite is a classic corporate opportunity: Cedar was negotiating, Bolanle used the information, and she took the benefit through her own company with her sister as a nominee. The service agreement at 30% above market is a related-party transaction. The two nominee directors who voted in favour may also have breached their duties; the abstaining director's position is better but not automatically clean.
2. What remedies does Cedar Health or Ms Eze have, and can the proposed general-meeting ratification cure the breach?
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Cedar Health may sue Bolanle for account of profits, equitable compensation, and a constructive trust over Cedar Radiology's shares or the radiology suite; it may also seek rescission or renegotiation of the service agreement, injunctions, and damages. Ms Eze can seek leave to bring a derivative action on Cedar Health's behalf if the board will not act; she can also petition for relief against oppression if the conduct is unfairly prejudicial. A general meeting cannot simply whitewash a breach. Ratification by disinterested shareholders may be effective only if there is full and frank disclosure, the transaction is fair, and the majority is not voting to oppress the minority. Here the board's proposed ratification is suspect because Bolanle controls the information and two directors are her nominees. The court will ask whether the ratification was informed and whether it amounts to a fraud on the minority. If not, the breach survives.
3. Advise Ms Eze on immediate practical steps and the evidence she should secure.
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She should send a written request for board minutes, the registers of directors and members, the service agreement, invoices, valuation evidence, and any board papers; use CAMA 2020 inspection rights and, if refused, apply to the court or CAC as appropriate. She should preserve emails and bank records showing Cedar's negotiations for the suite and the pricing comparison. She should not accept the general meeting notice at face value: check quorum, notice, and whether Bolanle votes. She should propose an independent valuation and an independent committee. Before suing, she should make a written demand on the board to recover the assets or rescind the agreement. If the board refuses, she can seek injunctive relief to freeze the service payments and leave for a derivative action. She should also consider a minority oppression petition and negotiate a buyout at a fair value.