Managing Director Takes a Warehouse Lease Through His Own Company
Lagoon Logistics Ltd has three directors: Musa (MD), Ifeoma (finance), and Chidi (non-executive). In March 2024, Musa learned that a warehouse near Apapa port would be leased for N24 million per year. The company had cash-flow problems; the board minuted that it could not commit. Musa, through a company he owned with his brother, took the lease in April. In June, Lagoon's board (Musa presiding, Chidi absent) approved a sublease from Musa's company at N30 million per year, with a five-year term. Ifeoma abstained. The company's turnover is N180 million; the sublease is its largest single cost. The shareholders only discovered the arrangement in January 2025. The company's articles are based on the Companies Act model, with no special waiver. A shareholder wants to sue Musa and recover the profit.
1. Identify the duties Musa may have breached and analyse whether the warehouse lease was a corporate opportunity belonging to Lagoon.
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Musa owes duties of good faith, loyalty, and avoidance of conflict. A corporate opportunity is one that falls within the company's line of business and in which the company has an interest or reasonable expectancy. The warehouse is directly connected to Lagoon's logistics business. The board's minute that Lagoon could not commit because of cash flow is a factor, but it is not a blanket consent for Musa to take the lease personally. Musa used his position as MD to learn of the opportunity and did not obtain fully informed approval from disinterested directors. The later sublease, approved at a meeting Musa presided over and with Chidi absent, compounds the conflict. Under companies legislation, an interested director must disclose and generally may not vote. The transaction is likely voidable at Lagoon's instance, and Musa may be accountable for the profit.
2. Can the shareholders ratify the sublease? Explain the procedure and the limits.
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Ratification is possible only by fully informed, disinterested shareholders in general meeting, not by the board, and not by Musa voting his own shares if he is a shareholder. The shareholders must be told the price, the five-year term, Musa's personal interest, and the board's earlier cash-flow decision. Even then, ratification cannot cure a fraud on the minority or a breach that amounts to expropriation of company property. Because the sublease is with Musa's own company, it is a self-dealing transaction; the burden is on Musa to show fair dealing and full disclosure. If the shareholders ratify with full knowledge and no oppression, the court may respect the decision. If they do not, they can proceed by derivative action. The January 2025 discovery date matters for limitation and for the shareholders' promptness.
3. What remedies should Lagoon seek, and against whom?
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Lagoon should seek rescission of the sublease, an account of Musa's profits, and damages for any loss caused by the inflated rent. Rescission may be barred if the lease cannot be unwound or if third-party rights have intervened, in which case the account of profits becomes the main remedy. The claim lies primarily against Musa for breach of fiduciary duty. It can also lie against Musa's company, because it knowingly received the benefit of the breach. If the board refuses to act, a shareholder can bring a derivative action in Lagoon's name after satisfying the statutory and procedural requirements. An injunction may be sought to stop further payments under the sublease. The shareholders should also consider removing Musa as a director and notifying the Corporate Affairs Commission if the annual returns or shareholding were misrepresented.