The 24-Hour Board and the Director's Loan

Conclusion: The meeting was not validly convened, and the loan resolution should be treated as invalid or at least voidable. The minute is inaccurate.

Reasoning:

1. Notice. The articles require seven clear days' notice. Notice at 6 p.m. on 3 February for 9 a.m. on 4 February gives less than one day. Short notice is valid only if the articles permit it and the required directors consent, or if all directors waive notice. There is no evidence of consent or waiver.
2. Quorum. Three directors attended, which is numerically enough. But the borrowing director had a direct conflict. A director interested in a transaction must disclose, and should not vote on it. If he is excluded from the quorum for that item, only two disinterested directors remained, below the quorum of three.
3. Voting. Even if the interested director could be counted for quorum, his vote on the loan is liable to be disregarded. The non-executive director voted against, so without the interested director's vote the resolution may not have carried.
4. Statutory approval. CAMA 2020 restricts loans to directors and requires member approval in many cases. A N250 million unsecured loan to a director's company does not obviously fall within an exception.
5. Allotment. The share allotment is also tainted by the invalid meeting, although it may be severable if independently authorised by the board or members.

Consequence: The N40 million already drawn is an unauthorised related-party transaction. The company should not rely on the minute as proof of approval.

Immediate action: Do not alter, backdate or replace the original minutes. Preserve them and prepare a separate rectification memorandum for the board explaining the notice and quorum defects.

Sequence:

1. Obtain a written disclosure of interest from the borrowing director, including the identity of the borrower, the amount, security and repayment terms.
2. Convene a fresh board meeting with seven clear days' notice. If the articles allow short notice, obtain written consent from all directors, not just those attending.
3. At the meeting, have the borrowing director withdraw for the loan item, abstain from voting and not count towards the quorum for that item.
4. Take independent legal and financial advice on whether member approval is required. If it is, convene a general meeting with proper notice and full disclosure.
5. Record the disclosure, the abstention, the votes, the advice received and the reasons for the decision.
6. Update the register of directors' interests and any related-party register.
7. If the loan is not approved, demand repayment of the N40 million and consider recovery action against the director.
8. Report the matter to the audit committee and ensure the auditor receives the rectification record, not a fabricated minute.

Borrowing director: He may have breached his fiduciary duty to act in the company's best interests and to avoid conflicts. He must not benefit from an unauthorised transaction. The board should consider requiring repayment, indemnity or restitution, and should document its decision. Depending on the articles and the Act, his conduct may also affect his eligibility to remain on the board, and it should be considered under the company's conflict-of-interest policy.

Auditor: The auditor cannot accept the original minute as evidence of valid approval. The auditor should ask for the rectification memorandum, the fresh board or member approval, the disclosure of interest and the loan agreement. If approval is not obtained, the auditor should consider the effect on the financial statements, including related-party disclosures, the recoverability of the loan and whether the directors have acted within their powers. The auditor may require written representations from the board and may report the matter to the audit committee. The company should not pressure the auditor to accept an invalid resolution.