The Packaging Contract Approved by the CEO's Wife
Kano Agro Processing Plc is a public company with seven directors. Its CEO, Alhaji Musa, is married to the sole owner of Sahel Packaging Ltd, which supplies sacks to Kano Agro. In February 2025 the board approved a five-year exclusive supply contract with Sahel at ₦480 per sack, when two unrelated suppliers had quoted ₦360 and ₦375. The board paper described Sahel only as 'a long-standing vendor' and did not mention the CEO's family interest. Musa attended the meeting, spoke in favour, and voted. The minutes record that the contract was approved 'in the best interest of the company'. A minority shareholder, holding 4%, obtained the board papers and now demands that the contract be set aside and the directors repay the excess. The company has paid Sahel ₦288 million since. Musa says he did not hide anything because his wife's ownership was 'well known in Kano'.
1. Identify the duties breached by Musa and the other directors under CAMA 2020 and corporate governance principles.
Read the worked answer
Musa had an indirect interest in Sahel because his wife owned it. CAMA 2020 requires a director to disclose the nature and extent of any interest, direct or indirect, in a contract or proposed contract with the company. The disclosure must be made to the board, and the interested director should not vote or be counted in the quorum on that matter. Saying the ownership was 'well known in Kano' is not disclosure to the board.
Musa also breached his fiduciary duty to act in good faith in the company's interest and not to make a secret profit. The other directors breached their duty of care and skill: the price was 25–33% above two independent quotes, yet they approved a five-year exclusive contract without inquiry. The fact that the minutes say 'best interest of the company' does not cure the defect. The contract is a related-party transaction and should have been reviewed by disinterested directors and, because Kano Agro is public, by the audit committee and disclosed under the SEC corporate governance rules.
2. What remedies are available to the minority shareholder and the company?
Read the worked answer
The company may rescind the contract if Sahel knew of the breach of duty and rescission is still possible. Because Sahel is owned by Musa's wife, it is unlikely to be a bona fide purchaser without notice. The company can also recover from Musa any secret profit or excess payment, and require him to account for the ₦288 million paid. The other directors may be liable for the excess caused by their negligence.
The 4% shareholder can bring a derivative action on behalf of the company, since the wrong is primarily to the company. The court can set aside the contract, order repayment, grant an injunction, and disqualify Musa. A personal action may also lie if the shareholder suffered a loss separate from the company's. The shareholder should first make a demand on the board; if the board refuses, the derivative action can proceed. The audit committee and SEC should be notified.
3. If the board wants to regularise the contract, what steps should it take?
Read the worked answer
To regularise, the board should first suspend further payments and obtain an independent valuation or tender for the packaging supply. Musa must disclose his wife's interest in writing, with full details of ownership and benefit, and should recuse himself from all deliberations and votes. The remaining directors should evaluate the contract on commercial terms, compare it with the ₦360 and ₦375 quotes, and decide whether to renegotiate, terminate, or continue.
Because the transaction is material and with a related party, the audit committee should review it and the board should seek shareholder approval by ordinary resolution, with Musa abstaining. The transaction should be disclosed in the annual report and to the SEC if required. If the contract is kept, it should be at market price and on arm's-length terms. The company should also adopt a written related-party transaction policy and maintain a register of directors' interests.