The Guarantee That Outgrew the Delegation

Separate three questions: internal authority, external enforceability, and director liability.

Internal authority. A committee has only the authority the board gives it. The guarantee exceeded the ₦750 million cap by ₦450 million and was therefore outside the committee's mandate - an ultra vires act at committee level. A written resolution cannot cure that defect unless the articles and the terms of reference permit written resolutions and the resolution was properly passed; using an alternate who did not attend, and after a member had objected and sought deferral, undermines the process further. The related-party element (the MD's wife's 30% stake) required a conflicts protocol the committee did not follow.

External enforceability. The company may still be bound to the bank. The guarantee was executed by someone with apparent authority and the bank had no notice of the internal cap; the indoor management rule protects outsiders dealing in good faith. So the company can be liable to the bank while having no valid internal approval.

Director liability. Committee members who approved an out-of-scope, conflicted guarantee risk liability for breach of duty; the board members who set an unreviewed delegation and never monitored it share responsibility. The MD, whose wife benefits, should have declared and stayed out of the process entirely.

Conclusion. Presume the guarantee is enforceable externally and unauthorised internally. The board's task is damage control, ratification analysis and accountability - not denial.

Options, in order of urgency:

1. Establish the facts through an independent review: who signed, what the bank was told, whether credit was actually advanced, whether Northgate is performing, and who drafted the written resolution.
2. Assess the covenant. A 38% net-asset exposure against a 20% covenant is likely a breach or a potential event of default. Notify the lender and seek a waiver before it is discovered; voluntary disclosure usually preserves the relationship better than concealment.
3. Consider ratification - carefully. The full board can ratify an act outside a committee's authority, but only with complete disclosure, a disinterested quorum excluding the MD and anyone connected to Northgate, and a reasoned decision that ratification is in the company's interest. Ratification should not be used to launder a conflicted transaction.
4. Quantify and manage exposure. Seek collateral or counter-guarantees, consider steps to unwind the arrangement, and report to the audit committee.
5. Accountability. Consider recovery from the signatory if authority was exceeded, notify D&O insurers, and address the MD's position through disinterested directors.

What not to do: do not re-sign or backdate papers to cure the defect; do not let the same committee review its own act; do not bury the item in "matters arising"; and do not treat shareholder silence as approval. Concealment converts a governance failure into a disclosure and integrity failure.

Delegation is legitimate but must be bounded, documented and monitored. A robust framework has six elements:

• A delegation schedule approved by the board, listing each committee, its authority, and both monetary and qualitative limits (for example, no related-party transactions, no guarantees above 20% of net assets, no transactions outside the ordinary course).
• Thresholds tied to a moving base, such as net assets or a percentage of profit, with automatic re-approval when the base changes. Fixed naira caps become stale within a year.
• Covenant and policy overlay. Any delegation must be expressly subject to loan covenants, the articles, listing rules and the board's reserved matters. The company secretary should maintain a covenant register and flag conflicts before signing.
• Quorum and conflict rules that require at least one independent director for guarantee and related-party matters and compel recusal without counting the conflicted director in the quorum.
• Written-resolution discipline. Specify who may sign, whether attendance is required, how dissent is recorded, and that a requested deferral cannot be routed around via an alternate.
• Reporting and review. Every committee reports its decisions to the next board meeting through a standard template; terms of reference are reviewed annually; the delegation schedule is a standing board agenda item.

Add training for committee members on the limits of their mandate. Most overreach happens because members believe they are being decisive, not because they intend to breach authority.