CORPORATE GIFTS AND POLITICAL DONATIONS
The Doctrine of State Capture & Corporate Social Responsibility
Under the common law, companies are allowed to make donations/grants to individuals, political parties and for researches provided that such grants are in furtherance of the objects of the companies. Hutton v West Cork Railway is a case which concerns the limits of a director’s discretion to spend company funds for the benefit of non-shareholders. In that case, the court noted that a company carrying on business has power, by the vote of a general meeting, to expend a portion of its funds in gratuities to servants or directors, provided such grants are made for the purpose of advancing the interests of the company. But this does not apply to a case where the company has transferred its undertaking to another company and is being wound up. The court on this basis held that the donation was invalid since it was not for the purpose of advancing the interests of the company. In essence, for such donation to be held valid, it must be for the benefit of the company.
One question may arise from the above position at common law: how is this benefit determined? In the case of Re Lee Behrens & Co, the court formulated three tests for the validity of a donation: a. it must be reasonably incidental b. it must be bona fide c. it must be done for the benefit and to promote the posterity of the company. In that case, some three years before a company was wound up, the board of directors decided that the company should enter into an agreement to pay a pension to the widow of a former MD. The company later went into liquidation and the widow of the former MD brought an action against the liquidator of the company claiming the payment to her of a lump sum. It was held that the grant of the pension was ultra vires the company. In Parke v Daily News, the company which had sold its business, through its board had resolved to pay 1 million pounds to its former workers and the widows of such former workers. A shareholder sought to prevent this happening on the ground that such a payment went beyond the articles of association of the company, and such payment to ex-employees was not reasonably incidental to the carrying on of the business of the company. The application succeeded. The making of an ex gratia payment as the company intended to do, and in the circumstances where that company no longer operated, was not reasonably incidental to the conduct of its business and was therefore ultra vires the company’s memorandum and articles. Also, in Re W & M Roith, a contract was made between a director and his company that pension was to be paid to his wife on his death. The whole object of the contract was considered not to be binding on the company as it was to benefit Mrs Roith. It was not to benefit the company.
The current position is that provided such payment or gift is authorised by the memorandum, the question of its irregularity is irrelevant. But if nothing is stated in the memorandum, the common law position would be applied. In Rolled Steel Products (Holdings) v British Steel Corporation, Rolled Steel gave security to guarantee the debts of a company called SSS Ltd to British Steel. This was for a purpose that did not benefit Rolled Steel. The company was empowered to grant guarantees under its articles but approval of the deal was irregular. The shareholders knew of the irregularity, and so did British Steel. The court stated that simply because a transaction is entered for an improper purpose does not make it ultra vires. A distinction was made between an act which is entered into for an improper purpose (which is not beyond the capacity of a company, or void) and an act which is wholly outside a company’s objects (and hence ultra vires and void). However, it was unenforceable because British Steel had constructive knowledge of the lack of authority.
Political Donations/Concept of State Capture
Basically, this is a concept that shows how some special interests indirectly influence the system via corruption. The concept is mainly to avoid pulling the affairs of the country to lapses as there are compromises everywhere, there is corruption in every system.
Under the Common Law, companies were allowed to make donations to political parties provided that such grants were in furtherance of the objects of the company. In Simmons v Heffer, a company made a donation to the Labour Party in two folds: one was 50,000 pounds sterling and the other was 30,000 pounds sterling. The first grant was to be applied by the Labour Party in furtherance of its manifesto on cruelty to animals. The second was given to the party without any specific instruction, that is, it was a general donation. The object of the company was to fight cruelty to animals. One of the shareholders sought an injunction preventing the company from making both grants. It was held that the first donation was in line with the objects of the company but that the second donation was ultra vires the company as the Labour Party could have applied the money in other ways outside the stated objects of the company.
With regard to the position in Nigeria, S. 221 constitution of the 1999 Constitution provides that no association, other than a political party, shall canvass for votes for any candidate at any election or contribute to the funds of any political party or to the election expenses of any candidate at an election. S. 229 of the constitution defines association to include body of persons corporate or unincorporated. S. 38(2) CAMA, prevents a company from making a donation or gift of any of its property or funds to a political party and where a company is in breach of this provision, the officers and members in breach shall be severally liable to refund to the company and both the company and the officers shall be guilty of an offence…..
S. 93(a) of the Electoral Act 2010 proscribes individuals and other entities from donating more than one million naira to any candidate. The provision of the Electoral Act cannot be reconciled with those of CAMA and the constitution.
In Obasanjo v Yusuf, the latter contested against the former when Ndidi Okeke was galvanizing companies to donate for PDP. Yusuf contended that two billion naira was raised at the expense of the Nigerian Stock exchange and that what was spent by chief Obasanjo for the purpose of campaign was beyond the stipulated amount. Obasanjo and INEC denied this. The Supreme Court however made no pronouncement on this matter as they had no jurisdiction on election petition.
Read: Corporate Speech in a Democracy: what can Nigeria learn from abroad?