Question

Question 5

A company secretary works for a small company and is also the financial officer for the company who generally advises the directors on the day-to-day operations of the company. The company has a constitution, which limits the ability of the company secretary from borrowing any amounts over $5,000 without the matter being referred to a meeting of the board of directors. The company specifically created a constitution because the shares are all held by family members and the company secretary is not a family member. The company secretary does in fact organise a line of credit for the company for some $50,000, which is directly in breach of the company constitution. When the directors discover the company has a liability to a bank for nearly the full amount of $50,000, they take action to suspend the company secretary and inform the bank that, due to the company secretary exceeding his authority, the company is not responsible for inappropriate lending by the bank, and that the bank needs to find some solution against the company secretary personally. What is the liability of the company for the actions of the company secretary? (Maximum 200 words)

Answer 1

Answer :-

A Company Secretary is a mere servant of the Company, therefore his removal and suspension is governed by the normal law as applicable to master and servant.

If the Company Secretary is appointed for a fixed term, he cannot be dismissed before the expiry of the term unless he is found he has been proved guilty of misconduct, incompetence etc.

As a representative body of a company he is liable for any negligence done on his part which may result in the discharge of his duties; liable for doing anything beyond his authority; under the obligation of keeping secrets of a company from outsiders; liable to be dismissed on account of making any secret profits from company. Other than this he cannot enter into a contract on behalf of the company unless authorized by directors; cannot borrow money in name of the company; cannot acknowledge a debt against a suit against a company; cannot register or transfer shares without due authority of Board of Directors.

The Articles of Association contain provisions empowering the Board of Directors to dismiss or remove the secretary from the services of the company.

The Company may dismissed without notice for willful disobedience, misconduct, negligence, and incompetence or due negligence.

The Company have rights to take Civil and Crminal actions against the Company Secretary for his due negligence and Fraud. The Company will approach the Courts & Company Law Board to remove a secretary eighter wholly and partly from his liability in any proceedings against him or her for negligence, default, breach of duty or breach of trust

A company is also able to recover the money from Company secretary for his negligence, default or breach of duty by way of filing the suit into the Courts.