John Ojo Adebayo & Ors Vs J. O. Johnson & Ors (1969)

LawGlobal-Hub Lead Judgment Report

COKER, J.S.C.

This appeal concerns the affairs of the Merchants Bank Ltd. According to its Memorandum of Association (produced at the trial and marked exhibit ‘28’) it was founded on the 24th December, 1951, and according to the evidence in these proceedings it was closed down for business on the 23rd September, 1960 following the revocation of its licence by the Federal Government pursuant to the provisions of the Banking Act, Cap. 19.

It would appear that on the 27th April, 1962, an extraordinary general meeting of the bank was held and it was there resolved that the bank should be wound-up voluntarily and that Messrs. Oluseye Johnson and W. B. Dawodu, both accountants, be appointed as the liquidators of the bank.

This resolution was confirmed at a subsequent meeting held on the 17th May, 1962. Apparently during its existence and certainly during the latter part of that period the affairs of the bank were not running smoothly and one Chief Patrick Osoba, who was the managing director of the bank since its foundation, was criminally prosecuted in 1960 for offences involving the mis-appropriation of some £35,000 of the bank’s money and was convicted.

Apart from Chief Patrick Osoba the following were and had always been the directors of the bank:-

PAGE| 2 (i) Chief M. A. K. Shonowo, Chairman of the Board of Directors; (ii) Benjamin O. E. Williams; (iii) Daniel A. O. Saliu; (iv) Samuel O. Kamson, one-time managing director. The manager/secretary of the bank was a Mr. N. O. Soremekun, now deceased.

Chief Patrick Osoba was jailed for a term of five years and whilst in prison, he presented a petition, dated 19th June, 1962 to the High Court, Lagos (Suit No. M/93/1962) praying the court:- “1. That the Merchants bank Ltd. may be wound up subject to the supervision of the court under the provisions of section 198 to 202 of the Companies Act, Cap. 37; and that an additional liquidator in the person of John Adebayo, Accountant of 87 Brickfield Road, Ebute Metta, be appointed; OR ALTERNATIVELY, that the company be wound up by the Court. 2. That such other order may be made in the premises as shall be just.”

The petition contains a number of complaints about irregularities being committed in the bank, deficiencies in accounting, wide-spread defalcations and paragraph 17 of the petition reads as follows:- “Also, the investigations showed that large sums of money had been misappropriated, of which the sum of £37,177.7s.3d. had been ascertained.”

Some documentary exhibits, to some of which we shall have cause to refer in the course of this judgment, were attached to the petition. On the 3rd September, 1962, when the matter was mentioned in the High Court, Lagos, an order was made by Onyeama, Ag. C. J., and he then was, as follows:- “BY CONSENT:- It is ordered that the voluntary winding-up of the company proceed subject to the supervision of the court.”

No order was made with respect to the prayer for the appointment of an additional liquidator. To revert to the loss or shortage of the amount of £37,177.7s.3d. alleged in paragraph 17 of the petition, it would appear that on the 29th July, 1959, a meeting of the directors, attended by all of them, was held and the record of the minutes (produced at the trial as exhibit ‘138’) contains the following:- “196. ACCOUNTS FOR THE YEAR 1958.

The audited accounts of the Bank for the year 1958, copies of which had been sent to all directors, were laid before the Board. The managing director gave a rough estimate of the position of the account, which showed a net profit for the year of £1,812.4s.8d. Attention of the directors were invited to the auditors’ report on the accounts, particularly the paragraph referring to Loans and Advances and section 7(1) of the Banking Ordinance. After this, the managing Director informed the meeting that he had tried a reconciliation of the account with the present position and he had some differences of about £30,000 un-accounted for.

The manager explained that the system of reconciliation employed by the managing director could not be correct because it did not include the over-all balances of all accounts, both debit and credit, at a given date. He assured the directors that either quarterly or half-yearly statement of position could be produced. The Board therefore directed that the manager should prepare and submit to the directors a statement of the position of all accounts of the Bank as at the close of business on 31st July, 1959.” Throughout the proceedings there was no evidence either that the Manager did what he was asked by the Directors to do or that the directors themselves took any action to secure compliance with their directive contained in minute 196.

A letter dated the 31st July, 1959 (exhibit ‘G’) was however addressed by Chief Patrick Osoba in his capacity as the managing director of the bank to one Mr. John O. Adebayo of the accounting firm of Messrs. John Adebayo & Co., requesting him to carry out an investigation of the accounts of the bank and to submit a report. Mr. Adebayo carved out the necessary investigation and on the 10th September, 1959, he submitted a report which was put in evidence in the proceedings as exhibit ‘H’. On the 9th September, 1959, however, a day previous to the submission of exhibit H, Chief Osoba had been replaced by the Board of Directors with Mr. S. O. Kamson as the managing director. Mr..  In the meantime the winding-up of the bank had continued and it would seem that the creditors of the bank were being paid 3s.4d. in the £. One of the directors indeed, Chief M. A. K. Shonowo, Chairman of the Board of Directors, made a claim against the bank for an amount of £20,000 in respect of Treasury Bills claimed by him to have been deposited with the bank by him, got judgment for the amount and was paid in full. Mr. Adebayo got nothing and so he maintains that he is a creditor of the bank within the provisions of the Companies Act.

On the 3rd February, 1964, Mr. Adebayo applied to the High Court, Lagos, by way of motion, to which only the liquidators were respondents, praying the court for an order or orders in the following terms:- “1. For an order compelling the respondents as liquidators of the Merchants Bank to restore the money £20,000 or any part thereof respectively with interest at such rate as this Honourable Court thinks just in respect of which through their misfeasance they had paid to the director of the Bank Mr. M. A. K. Shonowo, an unsecured creditor who, through their nonfeasance, had been enabled to obtain a judgment to which he was not entitled: when the genuine creditors got only 3s.4d. in the £ and the Applicant got none at all; and 2. For an order directing the respondents as liquidators of the Merchants Bank to prosecute these four delinquent directors of the Bank: (a) Moses Afoluwaso Kolawole Shonowo, 59, Docemo Street, Lagos. (b) Benjamin Osibanjo Emmanuel Williams, 1, Cole Street, Lagos. (c) Daniel Akintunde Oluseye Saliu, 67, Strachan Street, Ebute-Metta. (d) Samuel Olatunji Kamson, 64, Idoluwo Street, Ebute-Metta, Lagos.