Courtroom Drama: Ex-Bank Director’s Challenge Crashes and Burns

Courtroom Drama: Ex-Bank Director’s Challenge Crashes and Burns

• BoG’s Regulatory Powers Affirmed in Landmark Court Ruling

In a significant decision that reinforces the Bank of Ghana’s (BoG) supervisory authority over the country’s financial sector, the Accra High Court has dismissed a challenge to the central bank’s power to revoke director appointments.

The ruling, delivered on July 10, 2024, marks a pivotal moment in Ghana’s ongoing efforts to strengthen its banking regulatory framework.

The case, “Republic v Bank of Ghana: Ex Parte George Smith-Graham,” SUIT NO: HR/0061/2024, centered on the BoG’s decision to revoke the directorship of George Smith-Graham at Universal Merchant Bank (UMB) which was an interested party to the case.

The dispute arose when UMB appointed Smith-Graham as board chair in July 2023 without obtaining the required “No Objection” from the BoG, a procedure mandated by a directive issued a year earlier.

Justice Nana Brew, presiding over the High Court, upheld the BoG’s actions, interpreting the Banks and Specialised Deposit-Taking Institutions Act, 2016 (Act 930) as granting the central bank broad remedial powers to address violations of its regulations. This interpretation effectively expands the BoG’s toolkit for ensuring compliance within the banking sector.

The court’s decision comes against the backdrop of Ghana’s efforts to reform its financial sector following a banking crisis that led to the collapse of several institutions between 2017 and 2019. The ruling is seen as a validation of the BoG’s more assertive regulatory stance adopted in recent years.

“This judgement significantly strengthens the hand of the Bank of Ghana in its supervisory role,” a financial law expert told NorvanReports. “It sends a clear message to banks and their directors that non-compliance with regulatory directives will not be tolerated.”

The case hinged on several key issues, including whether the BoG had the authority to revoke a director’s appointment based on its own investigations and whether it was required to provide a formal hearing before taking such action.

The court ruled in favor of the BoG on both counts, potentially setting a precedent for future regulatory interventions. In its ruling, the court emphasized that Act 930, being specific to banking regulation, takes precedence over the general provisions of the Companies Act, 2019 (Act 992) in matters relating to bank governance.

This clarification is expected to streamline the regulatory process and reduce potential conflicts between different legal frameworks.

The decision has been met with mixed reactions from the financial community. Proponents argue that it will enhance stability in the banking sector by ensuring stricter adherence to regulatory standards while some industry observers have expressed concerns about the concentration of power in the hands of the central bank.

The case also highlights the growing importance of regulatory compliance in Ghana’s financial sector. Banks and other financial institutions are likely to review their governance procedures in light of this ruling to ensure they align with BoG directives.

As Ghana continues to position itself as a financial hub in West Africa, this ruling is likely to have far-reaching implications. It not only clarifies the regulatory landscape for banks operating in the country but also sends a strong signal to international investors about Ghana’s commitment to maintaining a well-regulated financial sector.

Norvanreports Analysis of The Case

1. Legal Context:
   • The case revolves around the Banks and Specialised Deposit-Taking Institutions Act, 2016 (Act 930) and the Corporate Governance Directive 2018.
   • These laws grant the Bank of Ghana (BoG) broad supervisory powers over banks in Ghana.
2. Factual Background:
   • BoG issued a directive in July 2022 requiring banks to obtain prior “No Objection” for director redesignations.
   • Universal Merchant Bank (UMB) appointed George Smith-Graham as board chair without this “No Objection” in July 2023.
   • BoG revoked Smith-Graham’s directorship after UMB refused to comply with the directive.
3. Legal Issues:
   • a) Whether BoG has the power to revoke a director’s appointment under Section 102 of Act 930.
   • b) Whether BoG was required to give Smith-Graham a hearing before revoking his appointment.
   • c) The relationship between Act 930 and the Companies Act, 2019 (Act 992) regarding director removal.
4. Arguments:
   • Smith-Graham contended that BoG lacked power to revoke his appointment and failed to provide him a hearing.
   • BoG maintained it had the authority under Section 102 of Act 930 to revoke the appointment.

5. Court’s Analysis:
6. a) Interpretation of Act 930:

1. • The court emphasized the act’s purpose of enhancing BoG’s supervisory powers.
   • It interpreted Section 102 as granting BoG broad remedial powers for violations of its regulations.

1. b) Power to Revoke Appointment:

1. • The court affirmed BoG’s authority to revoke director appointments under Section 102(3) of Act 930.
   • It rejected the argument that BoG couldn’t act based on its own investigations.

1. c) Right to a Hearing:

1. • The court found that the correspondence between parties constituted a form of hearing.
   • It noted Smith-Graham, as both director and chair, couldn’t claim ignorance of this correspondence.

1. d) Relationship between Act 930 and Act 992:

1. • The court held that Act 930, being specific to banking regulation, takes precedence over the general provisions of Act 992 in this context.
2. Court’s Decision:
   • The application was dismissed as unmeritorious.
   • The court found Smith-Graham failed to prove BoG acted corruptly, irrationally, or unreasonably.
3. Implications:
   • This ruling reinforces BoG’s regulatory authority over banks and their directors.
   • It emphasizes the importance of compliance with BoG directives in the banking sector.
   • The decision potentially strengthens BoG’s ability to take swift action against non-compliant banks and directors.
4. Potential Precedent:
   • This case may serve as a precedent for future disputes regarding BoG’s regulatory powers.
   • It clarifies the relationship between banking-specific legislation and general company law in Ghana.