Kenya’s Companies Act No. 17 of 2015 codifies the general duties of company directors for the first time in statute, drawing heavily from the UK Companies Act 2006. Before the 2015 Act, directors’ duties were derived primarily from common law and equity. The codification makes the duties clearer, more accessible, and easier to enforce.
The Seven Statutory Duties
Section 143 imposes a duty to act within powers. Directors must act in accordance with the company’s constitution and only exercise powers for the purposes for which they were conferred. Issuing shares to dilute an unwanted shareholder, even if commercially beneficial, is a classic example of exercising a power for an improper purpose.
Section 144 requires directors to promote the success of the company. A director must act in the way they consider, in good faith, would be most likely to promote the success of the company for the benefit of its members as a whole, having regard to long-term consequences, employee interests, business relationships, and community and environmental impact.
Section 145 requires directors to exercise independent judgment. A director cannot abdicate responsibility by deferring to others, including controlling shareholders or dominant co-directors. This duty is not breached where a director acts in accordance with an agreement approved by shareholders or the constitution.
Section 146 imposes a duty of care, skill, and diligence. The standard is both objective (what a reasonably competent director in that position would have) and subjective (the actual knowledge, skill, and experience of the specific director). A professionally qualified director is held to a higher standard in their area of expertise.
Section 147 requires directors to avoid conflicts of interest, including the exploitation of information, property, or opportunities acquired in the course of the directorship. Authorisation by the board or shareholders can permit a conflict in specific circumstances.
Section 148 prohibits acceptance of benefits from third parties given by reason of the directorship. Section 149 requires declaration of interests in proposed transactions before the company enters into them.
Consequences of Breach
A breach of duty may entitle the company to ratify the breach by shareholder resolution (with limits), bring a claim for damages, obtain injunctive relief, or claim an account of profits. Under Part VI of the Act, minority shareholders can bring a derivative action on behalf of the company. Individual directors can also face personal liability to third parties in tort.
Practical Compliance Steps
Directors should ensure board meetings are properly convened and minuted, declarations of interest are recorded and updated, related party transactions are properly approved, and board decisions are made on the basis of adequate information. A director who disagrees with a board decision should ensure their dissent is recorded in the minutes.
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