Directors duties Kenya Companies Act No. 17 of 2015 are now codified in statute for the first time in Kenya, 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, and getting the actual section numbers right matters for anyone citing them in a board resolution, a demand letter, or a derivative claim, since the numbering is easy to misremember by one or two sections in either direction.

Directors Duties Kenya Companies Act: Six Statutory Obligations for Company Officers

Section 142 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 143 requires a director to act in the way they consider, in good faith, would promote the success of the company for the benefit of its members as a whole, having regard to factors including the long-term consequences of any decision and the interests of the company’s employees. This duty is not breached where a director acts in accordance with an agreement approved by shareholders or the constitution.

Section 144 requires directors to exercise independent judgement. This duty is not infringed where a director acts in accordance with an agreement the company has duly entered into restricting the future exercise of directors’ discretion, or in a way authorised by the company’s constitution, which matters for directors appointed to represent the interests of controlling shareholders or dominant co-investors under a shareholders’ agreement.

Section 145 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, an accountant or lawyer on the board, for instance, is held to a higher standard in their area of expertise. This duty also has a distinct enforcement consequence worth noting: under Section 148(2), the care, skill, and diligence duty is specifically excluded from being enforced in the same way as the Act’s other fiduciary-style duties, reflecting its closer relationship to an ordinary negligence standard than to the equitable principles underlying duties like avoiding conflicts of interest.

Section 146 requires directors to avoid conflicts of interest, including the exploitation of property, confidential information, or opportunities acquired in the course of the directorship. Authorisation by the board or shareholders can permit a conflict in specific circumstances, provided that authorisation is properly obtained before the conflicted conduct occurs, not sought retrospectively once a dispute has already arisen.

Section 147 prohibits a director from accepting a benefit from a third party given by reason of the directorship, closing off a route by which a director’s loyalty could otherwise be quietly compromised by a counterparty paying the director personally rather than dealing with the company on its stated terms.

Declaring Interests in Transactions: A Separate Provision

Separately from the six general duties above, Section 151 imposes a distinct duty to declare interest in a proposed or existing transaction or arrangement. Where a director is in any way, directly or indirectly, interested in a proposed transaction with the company, or in one the company has already entered into, the director must declare the nature and extent of that interest to the other directors, and, where required, to the shareholders. This is a standalone, transaction-specific disclosure obligation, distinct from the avoid-conflicts duty in Section 146, and a director who has properly avoided an actual conflict can still separately breach Section 151 by failing to make the required declaration about an interest that, while authorised, was never formally disclosed as the section requires.

Consequences of Breach

Under Section 148, the consequences of breaching the general duties are the same as would apply if the corresponding common law rule or equitable principle applied directly, which in practice means a breach may entitle the company to ratify the breach by shareholder resolution, subject to limits where the ratifying shareholders are themselves implicated, bring a claim for damages, obtain injunctive relief, or claim an account of profits the director made from the breach. Under Part VI of the Act, minority shareholders can bring a derivative action on behalf of the company where the company itself, typically controlled by the very directors in breach, fails to pursue the claim. Individual directors can also face personal liability to third parties in tort, independently of any claim the company itself might bring against them.

Duties Intensify as Insolvency Approaches

As a company moves closer to insolvency, the practical focus of a director’s duty to promote the success of the company for the benefit of members shifts toward the interests of creditors, since members’ residual interest in an insolvent or near-insolvent company is, in substance, of diminishing value compared to the creditors who stand to actually bear any shortfall. Directors who continue trading, incurring fresh credit, or making payments to connected parties once the company’s financial position has clearly deteriorated expose themselves to personal liability claims pursued by a liquidator or administrator under Kenya’s insolvency framework, separately from any Companies Act duty claim. A board that is uncertain whether the company has crossed into this zone should treat that uncertainty itself as a reason to obtain formal insolvency advice promptly, rather than continuing to operate on the assumption that the ordinary Section 143 duty to promote the company’s success, viewed purely from the members’ perspective, still describes the board’s actual legal position.

Practical Compliance Steps

Directors should ensure board meetings are properly convened and minuted, declarations of interest under Section 151 are recorded and kept updated as circumstances change rather than filed once and forgotten, related party transactions are properly approved through the correct authorisation route before they proceed, and board decisions are made on the basis of adequate information rather than rubber-stamped without genuine deliberation. A director who disagrees with a board decision should ensure their dissent is recorded in the minutes, since a documented dissent is a meaningful part of that director’s own defence if the decision is later challenged, while silence in the minutes can be read as acquiescence regardless of what the director privately thought at the time.

Need advice on directors’ duties or corporate governance? Contact Clay & Associates Advocates for a board governance review that checks not just whether your duties are being met in substance, but whether your board’s own documentation, minutes, declarations, and approvals, would actually demonstrate that if it were ever tested.

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For tailored legal advice on this matter, speak with our corporate and commercial law services team at Clay & Associates Advocates. We advise businesses and individuals across Kenya on Corporate and Commercial Law matters from our offices at Nextgen Mall, Nairobi.