KENYA Law and Practice Contributed by: Sammy Ndolo, Brian Muchiri, Nicholas Owino and Valere Nyaboke, Cliffe Dekker Hofmeyr
3.6 Legal Duties of Directors/Officers The principal legal duties of directors in Kenya arise from common law and have been codified under the Companies Act, including the duties listed below. Act Within Their Powers Directors have specific authorities outlined in the company’s constitution. These powers must be used solely to benefit the company, not for personal gain or the interests of others and for the specific purpose for which they are conferred. Promote the Company’s Success Directors are obligated to make decisions they believe, in good faith, will best promote the company’s suc - cess for its shareholders. This includes considering long-term consequences, employee interests, com - munity impact and fostering good relationships. When a company becomes insolvent, the director’s primary duty shifts to protecting creditors’ interests. Exercise Independent Judgment While seeking professional advice is encouraged, directors must ultimately make independent deci - sions. They cannot blindly follow the will of others or rely solely on external advice. However, some situa - tions may require following pre-existing agreements or the company’s constitution. Exercise Reasonable Care and Diligence Directors are expected to exhibit the same level of care, skill and diligence as a reasonably competent person in their position. This includes applying their own knowledge and experience alongside any rel - evant expertise. Failure to do so could lead to negli - Directors must avoid situations in which their personal interests, directly or indirectly, conflict with the com - pany’s interests. This includes exploiting company property, information or opportunities. This is a strict duty, regardless of whether the company could benefit from it. Breaches can result in serious consequences, including criminal action. However, situations unlikely to create a conflict are acceptable. gence claims against them. Avoid Conflicts of Interest
tunity that the individual became aware of while acting as a director; and • the prohibition on accepting benefits from third parties concerning actions taken or omitted during their tenure as a director. 3.5 Independence of Directors Independence of Directors There are no rules and requirements on the independ - ence of directors in private companies or unlisted public companies. Listed companies, on the other hand, must ensure that at least one-third of the board of directors are independent non-executive directors. Under the CMA Governance Code and the POLD Regulations, a director is considered to be independ - ent if he or she: • is not an executive director; • does not have a material or pecuniary relationship with the company or related persons; • is compensated through sitting fees or allowances; • does not own shares or owns less than 5% of the shares in the listed company; • serves in such a role for a maximum period of six years. Conflict of Interest The Companies Act provides that a director of a com - pany must avoid a situation in which he has or can have, a direct or indirect interest that conflicts with or may conflict with the company’s interests. The duty to avoid conflict of interest is not breached where the matter in question has been approved by the other directors. The duty to avoid conflict of interest and not to accept benefits from third parties to survive the cessation from office as a director dictates that if a director has personal interests in proposed or existing transactions with the company, they are required to give notice of such interest to the other directors and, in the case of a public company, to the members of the company within 72 hours. Failure to disclose a personal interest in accordance with the Companies Act is an offence and on conviction, the director concerned is liable to pay a fine not exceeding KES1,000,000.
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