KENYA Law and Practice Contributed by: Sammy Ndolo, Brian Muchiri, Nicholas Owino and Valere Nyaboke, Cliffe Dekker Hofmeyr
Not Accept Benefits from Third Parties Directors are prohibited from accepting benefits (gifts, bribes, etc) from third parties arising from their posi - tion. This includes offers of hospitality intended to influence their decisions. Such actions violate the Companies Act and may also violate other anti-brib - ery laws. However, minor benefits unlikely to create a conflict are permissible. Additionally, benefits from the company itself are not restricted by this duty. Disclose Any Interest in Transactions Directors must declare any direct or indirect interest they have in company transactions or arrangements. This applies to both private and public companies, with varying disclosure timelines and procedures. Fail - ure to disclose or provide inaccurate information can lead to penalties. However, directors are not respon - sible for situations in which: • they are unaware of a conflict; or • their interest is insignificant. 3.7 Responsibility/Accountability of Directors Under Kenyan law, directors primarily owe their duty to the company and not to individual shareholders or other stakeholders. This principle is codified in the Companies Act. While the company’s success remains the directors’ primary objective, their duties can, in certain circum - stances, encompass other stakeholders’ well-being. This may include employees, customers and suppli - ers. For instance, the duty to promote the compa - ny’s success can involve considering the impact on employees, the community and the environment, as well as fostering strong relationships with suppliers and customers. In addition, if the company enters insolvency pro - ceedings, the directors’ duties shift. The Insolvency Act takes precedence, requiring them to prioritise the interests of creditors and other stakeholders involved in the insolvency process. 3.8 Breach of Directors’ Duties Directors owe their primary duty to the company, not to the shareholders. Therefore, acting through its proper organs (usually the board or shareholders at
a general meeting), the company is the primary party that can enforce a breach of directors’ duties. However, shareholders have derivative claim rights under Kenyan law. This means that if the company fails to take action for a breach of directors’ duties that harms the company, a shareholder can bring a law - suit against the directors on behalf of the company. The directors’ actions ultimately affect the value of the company’s shares, which in turn affects shareholders. Breach of directors’ duties in Kenya can lead to sev - eral consequences for directors: • personal liability – directors can be ordered to pay damages to the company for any losses resulting from their breach; • accountability for profits – if directors breach their duty by profiting from a conflict of interest, they may be required to return those profits to the com - pany; • removal from office – shareholders can remove directors who have breached their duties by voting at a general meeting; • disqualification – in serious cases, a court can dis - qualify a director from holding office in any compa - ny for a set period (which can significantly damage a director’s career prospects); and • criminal prosecution – certain breaches of direc - tors’ duties may be criminal offences punishable by fines or imprisonment. 3.9 Other Claims/Enforcement Against Directors/Officers Beyond breaches of corporate governance require - ments, directors and officers in Kenya can face claims and enforcement actions for various reasons under Kenyan law, including: • negligence – directors and officers must act with reasonable care and skill in managing the com - pany; if their actions or lack thereof cause harm to the company, shareholders or creditors due to negligence, they can be held personally liable; • breach of fiduciary duty – directors and officers owe a fiduciary duty to the company (including duties of loyalty and good faith) and they can be liable for the resulting losses if they act in their
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