KENYA Law and Practice Contributed by: Sammy Ndolo, Njeri Wagacha and Brian Muchiri, Cliffe Dekker Hofmeyr (Kieti Law LLP)
panies with a guide on how they can collect, analyse, and publicly disclose important ESG information. 8.2 Special or Ad Hoc Committees The decision to delegate powers held by directors is largely governed by each company’s articles of asso - ciation. Shareholders and, in some instances, direc - tors are at liberty to decide which director powers can be delegated to a committee. Ideally special or ad hoc committees are formed to deal with certain operational aspects of the company such as board nominations, remuneration, finance, investment, risk management, audit and governance. Typically, in Kenya, committees are not formed to deal with conflict of interest. This is because legislation has made provision as to how conflict of interest should be dealt with when it arises. For instance, the Companies Act requires a director with conflicting interest in a transaction or company to give notice of such conflict in writing to the other directors and to the members of the company. If a director in a public company, the notice is required to be given within 72 hours. Moreover, the Takeover Regulations require the board of directors of the listed company to appoint an inde - pendent adviser to advise in relation to the offer state - ment. Nevertheless, a company is permitted to indicate in its articles of association or shareholders’ agreement its bespoke processes of dealing with conflict of interest – such a forming an ad hoc committee – as long as the procedure is in compliance with the law. 8.3 Business Judgement Rule The courts in Kenya have interpreted the business judgement rule in matters where there is need to strike a balance between allowing a derivative action to proceed and protecting the directors in actions done to promote the success of the company. The courts have outlined that directors cannot be liable for actions done to promote the success of the company but will be liable in respect of a cause of action arising from an actual or proposed act or omission involv - ing negligence, default, breach of duty or breach of trust. This principle was established, most recently, in
the matter of Isaiah Waweru Ngumi and two others v Muturi Ndungu [2016] eKLR. With specific reference to takeover situations, the CMA Governance Code requires directors to exercise independent judgement and to promote the success of the company. In this respect the authors opine that the courts in Kenya will rely on the business judge - ment rule and would only deviate from the rule if the claim arises from an act or omission involving negli - gence, breach of duty or breach of trust by a director of the company. 8.4 Independent Outside Advice The Takeover Regulations require the board of direc - tors of the listed company to appoint an independent adviser on receipt of the acquirer’s offer statement. The independent adviser shall be an investment bank, or a stockbroker licensed by the CMA, and whose advice must be made known to the holders of the class of the voting shares to which the takeover offer relates, in a circular by the listed company to its share - holders. Further, a director’s duty to exercise independent judgement does not prohibit directors from obtain - ing independent advice which they may rely on when making decisions with respect to the company. 8.5 Conflicts of Interest Director conflict of interest has been subject to liti - gation in Kenya. For instance, in the matter of Exobi (Finance House) Limited v Zahid A A Nanji & 2 oth - ers [2020] eKLR, the High Court determined that the directors breached the duty to avoid conflict of inter - est by failing to inform the excluded members/share - holders/directors of their interest in an existing trans - action. Further, they failed to avoid conflict of interest by deciding in the absence of other shareholders to agree on the sale of company shares and acquired the remaining unallotted shares by allocating them to themselves. With respect to conflict of interest of shareholders, we are not aware of any recorded litigation on it mainly because it is not stipulated under the law. However, as it is practice to include a non-compete or exclusiv - ity clause in a shareholders’ agreement, the breach
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