KENYA Law and Practice Contributed by: Sammy Ndolo, Brian Muchiri, Damaris Muia and Nicole Gacheche, Kieti Law LLP
relevant expertise. Failure to do so could lead to negligence claims against them. Avoiding Conflicts of Interest Directors must steer clear of situations where their personal interests conflict or could poten - tially conflict with the interests of the compa - ny. This includes exploiting company property, information, or opportunities for personal gain. This obligation is strict and applies even if the company might benefit from such actions. Violating this duty can lead to severe conse - quences, including criminal charges. However, it is acceptable to engage in situations that are unlikely to create a conflict of interest. Not Accepting Benefits from Third Parties Directors are prohibited from accepting benefits (gifts, bribes, etc) from third parties arising from their position. This includes offers of hospital - ity intended to influence their decisions. Such actions violate the Companies Act and poten - tially other anti-bribery laws. However, minor benefits unlikely to create a conflict are permis - sible. Additionally, benefits from the company itself are not restricted by this duty. Disclosing Any Interest in Transactions Directors must declare any direct or indirect inter - ests in company transactions or arrangements. This obligation applies to private and public com - panies, although the timelines and procedures for disclosure may vary. Failure to disclose such interests or providing inaccurate information can result in penalties. However, directors are not held responsible for conflicts they are unaware of or if their interest is considered insignificant. 4.7 Responsibility/Accountability of Directors Under Kenyan law, directors primarily owe their duty to the company and not to individual share -
holders or other stakeholders. This principle is codified in the Companies Act. The company’s success is the primary objective of its directors; however, there are circumstances where their responsibilities also include the well- being of other stakeholders. This can encom - pass employees, customers, and suppliers. For example, promoting the company’s success may require directors to consider the effects of their decisions on employees, the community, and the environment. It also involves building strong rela - tionships with suppliers and customers. In addition, if the company enters insolvency proceedings, 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. 4.8 Consequences and Enforcement of Breach of Directors’ Duties Directors owe their primary duty to the com - pany, not to the shareholders. Therefore, acting through its proper organs (usually the board or shareholders in 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 lawsuit against the directors on behalf of the company. The direc - tors’ actions ultimately impact the value of the company’s shares, which affects shareholders. Breach of directors’ duties in Kenya can lead to several consequences for directors, as outlined below.
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