KENYA Law and Practice Contributed by: Sammy Ndolo, Brian Muchiri, Damaris Muia and Nicole Gacheche, Kieti Law LLP
• Personal liability – directors can be ordered to pay damages to the company for any losses caused by their breach. • Accountability for profits – if directors breach their duty by profiting from a conflict of inter - est, they may be required to return those profits to the company. • 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 disqualify a director from holding office in any company for a set period. This can signif - icantly damage a director’s career prospects. • Criminal prosecution – certain breaches of directors’ duties may be criminal offences punishable by fines or imprisonment. 4.9 Other Bases for Claims/Enforcement Against Directors/Officers Beyond breaches of corporate governance requirements, directors and officers in Kenya can face claims and enforcement actions for various reasons under Kenyan law. Negligence Directors and officers must act with reasonable care and skill in managing the company. If their actions or lack thereof cause harm to the com - pany, shareholders, or creditors due to negli - gence, they can be held personally liable. Breach of Fiduciary Duty Directors and officers owe a fiduciary duty to the company, which includes duties of loyalty and good faith. If they act in their interests or those of a third party at the company’s expense, they
property or assets for personal gain or purposes outside the company’s interests. Statutory Violations Specific laws such as the Companies Act, the Capital Markets Act or the Competition Act may impose liability on directors and officers for breaches of their provisions. The Companies Act in Kenya restricts attempts to shield directors and officers from liability. It voids any clause in the company’s articles, contracts, or other documents that attempt to exempt directors from liability arising from negli - gence, default, breach of duty, or breach of trust. Companies can, however, obtain insurance for directors and officers to cover liabilities incurred while acting in the company’s best interests. This insurance wouldn’t protect directors from inten - tional wrongdoing or gross negligence. 4.10 Approvals and Restrictions Concerning Payments to Directors/ Officers Directors’ service contracts that extend beyond two years require the approval of company mem - bers. This requirement does not apply to compa - nies not registered under the Companies Act or wholly owned subsidiaries of other corporate enti - ties. Where a director’s service contract is entered into in contravention of the provisions of the Com - panies Act, the contract is void to the extent of the contravention, and the company is entitled to terminate the contract with reasonable notice. 4.11 Disclosure of Payments to Directors/Officers Directors of a company (excluding companies subject to the small companies regime) must include details of the benefits they have received
can be liable for the resulting losses. Misfeasance and/or Breach of Trust
Similar to a breach of fiduciary duty, this applies when directors or officers misuse company
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