Directors are a body to whom is delegated the duty of managing the general affairs of the company and it is their duty to act in the best interest of the company.
Under Section 2 of the Company’s Act ,2015, a Director includes any person occupying the position of a director by whatever name called.
- Duty to act within their powers
Section 142 of the Act provides that a director of a company must act in accordance with the company’s Articles and only exercise powers for the purposes for which they are conferred.
They must also act in the best interests of the company.
- Duty to promote the success of the company
Section 143 of the Act provides that directors must act in good faith, and in a way that would promote the success of the company for the benefit of its members as a whole. They must consider:
- the long-term consequences of any decision of the directors;
- the interests of the employees of the company;
- the need to foster the company’s business relationships with suppliers, customers and others;
- the impact of the operations of the company on the community and the environment;
- the desirability of the company to maintain a reputation for high standards of business conduct; and
- the need to act fairly as between the directors and the members of the company.
In certain circumstances, to consider or act in the interests of creditors of the company.
- Duty to exercise independent judgment
Under section 144 of the Act, directors are required to shall exercise independent judgment.
This duty is not infringed by the director acting in accordance with an agreement duly entered into by the company that restricts the future exercise of discretion by its directors; or in a way authorized by the constitution of the company.
This would mean that a person who is appointed on that basis must accept that their obligation to the company cannot be discharged, and may be breached, by accepting instructions from the appointer. A director is allowed to look after the interests of their appointer, but only in so far as that is compatible with the interests of the company.
- Duty to exercise reasonable care, skill and diligence
Section 145 of the Act provides that a director must exercise the care, skill and diligence which would be exercised by a reasonably diligent person with both the general knowledge, skill and experience that may reasonably be expected of a person carrying out the functions carried out by the director in relation to the company (the “objective” test); and the general knowledge, skill and experience that the director actually has (the “subjective” test).
This means that Directors must continue to act with reasonable skill and care. If they have special skills or knowledge then they will be expected to exercise them (i.e. an advocate serving on the board is expected to discharge his/her duties with the competence of a lawyer). Otherwise they will be measured against the standard of a reasonable person occupying their position.
- Duty to avoid conflict of interest
Under section 146, a director must avoid a situation in which he has, or can have, a direct or indirect interest that conflicts, or possibly may conflict, with the interests of the company. The provision incorporates the long-standing common law rule that directors, like any other person who has fiduciary responsibilities, must respect the trust and confidence placed in them and should do nothing to undermine or abuse that trust and confidence.
The practical effect of the rule is that where directors find themselves in any situation where their own personal interests clash or may clash with the interests of their company, the interests of the company must be put first: indeed, directors should strive to ensure that situations where they could be called upon to make such a decision do not arise in the first place.
- Duty not to accept benefits from third parties
Under section 147, a third party is defined as a person other than the company, an associated body corporate or a person acting on behalf of the company or an associated body corporate.
In this section Directors should ensure that they do not receive any benefits not provided for, or allowed, under the constitution of the company. The only exceptions will be benefits that are so minor that they could not be thought to influence the director in any way.
This rule is also intended to ensure that a director is not distracted from performing his or her duty to the company by rewards offered for doing unspecified things (or not doing any such things). By virtue of section 147(4), however, there will be no breach of duty if the acceptance of the benefit by the director cannot reasonably be regarded as likely to give rise to a conflict of interest: so immaterial benefits and those which are entirely unrelated to the affairs of the company may be accepted.
- Duty of Disclosure
Except with the consent of Board of Directors, a director or his relative or any firm in which he is a member or a director, shall not enter into any contract with the company for the sale, purchase or supply of goods.
Even in case of urgent necessity contracts, consent must be obtained. It is the duty of the director to disclose to the Board the nature of his interest in any contract or arrangement entered into.
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1 thought on “Duties and Responsibilities of a Director under the Kenyan Companies Act 2015”
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