Director Duties in Kenya: What the Companies Act 2015 Requires — and What Happens When You Breach Them

A question that surfaces regularly on Kenya business forums: "Can the other director take money from the company account for personal use? And am I personally liable for what they do?"

Kenya's Companies Act 2015 codified director duties for the first time and the consequences of breach are significant.

The seven statutory duties of a director

The Act codifies seven general duties: (1) to act within powers; (2) to promote the success of the company; (3) to exercise independent judgement; (4) to exercise reasonable care, skill and diligence; (5) to avoid conflicts of interest; (6) not to accept benefits from third parties; and (7) to declare interests in proposed transactions.

Duty to avoid conflicts of interest (Section 146)

A director must avoid any situation in which they have, or could have, a direct or indirect interest that conflicts with the interests of the company. This includes exploiting company property, information, or opportunities for personal gain. The duty applies even after resignation in respect of matters that arose during the directorship.

Declaration of interest in transactions (Section 151)

A director must declare the nature and extent of any interest in a proposed transaction with the company before the company enters into the transaction. Failure to declare is a criminal offence carrying a fine. The transaction may also be voidable at the company's option.

Kenya's Companies Act 2015 does not contain an explicit business judgement rule (unlike South Africa's Companies Act 71 of 2008). However, courts have consistently held that directors are not liable for mere errors of commercial judgement made honestly and with reasonable information. The duty under Section 145 is to exercise the care, skill and diligence of a reasonably diligent person with the general knowledge and experience of a person carrying out the director's functions. Personal liability arises from wilful breach, gross negligence, or fraud and not from a commercial decision that turned out badly.

Consequences of breach

• Civil liability — the company can recover losses caused by breach
• Account of profits — a director who profits from a conflict must account for those profits to the company
• Disqualification — under Section 214, courts may disqualify a person from acting as a director for up to 15 years
• Criminal liability — for fraudulent trading.
• Personal liability for company debts — where a director was knowingly party to fraudulent trading

Concerned about director conduct in your company?

Whether you are a minority director being excluded, or a majority director seeking to regularise and know more about corporate governance. Get guidance early by contacting us

This article is general legal information, not legal advice, and does not create a lawyer–client relationship.