Section 131 – ALL Directors must be above age 18

128. (1) A private company is required to have at least one director. (2) A public
company is required to have at least two directors. 129. (1) A company is required to
have at least one director who is a natural person. (2) Subsection (1) is complied with if
the office of director is held by a. natural person as a corporation sole or otherwise by
holding a specified office.

131. (1) A person who has not reached eighteen years Minimum age for of age may not
be appointed to be a director of a company. director.

(2) An appointment made in contravention of subsection (1) is void.

APPOINTMENT DIRECTOR PUBLIC COMPANY:132. (1) A public company shall

ensure that at a general meeting of the company a motion for the appointment of two or
more persons as directors of the company by a single resolution is moved only if a
resolution that it should be so moved has first been agreed to by the meeting without
any vote being cast against it. (2) A resolution moved in contravention of subsection (1)
is void, whether or not any objection to its being so moved was made at the relevant
time. (3) If such a resolution is passed, any provision of the company's constitution for
the automatic reappointment of retiring directors in default of another appointment
does not apply.

(4) For the purposes of this section, a motion for approving a person's appointment, or
for nominating a person for appointment, is taken to be a motion for the person's
appointment.

DIRECTOR’S DUTIES

140. (t) The general duties specified in this Division Scope and nature of are owed by a
director of a company to the company. general duties. (2) A person who ceases to be
a director continues to be subject to — (a) the duty in section 146 with respect to the
exploitation of any property, information or opportunity of which the person became
aware while a director; and

(b) the duty in section 147 with respect to things done or omitted by the person before
ceasing to be a director, and to that extent those duties apply to a former director as
they do to a director.

(3) The general duties of directors are based on common law rules and equitable
principles that apply in relation to directors and have effect in place of those rules and
principles with respect to the duties owed to a company by a director.

(4) The general duties of directors are to be interpreted and applied in the same way as
common law rules or equitable principles, and those interpreting and applying those
rules and principles are required to have regard to the corresponding common law
rules and equitable principles.

142. A director of a company shall — act within powers. (a) act in accordance with the
constitution of the company; and (b) only exercise powers for the purposes for which they
are conferred.

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143. (1) A director of a company shall act in the way in which the director considers, in
good faith, would promote the success of the company for the benefit of its members as a
whole, and in so doing the director shall have regard to — (a) the long term consequences of
any decision of the directors; (b) the interests of the employees of .the company; (c) the need
to. foster the company's business relationships with suppliers, customers and others; (d) the
impact of the operations of the company on the community and the environment; (e) the
desirability of the company to maintain a reputation for high standards of . business
conduct; and (f) the need to act fairly as between the directors and the members of the
company. (2) If, or to the extent that, the purposes of the company consist of or include
purposes other than the benefit of its members, subsection (1) has effect as if the reference
to promoting the success of the company for the benefit of its members were to achieving
those purposes.

Duty of director to promote the success of the company.

Duty of director to exercise reasonable care, skill and diligence.

(3) The duty imposed by this section has effect subject to any law requiring directors, in
certain circumstances, to consider or act in the interests of creditors of the company.

144. (1) A director of a company shall exercise independent judgment. judgment. (2)
The duty under subsection (1) is not infringed by the director acting(a) in accordance with
an agreement duly entered into by the company that restricts the future exercise of
discretion by its directors; or (b) in a way authorised by the constitution of the company.

145. In performing the functions of a director, a director of a company shall exercise the
same care, skill and diligence that would be exercisable by a reasonably diligent person
with(a) the general knowledge, skill and experience that may reasonably be expected of a
person carrying out the functions performed by the director in relation to the company;
and (b) the general knowledge, skill and experience that the director has.

146. MA director of a company shall avoid a situation in which the director has, or can
have, a direct or indirect interest that conflicts, or may conflict, with the interests of the
company. (2) Subsection (1) applies in particular to the exploitation of any property,
information or opportunity, and it does not matter whether the company could take
advantage of the property, information or opportunity. (3) The duty of a director under
subsection (1) is not infringed(a) if the situation cannot reasonably be regarded as likely to
give rise to a conflict of interest; or (b) if the matter has been authorised by the other
directors. (4) An authorisation under subsection (3)(b) may, in the case of a private
company, be given by the directors by the matter concerned being proposed to and
authorised by them, so long as nothing in the company's constitution invalidates the giving
of such an authorisation.. (5) An authorisation under subsection (3)(b) may, in the case of a
public company, be given by the directors of the company by the matter concerned being
proposed to and authorised by them, but only if the company's constitution includes a
provision enabling the directors to give such an authorisation and the directors comply with
the requirements of the provision. (6) An authorisation given under subsection (3)(b) is
effective only if — (a) any requirement relating to the quorum at the meeting at which the
matter is considered is satisfied without counting the director concerned or any other
interested director; and (b) the matter was agreed to without that director or any other
interested director voting. (7) Any reference in this section to a conflict of interest includes
references to a conflict of interest and duty and to a conflict of duties.

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147. (1) A person who is a director of a company benefits from third shall not accept a
benefit from a third party if the benefit is parties. attributable — (a) to the fact that the
person is a director of the company; or (b) to any act or omission of the person as a
director. (2) Benefits received by a director from a person by whom his or her services (as a
director or otherwise) are provided to the company are not regarded as conferred by a
third party. (3) The duty imposed by subsection (1) is not infringed if the acceptance of the
benefit cannot reasonably be regarded as likely to give rise to a conflict of interest. (4) A
reference in this section to a conflict of interest includes a conflict of interest and duty and a
conflict of duties. (5) A person who contravenes subsection (1) commits an offence and is
liable on conviction to a fine not exceeding one million shillings.

(6) On the conviction of a person for an offence under subsection (2), the benefit or its
equivalent accepted by the person under subsection (1) is forfeited to the company.

(7) In this section, "third party": means a person other than the company, an associated
body corporate or a person acting on behalf of the company or an associated body
corporate.

148.(1) The consequences of breach (or,^threatened breach) of the general duties of

directors set out in this Division are the same as would apply if the corresponding common
law rule or equitable principle applied.

(2) Those duties (with the exception of the duty set out in section 145) are enforceable in the
same way as any other fiduciary duty owed to a company by its directors.

149.Except as otherwise provided, more than one of the general duties may apply to a
director in any given case. 150. (1) If —

(a) section 146 is complied with by authorisation by . the directors; or

(b) section 151 is complied with, the transaction or arrangement is not liable to be set aside
because of any common law rule or equitable principle. requiring the consent or approval
of the members of the company.

(2) Subsection (1) does -not affect the operation of any enactment, or provision of the
company's constitution, that requires any such consent or approval.

(3) The application of the general duties to a director is not affected by the fact that the case
also falls within Division 5, except that if that Division applies and —

(a) approval is given under that Division; or

(b) the matter is one as to which it is provided that approval is not needed, it is not
necessary also for the director to comply with section 146 or 147.

(4) Compliance by a director with the'general d6ties does not remove the need for approval
under any applicable provision of Division 5.

(5) The general duties applicable to directors

(a) have effect subject to any rule of law enabling the company to give authority, specifically
or generally, for anything to be done (or omitted) by the directors, or any of -them, that
would otherwise be a breach of duty; and

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(b) if the company's articles contain- provisions for dealing with conflicts of interest—.are
not infringed by anything done or omitted to be done by the directors (or by 'any of them)
in accordance with those provisions.

(6) Except as provided by this section, the general duties of directors have effect (except as .
otherwise provided or the context otherwise requires) irrespective of 40 any other
enactment or rule of law.

151. (1) If a. director of, a company is in any way, directly or indirectly, interested in a
proposed transaction or arrangement with the company, or in a transaction or arrangement
that the company has already entered into, the director shall declare the nature, and
extent . of that interest(a) to the other directors; and

(b) if the 'company is a public company, to . the members of the company.

(2) If, in the case of a public company, a proposed transaction or arrangement' with the
company, or a transaction or arrangement that the company has already entered into, is for
an amount, or for goods or ^services valued at an amount, that exceeds ten percent of the
value of the assets of the company, the declaration shall also be made to the members of the
compan y either

(a) at a general meeting of the company; or

(b) by notice given to. the members, in accordance with section 152.

(3) A declaration is not effective for the purpose of subsection (2) unless the valuation of the
goods or services and the valuation of the assets of the company are certified by the
company's auditors as being the true market value of those goods or services and those
assets.

Duty to declare

interest in proposed

or existing

transaction or

arrangement.

418 No. 17 Companies 2015

(4) If a declaration of interest under this section, is inaccurate or incomplete, the director
shall make "a further declaration. (5) A director shall make a declaration required by this
section before the company enters into the transaction or arrangement concerned.

(6) This section does not require a director to make a declaration of an interest if the
director(a) is not aware of the interest; or (b) is not aware of the transaction or
arrangement to which the interest relates.

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(7) For the purpose of subsection (6), a director is taken to be aware of matters of which the
director ought reasonably to be aware. is (8) A director need not declare an interest
under this section(a) if it cannot reasonably be regarded as likely to give rise to a conflict of
interest; (b) if, or to the extent that, the other directors are already aware of it, and for this
purpose the other directors are treated as being aware of anything which they ought
reasonably to be aware; or (c) if, or to the extent that, it concerns terms of the director's
service contract that have been or are to be considered(i) by a meeting of the directors; or
(ii) by a committee of the directors appointed for the purpose under the constitution of the
company. 0 (9) For the purpose of subsection (8)(b), the other directors are treated as
being aware of anything of which they ought reasonably to be aware. (10) A director who
contravenes this section comr-nits an offence and is liable on conviction to a fine not
exceeding one million shillings. 152. (1) A director who is required to make a Director to
make declaration by notice declaration of interest shall give a notice to the other in writing,
directors.

419

2015 Companies No. 17 (2) The director may give the notice in hard copy form or, if
the recipient has agreed to receive it in electronic form, in an agreed electronic form.

(3) A notice required by subsection (1) may be given(a) by hand or by post; or (b) if the
recipient has agreed to receive such, notices by electronic means, by the agreed electronic
means. (4) If a director declares an interest by notice given in accordance with this
section(a) the making of the declaration forms part of the proceedings at the next meeting of
the directors after the notice is given; and (b) section 210 applies as if the declaration had
been made at that meeting. 153. (1) A general notice given in accordance with General
notice to be regarded as this section is a sufficient declaration of interest in relation s.fficient
to the matters to which it relates. declaration. (2) A general notice is a notice given to
the directors of a company that the director giving the notice(a) has an interest as a
member, officer, employee or otherwise in a specified body corporate or firm and is to be
regarded as interested in any transaction or arrangement that may, after the date of the
notice, be made with that body corporate or firm; or (b) is connected with a specified
person, other than a body corporate, and is to be regarded as interested in any transaction
or arrangement that may, after the date of the notice, be made with that person (3) A
general notice is not effective unless it states the nature and extent of the director's interest
in the body corporate or firm or the nature of the director's connection with the person. (4)
A general notice is not effective unless — (a) it is given at a meeting of the directors; or (b)
the director takes reasonable steps to ensure that the notice is brought to the attention of
the directors and read aloud at the next meeting ofthe directors after it is given.

154. (1) If a declaration of interest under section 151 is required of a .sole director of a
company that is required to have more than one director

(a) the company shall record the declaration in writing;

(b) the making of the declaration forms part of the proceedings at the next meeting of the
directors after the notice is given; and

(c) section 210 applies as if the declaration had'been made at that meeting.

(2) This section does not affect the, operation of section 193.

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 The Act codifies directors’ fiduciary duties, as stipulated under common law. These
include: duty to exercise reasonable care, skill and diligence, duty to act within
powers and duty to avoid conflicts of interest In respect of accountability and
transparency, the following provisions have been introduced:-

1. Private companies must file financial statements within 9 months of the accounting
period with the Registrar of Companies (RoC)

2. Resolutions, written memorandum and agreements affecting the company’s

constitution are to be filed at the Companies Registry within 14 days of their passing

3. Directors’ fixed term service contracts in excess of two(2) years will require shareholders’

approval

4. The requirements for valid execution of a document by a company have been changed to

signing by 1 director in the presence of an attesting witness

5. The RoC is to be informed of changes in a company’s directorship or directors’ addresses

within 14 days of effecting the change

6. An application may be made to the AG or the Official Receiver for a disqualification order

against a director or company secretary, where he/she is unfit to hold office, or where the

company becomes insolvent. The duration of such an order is between 2 to 15 years

7. Golden parachutes which are common place during the exit and/or ouster from office of any

director, are subject to approval by the shareholders.

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FRAUDULENT TRADING

However, in Re William C. Leitch Ltd (1932) 2 Ch. 71 the company was incorporated to acquire
William‘s business as a furniture manufacturer. The directors of the company were William and
his wife and they appointed William as the Managing Director at a Salary of £1000 per annum.
Within the period of one month, the company was debited with an amount which was £500 more
than what was actually due to William. By that time the company had made a loss of £2500.
Within 2 years of formation, and while the company was still in financial problems, the directors
paid to themselves the dividends of £250. By the end of the 3rd year since incorporation the
company was in such serious difficulties such that itcould not pay debts as they fell due. In spite
of this William ordered goods worth £6000 which became subject to a charge contained in a
debenture held by them. At the same time he continued to repay himself a loan of £600 (six
hundred pounds) which he had lent to the company at the beginning of the 4th year the company
with the knowledge of William owed £6500 for goods supplied. In the winding up of the
company the official receiver applied for a declaration that in no circumstances William had
carried on the company‘s business with intent to defraud and therefore should be held responsible
for the repayment of the company‘s debts. It was held that since that company continued to carry
on business at a time when William knew that the company could not comfortably pay its debts,
then this was fraudulent trading and William should be responsible for repaying the debts.

These are the words of Justice Maugham J. ―if a company continues to carry on business and to
incur debts at a time when there is to the knowledge of the directors no reasonable prospects of
the creditors ever receiving payments of those debts, it is in general a proper inference that the
company is carrying on business with intent to defraud.” The test is both subjective and objective.
In the Case of Re Patrick Lyon Ltd (1933) Ch. 786 on facts which were similar to the Williams
case, the same Judge Maugham J. said as follows: ―the words fraud and fraudulent purpose
where they appear in the Section in question are words which connote actual dishonesty
involving according to the current notions of fair trading among commercial men real moral
blame. No judge has ever been willing to define fraud and I am attempting no definition.”

THE DOCTRINE OF ULTRA VIRES A Company which is registered under the Company‘s Act
cannot effectively do anything beyond the powers which are either expressly or by implication
conferred upon in its Memorandum of Association. Any purported activity in excess of those
powers will be ineffective even if agreed to by the members unanimously. This is the doctrine of
ultra vires in company law.

The purpose of this doctrine is said to be twofold, in that, it is intended to protect the investors
who thereby know the objects in which their money is to be applied. It is also said to be intended
for the protection of the creditors by ensuring that the Company‘s assets to which the creditors
look for repayment of their debt are not wasted in unauthorized activities.

The doctrine was first clearly articulated in 1875 in the case of Ashbury Railway Carriage v.
Riche (1875) L.R. CH.L.) 653. In this case the Company‘s Memorandum of Association gave it
powers in its objects clause 1. To make sell or lend on hire railway carriages and wagons. 2. To
carry on the business of mechanical engineers and general contractors 3. To purchase, lease work
and sell mines, minerals, land and realty.

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 The directors entered into a contract to purchase a concession for constructing a railway in
Belgium. The issue was whether this contract was valid and if not whether it could be ratified by
the shareholders. The court held that the contract was ultra vires the company and void so that not
even the subsequent consent of the whole body of shareholders could ratify it. Lord Cairns stated
as follows: “The words general contractors referred to the words which went immediately before
and indicated such a contract as mechanical engineers make for the purpose of carrying on a
business. This contract was entirely beyond the objects in the Memorandum of Association. If
so, it was thereby placed beyond the powers of the company to make the contract. If so, it was
not a question whether the contract was ever ratified or not ratified. If the contract was going at
its beginning it was going because the company could not make it and by purporting to ratify it
the shareholders were attempting to do the very thing which by the act of parliament they were
prohibited from doing.”

The courts construed the object clause very strictly and failed to give any regard to that part of
the Objects clause which empowered the company to do business as general contractors. This
construction gave the doctrine of ultra vires a rigidity which the times have not been able to
uphold. At the present day, the doctrine is not as rigid as in Ashbury‘s case and consequently it
has been eroded.

As between the Memorandum and the Articles the Memorandum of Association is the dominant
instrument so that if there is any conflict between the provisions in the Memorandum and those in
the Articles the Memorandum provisions prevail. However if there is any ambiguity in the
Memorandum one may always refer to the Articles for clarification but this does not apply to
those provisions which the Companies Act requires to be set out in the Memorandum as for
instance the Objects of the Company. Whereas the Memorandum confers powers for the
company, the Articles determine how such powers should be exercised. The articles further
provide a dividing line between the powers of share holders and those of the directors.

Fourth is the Notice of Situation of Registered Office which under Section 108(1) of the statute
should be filed within 14 days of incorporation; Any change to such situation and if it is
discontinued should be notified to the registrar within one month of opening of the office or
change of office as the case may be. (see s. 121 (2) and form 207). It is filled by a director.

Other Companies -Where authorized by memo of assoc., a company may take shares in and be a
member of another co. That co. would attend meetings thro‘ a representative authorized by a
resolution of directors.

DIRECTORS Every company other than a private should have at least two directors while a
private company may have one director (see s 177). Until such appointment all subscribers to
Memorandum are deemed to be directors. (See par. 75 of Table A) The functions of the
directors are normally stipulated in the articles of association under the subheading of powers and
duties of directors. Normally they are charged with the overall powers and duties of managing
the company including being signatories of the company.

Such powers and duties may be delegated to a managing director or a manager by way of a
written resolution. A person can only be appointed a director if by himself or by his agent in
writing, signed and delivered to the registrar for registration a consent in writing to act as a
director (see s 182 and s 201). Directors are normally appointed at a general meeting of the
company. At the meeting a motion should be moved for the appointment of directors
singularly/individually i.e. a single resolution should not be made for appointment of two or more
directors. This is so except for private companies (see s 184).

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 A company can by ordinary resolution remove a director before expiration of his period in office.
However, for such a resolution to be made a special notice will have to be issued and the Director
in question must be given a copy of the notice and a chance to be heard on the resolution at the
meeting (see s 185 (1) and (2)). A special notice requires 28 days‘ notice (see s 142).

A vacancy created by removal of a director as envisaged above if not filled at the meeting at
which he is removed, may be filled as a casual vacancy (see s 185 (4)). Accordingly, the person
appointed must retire at the time when the director who had been removed would have retired.
However, such a director so removed may be entitled to compensation or damages payable to him
in respect of the termination of his appointment.

Royal British Bank vs. Turquand (1856) 6 E & B 327 Moreover the acts of a director or manager
shall be valid notwithstanding any defect that may afterwards be discovered in their appointment
or disqualification (see s 181). Disqualifications of directors are normally embodied in the
articles of association (see par. 88 of table A). Directors have specific rights and duties either
prescribed under their contracts (if any) with the company, the statute, company constitution
(MOA & AOA) and the common law.

a) Statutory Duties  S. 191 - Prohibition of loans to directors.  S. 192 –

Approval of company in a GM requisite for payment by it to director for loss of
office (also see s 193).  S. 194 – Duty of director to disclose payment for loss
of office etc made in connection with transfer of shares in a company.  S. 196
– Register of directors‘ shareholdings etc.  S. 197 – Particulars in accounts of
directors‘ salaries, pensions etc.  S. 198 – Particulars in accounts of loans to
officers etc.  S. 199 – General duty to make disclosures for purposes of ss 196,
197 & 198.  S. 200 – Disclosure by directors of interests in contracts to BOD.
 S. 201 – Register of directors and Secretaries.  S. 202 –Particulars with
respect to directors in trade catalogues and circulars.

b) Common Law Duties 1. Duty to act with care and skill A director‘s duty has
been laid down as requiring him to act with such care as is reasonably to be
expected from him, having regard to his knowledge and experience. In Re City
Equitable Fire Insurance Co. Ltd [1925] 1 Ch 407 Here the Directors of an
insurance company left the management of the company‘s affairs almost entirely
to the Managing Director. Owing to the managing Director‘s fraud, a large
amount of the company‘s funds disappeared. Certain items appeared in the
balance sheet under the heading “loans at call or short notice and “Cash in Bank
or in Hand”. The Directors did not inquire how these items were made up. If
they had inquired they would have found that the loans were chiefly to the
Managing Director himself. On the company‘s winding up, an investigation of its
affairs disclosed a shortage in its funds of more than £1.2 million incurred mainly
due to the delinquent fraud of the Managing Director for which he was convicted
and sentenced. The other Directors had all along acted in good faith and honestly
but the liquidator sought to make them liable for the damages. It was held that the
Directors were negligent. Justice Romer reduced the Directors duties of care and
skill as follows “A Director need not exhibit in the performance of his duties a
greater degree of skill than may reasonably be expected from a person of his
knowledge and experience.”

This proposition prescribes the standard of skill to be exhibited in actions undertaken by

directors. The test is partly objective and also partly subjective because a reasonable man would
be expected to have the knowledge of a director with his experience.

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Re Brazilian Rubber Plantations and Estates Ltd [1991] 1 Ch 425 In this case a company had five
directors and one of them confessed that he was absolutely ignorant of business. A second one
was 75 years old and very deaf. A third one said he only agreed to become a director because he
saw one of his friends names on the list of directors. The other two were fairly able businessmen.
The directors caused a contract to be entered into between the company and a certain syndicate
for purchase by that company of some rubber plantation in Brazil. The prospectus issued by the
company contained false statements about the acreage of the Plantation, the types of trees and so
forth. The information given therein was given to the Directors by a person who had an original
option to purchase that property. He had never been to Brazil and the data was based on his own
imagination. The Directors caused the company to purchase the property. The question arose,
were they negligent in so doing? The court held that their conduct did not amount to gross
negligence. Neville J. had the following to say: “It has been laid down that so long as they act
honestly, Directors cannot be made responsible in damages unless they are guilty of gross
negligence. A Director’s duty requires him to act with such care as is reasonably expected from
his having regard to his knowledge and experience. He is not bound to bring any special
qualifications to his office. He may undertake the Management of a Rubber Company in
complete ignorance of anything connected with Rubber without incurring responsibility for the
mistakes which may result from such ignorance. While if he is acquainted with the Rubber
business, he must give the company the advantage of his knowledge when transacting the
company’s business. He is not bound to take any definite part in the conduct of the company’s
business but insofar as he undertakes it he must use reasonable care. Such reasonable care must
be measured by the care an ordinary man might be expected to take in the same circumstances on
his own behalf.”

2. Fiduciary relationship between directors and the company Directors‘ fiduciary duties are
owed to the company and not to individual shareholders. The paramount duty is to exercise their
powers bona fide in the best interests of the company. This duty gives rise to various other
duties.

 Directors should not exceed their powers: They may not act illegally, dishonestly, ultra vires
the company or beyond their own powers. The directors must always exercise their powers for
the particular purpose for which they were conferred and not for extraneous purposes even if the
latter are considered being in the best interests of the company. For example the Directors are
invariably empowered to issue capital and this power should be exercised for only raising more
funds when the company requires it. Hence it will be a breach of theDirectors‘ duties to issue the
company shares for the purpose of entrenching themselves in the control of the company‘s
affairs.

In the case ofPunt v. Symons (1903) 2 Ch. 506 in this case the directors issued shares with the
object of creating a sufficient majority to enable them to pass a special resolution depriving the
other shareholders of some special rights conferred upon them by the company‘s articles. It was
held that a power of a kind exercised by the Directors in this case was a power which must be
exercised for the benefit of the company. Primarily this power is given to them for the purpose of
enabling them to raise capital for the purposes of the company. Therefore a limited issue of
shares to persons who are obviously meant and intended to secure the necessary statutory
majority in a particular interest was not a fair and bona fide exercise of the power.

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Piercy v. Mills & Co. (1920) 1 Ch. 78 A company had two directors. They fell out of favour with
the majority of the shareholders who were therefore threatened with the election of 3 other
directors to the Board. The directors issued shares with the object of creating a sufficient
majority to enable them to resist the election of the 3 additional directors whose election would
have put the two directors in the minority on the Board. The Court held that the Directors were
not entitled to use their powers of issuing shares merely for the purpose of maintaining their
control or the control of themselves and their friends over the affairs of the company or even
merely for the purpose of defeating the wishes of the existing majority of shareholders. The
Plaintiff and his friends held the majority of shares in the company and as long as that majority
remained, they were entitled to have their wishes prevail in accordance with a company‘s
regulations. Therefore it was not open to the directors for the purpose of converting a minority
into a majority and purely for the purpose of defeating the wishes of the existing majority to issue
the shares in dispute.

 Directors must act with an unfettered discretion: See: - Fulham Football Club Ltd –vs. - Cobra
Estates PLC [1994] 1BCLC 363  Directors should not allow their personal interests to interfere
with their duties to the company  A contract between a company and a director or with a
company where director has interests is voidable at the instance of the company. See: Aberdeen
Rly Co. –vs. - Blaikie Bros (1854) 1 Maeq 461 - North West
Transportation Co. Ltd -vs. - Beatty (1887) 2 AC 589

In Aberdeen Railway v. Blaikie Brothers (1854) 1 Macc. 46 the Defendant Company entered into
a contract to purchase a quantity of chairs from the Plaintiff partnership. At the time that the
contract was entered into a Director of the company was also one of the partners. The issue was,
was the company entitled to avoid the contract? The court held that the company was entitled to
avoid the contract. The Judge said that as a body corporate can only act by agents and it is the
duty of those agents so to act as best to promote the interests of the corporation whose affairs they
are conducting. Such an agent has a duty of a fiduciary nature to discharge towards his principal.
It is a rule of universal application that no one having such duties to discharge shall be allowed to
enter into or can have a personal interest conflicting or which may possibly conflict with the
interests of those whom he is bound to protect. This principle is strictly applied no question is
entertained as to the fairness or unfairness of the contract so entered into.

 A Director is accountable to the company for any secret profit made by virtue of his fiduciary
position. See: - Robinson-vs. - Randfontein Estates Gold Mining Co. Ltd 1921 AD  A
director is accountable for any secret profit made from appropriation of a corporate opportunity.
See: - Regal (Hastings) Ltd -vs. - Gulliver (1942) 1 AII ER 37. -Industrial Development
Consultants Ltd –vs. -Cooley [1972] 1 WLR 443

Regal Hastings Ltd v. Gulliver (1942) 1 All E.R. 378 Herein the company owned a cinema and
the directors decided to acquire two other cinemas with a view to the sale of the entire
undertaking as a going concern. Therefore they formed a subsidiary company to invite the capital
of 5000 pounds divided into 5000 shares of 1 pound each. The owners of the two cinemas
offered the directors a lease but required personal guarantees from the Directors for the payment
of rent unless the capital of the subsidiary company was fully paid up. The directors did not wish
to give personal guarantees. They made arrangements whereby the holding company subscribed
for 2000 shares and the remaining shares were taken up by the directors and their friends. The
holding company was unable to subscribe for more than 2000 shares. Eventually the company‘s
undertakings were sold by selling all the shares in the company and subsidiary and on each share
the Directors made a profit of slightly more than two pounds. After ownership had changed the
new shareholders brought an action against the directors for the recovery of profits made by them
during the sale.

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The court held that the company as it was then constituted was entitled to recover the profits
made by the Directors. Lord Macmillan had the following to say: ―The directors will be liable
to account if it can be shown that what they did is so related to the affairs of the company that it
can properly be said to have been done in the course of their management and in utilization of the
opportunities and special knowledge and what th ey did resulted in a profit to themselves.”

Industrial Development Consultants vs. Cooley (1972) 2 All E.R. 16 The Defendant who was an
architect was appointed the company‘s Managing Director. The company‘s business was to offer
design and construction services to industrial enterprises. One of the defendant‘s duties was to
obtain new business for the company particularly from the gas companies where he had worked
before joining the Plaintiff. While the Defendant was still so employed by the Plaintiff a
representative of one Gas Company came to seek his advice on some personal matters. In the
course of their conversation the Defendant learnt that the gas company in question had various
projects all requiring design and construction services of the type offered by the Plaintiff. Upon
acquiring this information and without disclosing it to the company, the Defendant feigned illness
as a result of which he was relieved by the company from his duties. Thereafter, he joined the
gas company and got the contract to do the work. Two years previously, the Plaintiff had
unsuccessfully tried to obtain that work. After the Defendant acquiring the contract, the company
sued him alleging that he obtained the information as a fiduciary of the company and he should
therefore account to the company for all the remuneration fees and all dues obtained.

The court held that until the Defendant left the Plaintiff, he stood in a fiduciary relationship to
them and by failing to disclose the information to the company, his conduct was such as to put his
personal interests as a potential contracting party to the gas company in conflict with the existing
and continuing duty as the Plaintiff‘s Managing Director.

Roskill J. “It is an overriding principle of equity that a man must not be allowed to put himself in
a position where his fiduciary duty and interest conflict. It was the defendant’s duty to disclose to
the plaintiff the information he had obtained from the Gas Board and he had to account to them
for the profits he made and will continue to make as a result of allowing his interests and duty to
conflict. It makes no difference that a profit is one which the companyitself could not have
obtained. The question being not whether the company could have acquired it but whether the
defendant acquired it while acting for the company.”

 A director may not compete with the company.  A director may not misuse confidential
information.

POWERS OF DIRECTORS OF COMPANIES

The following is a summary of the powers of directors as provided under Companies Act
as is provided for under the Companies Act, Chapter 486 Laws of Kenya

1. Directors have the power to contract with and be interested in any way, whether
directly or indirectly, in any actual or proposed contract or arrangement with the
Company, either as vendor, purchaser

2. The directors have the power to borrow money and to mortgage or charge its
undertaking property and uncalled for capital or any part thereof.

3. They have power to issue debentures, debenture stock and other securities
whether outright or as security for any debt, liability or obligation of the
company or of any third party.

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 4. The directors have the powers to alter the articles and memorandum of
association in the Board meeting.

Directors acting jointly as a Board of Directors have the following powers.

5. To exercise all the powers of the Company, to borrow or raise money and to
mortgage or charge its undertaking, property and uncalled capital or any part
thereof and to issue income notes, bonds, debentures and other securities.

6. The power to manage the business of the company by paying all such expenses
of and preliminary and incidental to the promotion, formation, establishment and
registration of the Company as it thinks fit and may exercise all such powers of
the Company as are not by the Act or by these Articles required to be exercised
by the Company in General Meeting (subject nevertheless to the provisions of
these Articles and of the Act) and to such regulations, being not inconsistent with
such provisions, as may be prescribed by the Company in General.

7. The power to establish any local boards or agencies for managing any of the
affairs of the Company, either in Kenya or elsewhere, and may appoint any
persons to be members of such local boards or managers or agents and may fix
their remuneration and may delegate to any local board, manager or agent any of
the powers, authorities and discretions vested in the Board, with power to sub-
delegate, and may authorise the members of any local board or any of them to fill
any vacancies therein and to act notwithstanding vacancies.

8. The power to appoint any person or any fluctuating body of persons, whether
nominated directly or indirectly by the Board, to be the attorney of the Company
for such purposes and with such powers. This power is exercisable subject to the
power of attorney being present in that respect.

9. The power to authorise the use of the company seal outside Kenya and to
exercise the powers conferred by section 37 of the Companies Act, Chapter 486
Laws of Kenya.

10. The Company may exercise the powers conferred by section 37 of the Act with
regard to having an official Seal for use outside Kenya and such powers shall be
vested in the Board.

11. The power to pass resolutions in board meetings and the power to cause the
minutes to be in books provided for the purpose of recording.

12. Power to grant pensions, annuities, gratuities or other allowances on death,

sickness, disability or retirement to any person who is or has been employed by
or in the service of the Company or of its holding company or any subsidiary
company of the Company or to any person who is or has been a Director or other
officer of the Company or of its holding company or any such subsidiary
company and to the widow, family or dependants of any such person.

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