Overview
The Companies Act, 2015 introduced a significantly enhanced framework for director liability in Kenya — one that aligns closely with international best practice and imposes real personal risk on board members who fail in their fiduciary duties. With increasing regulatory scrutiny from the Capital Markets Authority, Competition Authority, and Kenya Revenue Authority, company directors must understand their exposure.
Core Fiduciary Duties
Under Section 143 of the Companies Act, every director owes the following duties to their company:
- 1.Duty to act within powers — Directors must act in accordance with the company's constitution and only exercise powers for the purposes for which they are conferred.
- 1.Duty to promote the success of the company — Directors must act in the way they consider, in good faith, most likely to promote the success of the company for the benefit of its members as a whole.
- 1.Duty to exercise independent judgment — Directors must not fetter their discretion or act solely on the instructions of others without applying their own judgment.
- 1.Duty to avoid conflicts of interest — Directors must avoid situations where they have or could have a direct or indirect interest that conflicts with the company's interests.
- 1.Duty not to accept benefits from third parties — Directors must not accept benefits from third parties conferred because of their position.
- 1.Duty to declare interest in transactions — Directors must declare any interest in proposed or existing transactions with the company.
Personal Liability in Insolvency
The most acute risk for directors arises during financial distress. Under the Insolvency Act, 2015:
Fraudulent Trading (Section 318)
Where a company is wound up and it appears that any business was carried on with intent to defraud creditors, a court may declare any director who was knowingly party to such trading personally liable for the company's debts.
Insolvent Trading
Directors who allow a company to incur debts knowing that it cannot pay them expose themselves to personal liability. The key question is what the director knew or ought to have known about the company's solvency position.
Misfeasance
Directors who misapply or retain company property, or commit any breach of fiduciary duty, may be ordered to repay, restore, or account for the assets with interest.
Regulatory Compliance Risks
Kenya Revenue Authority
KRA has increasing powers to pierce the corporate veil and hold directors personally liable for unpaid taxes where: - The company is unable to pay - The director had control over tax affairs - The director took steps to frustrate recovery
Data Protection
Under the Data Protection Act, 2019, organizations and their responsible officers face significant penalties for data breaches. Directors of companies handling personal data must ensure compliance with registration, security, and retention requirements.
Competition Authority
The Competition Act provides for personal liability of officers who direct or authorize anti-competitive conduct. Penalties include fines and disqualification from serving as a director.
Practical Compliance Checklist
Directors should ensure:
- —Regular board meetings with properly documented minutes
- —Financial statements reviewed and approved on time
- —Conflicts of interest declared and managed
- —Related party transactions properly disclosed and authorized
- —No preferential payments to connected persons when insolvent
- —Tax obligations monitored and paid current
- —Regulatory filings completed on schedule
How We Can Help
Kago Mburu Advocates advises boards and individual directors on governance, compliance, and personal liability management. We also represent directors in regulatory investigations and insolvency proceedings.