Company law revision question and answer

Peter Kinuthia was recently appointed as a director of a company whose articles of association correspond with Table A. Francis Mwangi, the chairman of the company has told him that the companies Act (cap 486, laws of Kenya) will govern his dealings with the company. Peter has come to you for advice regarding:

(i) Restriction on appointment of directors
(ii) Disqualification of directors.
(iii) Removal of directors.

ANSWER
(i) Restrictions on appointment of directors:

1. Number of directors: The Companies Act fixes the minimum number of directors a company may have. Under Section 177, the maximum number is fixed the articles.

2. Consent: Under Section 182(1), a person appointed director, must deliver to the registrar for registration his written consent to act as such. The consent must be signed the director in person or his duly authorized agent.

3. Share qualification: Under Article 77 of Table A the articles, may prescribe the minimum number of shares a person must hold to quality for appointment as director. If the articles so require, persons named as directors, must hold this number of shares. However, a person is deemed to have acquired the shares if:

He has signed the memorandum for a number of shares not less than his qualification.
He has taken up and paid or agreed to pay for his share qualification.
He has delivered to the registrar for registration a written undertaking to take and pay for his share qualification, or
He has delivered to the registrar for registration a statutory declaration to the effect that a number of shares not less than his qualification are already registered in his name.

Under Section 183(1), the share qualification must be taken up within 2 months of appointment or shorter time as may be fixed the articles failing which the appointee ceases to be a director.

4. Age: Under Section 186(1) of the Act, a person is not capable of being appointed name or proposed director unless he has attained the age of 21 and has not attained the age of 70. It is the duty of persons proposed as directors to disclose their age to the company. A director who attains the age of 70 while in office, retires at the conclusion of the next AGM. However, such a director may be reappointed if he offers himself provided a special notice of the resolution to reappoint him has been given to the members.

5. Soundness of mind: To qualify for appointment as director a person must be of sound mind. Under Article 88 of Table A, the office of director must be vacated if a director becomes of unsound mind.

6. Disqualification the court: Under Section 189(1), the High Court is empowered to disqualify a person from being directly or indirectly involved in the management of comparing affairs for a duration not exceeding 5 years, if the person:

(i) Is convicted for an offence relating to the promotion, formation or management of the company.

(ii) Is in the course of winding up found guilty of an offence of being involved in carrying on the company‟s business for any fraudulent purpose or with intent to defraud its creditors or creditors of any other person.

(iii) Is in the course of winding up found guilty of fraud as an officer of the company or in breach of duty to the company. If a disqualified person is appointed director, he is liable to a fine not exceeding Sh.10,000 or imprisonment for a term not exceeding 2 years or both.

7. Undischarged Bankrupt or Insolvent Persons:
Under Section 188 of the Act, a person declared bankrupt or insolvent a court of law is not qualified for appointment as director without leave of the court. If such a person is directly or indirectly involved in company management, he is liable to a fine not exceeding Sh.10,000 or imprisonment for a term not exceeding 2 years or both.

(ii) Disqualification of Directors:

Under Article 88 of Table A, the office of director shall be ……. if the director:

(i) Fails to acquire his share qualification within the stipulated time.
(ii) Attains the age of 70.
(iii) Is declared bankrupt or enters into an arrangement with his creditors to compound his debt.
(iv) Is disqualified from holding office a court order made pursuant to Section 189 of the Act.
(v) Becomes of unsound mind.
(vi) Resigns office a written notice to the company.
(vii) Absents himself from directors meetings held in over 6 months.
(viii) Is removed from office an ordinary resolution of members in general meeting.
(ix) Making up of a winding up order.

(iii) Removal of Directors:

Under Section 185(1) of the Act, a company may ordinary resolution remove a director from office before expiration of his period of office not withstanding anything in the articles or in any agreement between the company and the director. The Companies Act prescribes the circumstances in which a director may be removed from office:

4. Notice of the intended resolution to remove a director from office must be delivered to the company.

5. Upon receipt of the notice, the company must send a copy thereof to the director who is entitled to make written representations as his defence. The director may request the company to notify its members that he has made representations.

6. The company must convene an extra-ordinary general meeting of the members. A special notice of the intended resolution must be sent to all members. The notice of the meeting must state that the director has made representations, if any, and copies must be enclosed unless received too late the company. If they are not enclosed reason of lateness or

default the company the director is entitled to have them reach out a the meeting. However, copies of the directors representations need not be sent to members or read out at the meeting if upon application the company, or any other aggrieved person, the court is satisfied that the director is abusing his right to be heard to secure needless publicity for defamatory matter.

4. The removal of a director from office takes effect when the meeting ordinary resolution so resolves.

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