Why being a company director may no longer be rosy

Being a company director in Kenya may not be as “lucrative” should proposed amendments to the Companies Act come to pass.

Forget the gifts that come after a good deal. If any or extended family members does something that ends up hurting the company, a director will be held responsible.

Kin including in-laws among others must be declared upon taking up of the position according to a Bill that seeks to enhance transparency in company leadership.

The positions usually associated with plum payments and other associated benefits will now make the office holders’ lives an open book; shinning a sharp identity spotlight on them and stripping exemptions that would allow them get away with traditional benefits such as ‘small gifts.’

“A person who is a director of a company shall not accept a benefit from a third party if the benefit is attributed to the fact that the person is a director of the company; or to any act or omission of the person as a director,” reads the proposed changes.

The amendment seeks to delete an exemption clause that allowed the directors to receive gifts as long as there was reason to regard it as not likely to ‘give rise’ to a conflict of interest. 

Those found guilty of breaking this face conviction or a fine not exceeding Sh1 million.

Fully documented

While the current law states that the director’s family members be fully documented including his or her step children and parents, the Companies Amendment Bill (2017), now wants to lay bare extended relations including their in-laws, brothers and sisters, grand children as well as the spouses of  all the these relatives.

The proposed law, which is sponsored by National Assembly Majority Leader Aden Duale takes transparency to a new height that may prove highly intrusive into personal details of the directors in a bid to protect investors through higher corporate governance.

Directors will also be required to have their elaborate details documented in the company’s register including their former names and any other directorships which they could be holding.

Section 135 of the Act is up for amendment to tie directors to any transactions they carry out especially those that set up the company to any possible losses. Blunders by their connections that hurt the company will be squarely laid on them, according to the proposed law.

The consequences of these actions can vary as far as conviction and subsequent disqualification for a period not exceeding five years. 

Era of gifts

Well, the era of gifts is completely gone for directors, the sweet kickbacks the corporate chiefs have traditionally received after deals gone good have been completely dealt with in the law.

While the Company Act compels a director to declare any interest to the other directors on any transaction a company is involved in or any arrangement a company has entered into for only transactions that exceeds 10 per cent of the value of the assets of the company, the amendment seeks to lower the bar.

Mr Duale now seeks to change the Act to lower the declarable interest to any amount that is 10 per cent or more.

“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,” reads Section 151 of the Principal Act.

Company bosses will also be required to make the declaration at an annual general meeting of the company or by notice given to the members within seventy-two hours.

The current Act prohibits a company from entering into any arrangement that its director or any person connected to the director would acquire (directly or indirectly), a substantial non-cash, asset unless a resolution of the members is obtained on the same.

This with the new expansion of the family web of directors casts the net wider and keeps the bosses on toes as to who the company trades with and how much they are going to benefit from any such arrangements.


The current Act had exempted the directors from liability if they are able to demonstrate that at the time of the arrangement, they were unaware of such circumstances that would constitute a contravention.

The amendment, however, seeks to delete this section, leaving the corporate chiefs exposed and hushed from making any such claims of not being aware.

Even failure by the company to keep minutes of meetings held by its directors will now land the bosses in hot soup.

The law now requires that a company must keep minutes of all proceedings at meetings of its directors for at least 10 years from the date of the event.

Although the amendment seeks to reduce the duration of keeping the minutes to seven years, each director of the company who fails to keep the records leaves its directors guilty of an offence and liable to a conviction to a fine not exceeding Sh500,000.

The law allows even directors who had quit the firm many years ago to be held liable for breaking this regulation further complicating the headache that comes with being a director in the modern regulatory regime in Kenya.

The current Act has also raised the bar on who becomes company secretary apart from making it compulsory.

The role requires all firms to have at least at least one secretary and empowers the Attorney-General (AG) to give directions for compliance of the same when a company fails to adhere to the law.

In the proposed amendments though, the task has been stripped from the AG to the office of the Registrar.

The Registrar is then expected to state what that the company which does not have a secretary is required to do in order to comply with the direction; including how long and the consequences of failure to do so.

Any failures here falls on the head of the directors among other officers adding to the load of compliance requirements the office know for many benefits now comes with.

“ If a company fails to comply with a direction given to it under this section, the company, and each officer of the company who is in default, commit an offence and on conviction are each liable to a fine not exceeding Sh500,000,” the Bill reads.


Opinion is divided whether placing heavy transparency requirements of the directors is sufficient to tame corporate corruption and whether the other officers especially in the procurement departments have been given a free hand to trade dirty, but since the buck stops with the bosses, mega dirty deals will have been dealt a blow.

Improved corporate governance and taming graft particularly in the country’s private sector will boost Kenya’s attractiveness for investment and allow growth of businesses.

Last year, the Kenya Private Sector Alliance (Kepsa), blamed graft perpetrated by holders of higher offices in the corporate ladder as a major threat to businesses and investments.

“Corruption has been identified as the single greatest obstacle to economic and social development in Kenya irrespective of whether it is perceived or real.

“The extent of the devastating effects of corruption on Kenya’s economic development is huge,” said Carole Kariuki, Kepsa’s chief executive.

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