Kenya company law: Liabilities of directors of a company

(1)        Liability to Outsiders

Directors are not personally liable to outsiders if they act within the scope and powers vested in them.  The general rule is that wherever an agent is liable, those directors would be liable, but where liability would attach to the principal only, the liability is the liability of the company.

The directors would be personally liable to third parties in the following cases:-

            (i)         They contract with outsiders in their own personal capacity.

            (ii)        They contract as agents of undisclosed principal.

            (iii)       When the company is ultra vires the company.

In default of statutory duties, directors shall be personally liable to third in the following cases:-

            (i)         Misstatement in prospectus

            (ii)        Irregular allotment

           (iii)        Failure to repay application money if the minimum subscription is not subscribed.

(2)        Liability to the Company

The directors shall be liable to the company in the following cases:-

             (i)        Where they have acted ultra vires the company, for example, they have applied the funds of the company to objects not specified in the memorandum or when they pay dividends out of capital.

             (ii)       When they have acted negligently –negligence may give rise to liability, there need not be fraud.

            (iii)       Where there is a breach of trust resulting in a loss to the company, they are bound to make good the loss.

            (iv)       Misfeance: - Willful misconduct or willful negligence.

(3)        Criminal Liabilities

The act provides penalties by way of fine or imprisonment particularly when directors omit to comply with or contravene certain provisions of the Act.