The
powers of directors are usually set out in the articles of association, and quite
frequently there is a clause entrusting the management of the company’s
affairs in the hands of directors and possess the following powers which
enables them to carry out their functions:-
(a) To enter into contracts on behalf of the company.
(b) To engage or dismiss employees.
The
directors’ powers may be restricted by the articles, for instance, some
certain acts shall not be done by them unless they first obtain the
sanction of the company in general meeting.
Where
such provisions exist in the articles, failure to obtain the sanction
may render the company not bound by the acts and the directors then
become personally liable to the third parties.
If
a director has an interest in any contract which is being considered by
the company he must usually declare his interest when the contract is
being discussed.
A
director is said to have declared his interest not when he states that
he has an interest but when he states what his interests are.
The disclosure should be made at the time the contract in question comes before the Board of Directors for discussion.
Disclosure
is only valid if it is made to sufficient number of directors who are
themselves not interested in the contract. In a case of three
directors, if two are interested and declare to one who is not, it is
invalid. This is because the directors who are interested are incapable
of voting in the issue and since they are a majority, there is no
quorum to which the disclosure is made. Quorum in this case means
sufficient number of directors who are not interested in the contract.
Legal effect for directors for non-disclosure of interest
The consequences are two fold:-
(i) Statutory consequences.
(ii) Common Law consequences.
At
common law, the contract itself becomes avoidable at the option of the
company, that is, the company can decide to continue with the contract
or not or repudiate. If the director in question has made secret
profits on that contract, he must refund the same to the company.
In statutory consequences under Section 200(4), such directors shall be liable to a fine not exceeding Sh. 2,000.
ASSOCIATE DIRECTORS
A
company may under Kenya laws appoint one or some of its employees to its board of
directors. Such appointment is primarily intended to provide employees
with a forum where they can express their views on the company’s
operations, programmes or policies. Employees who are appointed are
usually called “associate directors”.
CORPORATE DIRECTOR
Although
the statutory restrictions on appointment of directors tend to suggest
that only a natural person can be appointed as director, in practice it
is not so. Holding companies appoint themselves directors of subsidiary
companies with a view to securing and maintaining complete control of
the subsidiaries. This has been made possible by the fact that there is
no provision in the Act which prohibits the practice.
The body corporate would appoint a natural person whom it has formally authorized to attend board meetings on its behalf.