Table A, Article 88 of the companys Act provides that the office of director shall be vacated if the director: -
(i)
He has ceased to be a director by virtue of Section 183, that is, he
has failed to take-up prescribed shares within two months of his
appointment or under Section 186 which lays down the minimum and the max
age for directors.
(ii) He becomes bankrupt.
(iii) He becomes prohibited from being a director by reason of any order made
under Section 189 (restraining fraudulent persons from managing a company).
(iv) He becomes of unsound mind
(v) He resigns his office by notice in writing to the company.
(vi) He is absent without permission for more than 6 months from meetings of directors held during that period.
Regarding resignation, it was held in Premier Cinema Co. vs. Ennion
that a verbal notice of resignation which is given to and is acceptable
by the general meeting is effective and cannot be withdrawn. This is
because the general meeting would be deemed to have amended the
company’s articles by deleting the words “in writing”. But if an oral
notice of resignation is given to and accepted by the board of
directors, it would be invalid since the directors cannot legally alter
the company’s articles of association.
Regarding
absence from board meetings, it should be noted that it does not say
that the director in question shall vacate office if he “absents
himself”. Such would disqualify the director if the absence in question
was voluntary. The office would be termed vacated if the director has
not been in office even if on medical grounds as per McConnell’s claim.
A person may also cease to be a director for other reasons as follows: -
(i) Death.
(ii) Retirement by rotation under articles.
(iii) Dissolution of the company.
VACATION/REMOVAL OF DIRECTOR
A director may under Kenya law leave office either by vacation or by removal.
(a) Vacation
This
is defined under Kenya laws as the voluntary quitting by a director. It can happen any time during
the directors tenure of office for any reason such as ill health, age,
agreement with the Board of Directors, bankruptcy, ceases to hold
qualification shares, of unsound mind, is convicted by the court of an
offence involving moral turpitude absents himself from meetings,
restrained by the court from being a director and so on.
(b) Removal of Directors
Removal under Kenya laws means being forced to quit the position of a director. A director can be removed by:-
(i) Operation of law
(ii) Company itself
If
a director is in breach of his statutory qualification, the consequence
is that the law operates immediately to remove him. Secondly, when the
company goes into liquidation, the directors ceases to hold office.
Section
185(1) provides that a company may by ordinary resolution remove a
director before expiration of his period of office, not withstanding
anything in the articles or in any agreement between him and the
company. A company may remove a director by ordinary resolution after
giving a notice.
It
is vital to note that Section 185 requires that the company observe the
rules of natural justice which insists that a man shall not be
condemned unheard. The company must send a copy to the director
concerned who is entitled to speak in his defence.
A removed director may claim compensation for the loss of office.
Compensation for Removal
Section
185(6) provides that nothing in the section shall be taken as depriving
a removed director of compensation or damages payable to him in respect
of termination of his appointment as a director.
This
provision would enable a managing director to sue the company for
damages for wrongful dismissal if the effect of his removal as a
director was to prematurely terminate his appointment and was
inconsistent with the contract.
COMPENSATION FOR LOSS OF OFFICE
(a) Section
192(1) makes it unlawful for a company to make to a director any
payment by way of compensation for loss of office, or consideration for
or in connection with his retirement unless the particulars of the
proposed payment are disclosed to the members and approved by the
company in a general meeting. This is necessary because the directors
when negotiating the terms of the proposed settlement would be dealing
with one of their own and might as a consequence give inadequate
consideration to the interests of the company.
(b) Section
193 provides that it shall not be lawful to transfer any part of the
undertaking or property for the purpose of making any payment to a
director by way of compensation for loss of office or on retirement
unless particulars are disclosed to the members of the company and
approved by the company in a general meeting.
(c) If
a payment is made to a director as compensation for loss of office or
on his retirement, he must take reasonable steps to ensure that the
particulars of the proposed payment are included in or sent with any
notice of the offer given to the share holders. If this is not done, the
director holds the payment on trust for the persons who have sold their
shares as a result of the offer.
(d) Section
194 imposes a duty on directors to disclose payments for loss of
office, made in connection with transfer of shares in a company. This
section provides that such payment should be proposed with a transfer as
a result of:-
(i) An offer made to the general body of shareholders.
(ii)
An offer made by or on behalf of some other body corporate with a view
to the company becoming its subsidiary or a subsidiary of its holding
company.
(iii)An
offer made by or on behalf of an individual with a view to his
obtaining the right to exercise or control of not less than 1/3rd of the voting powers at the general meeting.