(a) Directors as agents
The
directors are under Kenya law the elected representatives of shareholders. They are in the
eyes of law agents of the company and the general principles of agency
regulate in most cases, the relationship between the company and its
directors.
The
directors are more than agents- they have in certain matters,
independent powers. They are not bound to consult shareholders in all
maters. Power vested with directors, they and they alone can exercise
these powers.
(b) Directors are not personally liable as agents
Where
the directors of a company act on its behalf, they are personally
liable for contracts which they make provided they act within the scope
of their authority and they do not make contracts in their personal
names.
It
was held that “whenever an agent is liable, directors would be liable,
where the principal would be liable; the liability is the liability of
the company”.
The directors are under Kenya law personally liable when:-
(i) The contract is in their names
(ii) They use the company name incorrectly e.g. by omitting the words Ltd & Plv. Ltd.
(iii) The contract is signed in such a way that it is not clear whether it is the agent or principal who signed it.
(iv) They exceed the powers given to them by memorandum and articles of association.
(c) Directors as Employees
Although
directors are agents of the company, they are not employees or servants
of the company for being entitled to privileges and benefits which are
granted under the company’s Act to employees but there is nothing to
prevent a director from being a servant of the company under a special
contract of service, which he may enter into with the company.
Palmer’s
statement gives an insight into this matter. He states that, “Directors
are not as such employees of the company or employed by the company nor
they are servants of the company or members of its staff. A director
can, however hold salaried employment or an office in addition to that
of his directorship which may for this purpose make him an employee or
servant and in such a case, he would enjoy any right given to employees
as such but his directorship and his rights through that directorship
are quite separate from his rights as employee”.
(d) Directors as Trustees
Directors are under Kenya law treated as trustees of the company’s property and money and of the powers entrusted to them.
Directors
are the trustees of the company’s money and property in the sense that
they must account for all the company’s money and property to refund to
the company any of its money or property which have been impropriety
paid, that is, not to pay dividends out of capital. Company property
includes confidential information and beneficial contracts meant for the
company.
The following points in regard to confidential information are worth noting:-
(i) The information itself must be confidential- nothing public.
(ii) The
information must have been communicated to the directors or it has
reached them in circumstances obliging them to treat it as confidential.
(iii) The directors must have made an unauthorized use of that information, for example, converting it to their own use.
The
court went a length to explain and define the scope of directors’
duties with emphasis on the protection of company’s property:-
(i) A
director as a fiduciary is under an obligation not to profit himself
personally from the property of the company. More so in a situation
where his interest is likely to conflict with those of the company to
which he is appointed a director.
(ii) Directors
as fiduciaries, if they use the property of the company thereby making
profits, must be honest enough to account for this profit to the
company.
“Men
who assume the complete control of the company’s business must remember
that they are bound to protect the property of the company. They are
not at liberty to sacrifice the interests which they are bound to
protect, and while ostensibly acting for the company, divert in their
own favor business which should properly belong to the company they
represent”.
Incase
directors are guilty of a distinct breach of duty of which they took
to secure the contract which was meant for the company, whatever benefit
they must have obtained must be regarded as being held by them on
behalf of the company.
Directors
are however not trustees in the real sense of the word because they are
not vested with the ownership of the company’s property. It is only as
regards some of their obligations to the company and certain powers
that they are regarded as trustees of the company.
The directors are really only quasi trustees because:
(i) They are not vested with the ownership of the company’s property.
(ii) Their functions are not the same as those of trustees.
(iii) Their duties of care are not as onerous as those of trustees.