Personal Liability of Directors and the Collapse of Private Companies in Kenya

Abstract

The general legal rule is that a corporate or company is considered a “legal person” distinct from its members and this has led directors of companies to act arbitrarily knowing that they have this legal shield. For the purpose of advancing justice, it is only prudent for specific directors who have made decisions that serve their own interests be held culpable for their actions. The research is mainly qualitative with analysis of cases from four specific jurisdictions i.e. United States, United Kingdom, South Africa and Kenya. Ultimately, the aim of the research is to get answers to three pertinent questions: What reasons are given by the courts in holding directors personally liable for misconduct? What reasons are given by courts in reaching the decision not to hold directors personally liable for misconduct? What best practices can Kenya borrow from the United Kingdom and South Africa? The answers to these questions form part of chapter five. CA 2006 provides various remedies to an aggrieved stakeholder which are: recovery of company’s property misappropriated by a director, reconciliation of the company’s books to enable the director to give a satisfactory explanation of the company’s profits and application for an injunction to prohibit a director from furthering actions that aggrieve the stakeholder. CA 2008 contains clear provisions on the liability of directors, which helps seal the gap in the legal issue of personal liability. Another major finding of the research is that the main shortcoming in Kenya is that having borrowed heavily from CA 2006, failed to make improvements while developing CA 2015. Kenya would have benefitted from borrowing or referencing CA 2008 when CA 2015 was vi being drafted concerning the personal liability of directors due to the fact CA 2008 has express provisions on this. In conclusion, the research found that there is a need to have express provisions of holding directors personally liable in the companies act. This way directors are aware of their responsibilities and consequences in case of breach of any of their duties.