1. ICPSK COMPANIES ACT SEMINAR
Wednesday, 29th March 2017
Violet Kibera Kimotho

2. OUTLINE Companies Act, 2015 provisions relation to:
Directors and Secretary
Conflicts of Interest and related party transactions
Use of Information Technology

3. SESSION OBJECTIVES
By the end of the session, participants will be able to:
Identify scenarios of conflict of interest and how to avoid or manage them
Describe directors’ duties and identify how directors can remain vigilant.
Engage in deliberations on the role of information technology

4. Conflict of Interest – Companies Act, 2015
(a) Part IX, Division 4
Sections : Declaration of interest in existing transactions or arrangements
(b) Part IX, Division 5
Sections 155 – 179 Transactions with directors requiring approval of members

5. Conflict of Interest
Situation that has the potential to undermine the impartiality of a person because of the possibility of a clash between the person’s self-interest and professional interest or public interest.
CMA, Code of Corporate Governance Practices for Issuers of Securities to the Public, 2015

6. WHAT TO DO? TO WHO? HOW? Declare interest Nature and extent
Other directors
Members of public company
HOW?
General meeting
Directors meeting

7. When declaration is not necessary
When director is note aware of the conflict of interest or the transaction or arrangement to which conflict relates
If cannot be reasonably be regarded that situation is likely to give rise to conflict of interest (de minimis)
Where the other directors are already aware
It concerns terms of the directors service contract that are being considered
Where private company has only one director

8. How to deal with Conflict of Interest
Avoidance/Eliminate
Disclosure
What are the challenges with these?
Avoid/Eliminate examples – advocates, real estate agents, supervisors
Disclosure – gift policy

10. Options to avoid or manage Conflicts of Interest
Taking no further action because the potential for conflict is minimal or can be eliminated by disclosure and effective supervision;
Appointing an independent third party to oversee the integrity of the process;
Appointing extra persons to the panel or committee to minimise the influence of the individual about whom the perception is held;
Seeking the views of persons likely to be affected about the person continuing in the process;
Restricting the access of the person to relevant information that is sensitive or confidential;

11. Options to avoid or manage Conflicts of Interest
Requesting the person to relinquish or divest the personal interest which creates the conflict;
Removing the person from the responsibilities or duties to which the conflict relates;
Making arrangements for members of boards and committees to absent themselves from debate or decision on specific matters.
Maintaining records of activities that may lead to conflicts
Providing/receiving education about identifying conflict of interest; and agreeing with on triggers for disclosure.

12. Directors – Companies Act, 2015
Part IX: Directors
Divisions 1-11: Sections
Part X: Disqualification of Directors
Division 1-4: Sections

13. Director - definition In relation to a body corporate, includes
Any person occupying the position of the position of a director of the body (by whatever name the person is called);
Any person in accordance with whose directions or instructions (not being advice given in a professional capacity) the directors of the body are accustomed to act.
Introduces the concept of the shadow director

14. Directors - some new requirements
No of Directors: At least 1 for private company; At least 2 directors for public company; 1 natural person.
New register of directors’ residential addresses
Age – Minimum 18 years; no maximum
Written consent to act as director required.
Written declarations of interest in transactions or arrangements to be made by directors
Disclosure of long term service agreements, issuance of loans to directors and other credit transactions required.

15. Directors’ Duties To act within powers
To promote the success of the company
To exercise independent judgment
To exercise reasonable care, skill and diligence
To avoid conflicts of interest
Not to accept benefits from third parties

16. Directors’ Duties
A director should carry on his duties while having regard to:-
the long term consequences of any decision of the directors;
the interests of the employees of the company;
the need to foster the company's business relationships with suppliers, customers and others;
the impact of the operations of the company on the community and the environment;
to maintain a reputation for high standards of business conduct.

18. Company Secretary Prescribed for: Public companies
Private company with paid up capital of Kshs. 5 Million
Where there is no CS:
Anything to be done by CS can be done by a director or any authorized person
Anything to be given or sent to CS can be given or sent to company directly

19. Company Secretary Qualifications
A person who appears to have the requisite knowledge and experience to discharge the functions of the CS
Holder of a practicing certificate issued under the CPS Act.
Details of the CS should also be kept in a register.
Can be a firm or a natural person
Can have joint secretaries

20. Unfitness of Directors and Secretaries
Grounds for disqualification:
Breach of fiduciary duty or other duty
Conviction of an offence
Misapplication or improper retention of Company monies
any conduct giving rise to an obligation to account for money or other property;

21. Unfitness of Directors and Secretaries
Court disqualification order against the person
Persistently defaulting with regard to submission of returns, accounts or other documents
Failure to maintain statutory registers and keep proper accounting records.

22. Penalties
Offence under the conflict of interest provisions attracts a fine of up to Kshs. 1 Million
Officers of public company without a CS liable to a fine not exceeding Kshs. 500,000 and Kshs. 50,000 per day for each day they fail to comply: similar fine for failing to keep the register.
Directors also liable to a fine of up-to Kshs. 200,000 for appointing a CS who is not qualified.

23. What can Directors do in the face of all these duties?
Be proactive and diligent in your duties;
Foster a compliance culture – implement and make use of training and
compliance programs;
Be demanding - ensure Board papers are of a high standard and are sent in
sufficient time before board meetings;
Control the flow of information given to the Board to ensure that they keep the
amount of paperwork to be read and digested within manageable levels.
Directors participating from a remote location (including by teleconference)
should always have the relevant documents on hand during a board discussion;
Avoid risky time frames;

24. What can directors do in the face of all these duties ?
Get professional advice on material issues and, for senior managers, bring
material issues to the attention of the Board even if the matter appears obvious;
Ask questions and have review processes in place;
Identify, disclose and quickly address any potential conflicts;
Ensure the company has an effective whistle-blowing policy in place;
Don’t keep problems to yourself – discuss them with your peers;
Carefully read and understand draft financial statements, notes and other
accompanying papers; and
Undertake training to improve your skills and understanding (such as company
director courses).

25. Use of Information Technology
The Act makes provision for use of information technology e. g.
In dissemination of information to and among shareholders and directors: resolutions in hard copy form, electronic form or by means of a website
Posting of information on the website: notices and announcements
Increasingly in the age of transparency and disclosure a lot more information is required on company websites e.g. Board Charter, Conflict of Interest policy

26. Innovative uses of Information Technology
Payment of dividend by Mpesa
Launch of M-Akiba
Future: IPOs or Rights Issue
Other examples?

28. THANK YOU Violet Kimotho Azali Certified Public Secretaries
Adlife Plaza, 4th Floor
Ring Road, Kilimani
Nairobi