Can a Disqualified Director Execute Valid Transactions and Can a Director Unilaterally Appoint a New Director in Kenya?

Question from mikeyyy, Can a Disqualified Director Execute Valid Transactions and Can a Director Unilaterally Appoint a New Director in Kenya?

Answer from AI:

Validity of Transactions Executed by a Disqualified Director

In Kenya, the Companies Act 2015 governs the operations of companies, including the appointment and roles of directors. According to this Act, a disqualified director is not legally allowed to act as a director or take part in the management of a company. However, the law is not entirely clear on the validity of transactions executed by a disqualified director.

Generally, the principle of ‘indoor management rule’ or the ‘Turquand Rule’ may apply. This rule, originating from the case of Royal British Bank v Turquand, suggests that outsiders dealing with a company are entitled to assume that internal company rules have been complied with. Therefore, if the loan transaction was made in good faith by an outsider unaware of the director’s disqualification, it might still be valid.

However, this is a complex issue and the specific circumstances surrounding the transaction and the director’s disqualification would need to be considered. It is strongly recommended that the members of Wayami Co. Ltd consult with a legal professional for personalized advice.

Validity of Unilateral Appointment of a Director

Under the Companies Act 2015, the appointment of a director should generally be approved by the board of directors or the shareholders of the company. A single director does not have the authority to unilaterally appoint a new director without such approval. Therefore, the appointment of the director’s son to the board of directors of Wayami Co. Ltd, without the approval of the other board members, is likely to be invalid.

However, the company’s articles of association may provide for different procedures for the appointment of directors. Therefore, it would be necessary to review these documents to confirm the correct procedure.

Next Steps

The members of Wayami Co. Ltd should consider the following steps:

• Consult with a legal professional to understand the potential implications of the disqualified director’s actions and the invalid appointment of the new director.
• Review the company’s articles of association to understand the procedures for the appointment of directors.
• Consider holding a members’ meeting to discuss these issues and decide on the appropriate course of action.

Please note that this information is a general guide and not a substitute for legal advice. You can find more information on the Companies Act 2015 on the Kenya Law website.