Wrangles between Boards of Directors and company members are a common occurrence in corporate governance. These disputes often escalate to a point where members seek to remove directors from office, sometimes acting hastily and disregarding the legal procedures required for such actions. Justice Peter Mulwa’s ruling in the HCCOMM/E544/2024 Nairobi Hospital vs. Becky Valarie, Peggy Resiato, and 411 Others case offers critical legal insights on the proper processes and principles governing the removal of directors. This article delves into the key facets of Justice Mulwa’s Ruling, shedding light on the safeguards and obligations that must be observed in such circumstances.
Wrangles between Boards of Directors and company members are a common occurrence in corporate governance. These disputes often escalate to a point where members seek to remove directors from office, sometimes acting hastily and disregarding the legal procedures required for such actions. Justice Peter Mulwa’s ruling in the HCCOMM/E544/2024 Nairobi Hospital vs. Becky Valarie, Peggy Resiato, and 411 Others case offers critical legal insights on the proper processes and principles governing the removal of directors. This article delves into the key facets of Justice Mulwa’s Ruling, shedding light on the safeguards and obligations that must be observed in such circumstances.
First, members of the company should convene a general meeting on requisition. The requisition is procedural and is set out in the Companies Act Cap 486, Section 277, 278 and 279. Its important to note that its only members of the company that requisition for a meeting. In the Nairobi Hospital matter, some requisitioners protested their inclusion as requisitioners because they were not members of the company.
Second, a requisition cannot be moved at a general meeting if the same defames a person or is frivolous and vexatious. Section 277(6) (c) of the Companies Act specifically provides that A resolution may not be moved at a general meeting if it defames a person or it is frivolous or vexatious. For the Nairobi Hospital instance, the Chief Magistrate court at Milimani in CMCC No. E4166 of 2024 had restrained most of the requisitioners from disseminating or circulating any defamatory information on any platform including any meeting of the Hospital including the requisition letters. For that reason, the requisitioners could not rely on requisition letters going by the court orders.
Third, the requisitions ought to be authenticated by persons making it as provided in Section 277 (7) (b) of the Companies Act. For the Nairobi Hospital matter, some of the members disputed their signatures appearing in the requisition. They disputed to have signed the requisition and therefore the requisition could not have been properly authenticated.
Fourth, a resolution for removal of Directors is a Special Resolution. The issuance of a special notice for removal of Directors should be in line with Section 139(2) as read together with Sections 279(4), Section 287(1), Section 1011(1) and 1011 (2) (a) of the Companies Act. Section 139(2) provides that “…. a special notice is required for a resolution to remove a director under this section or to appoint a person to replace the director so removed at the meeting at which the director is removed.”
Section 287(1) of the Companies Act provides “… If a provision of this Act requires a special notice of a resolution to be given, the resolution is not effective unless notice of the intention to move it has been given to the company at least twenty-eight days before the meeting at which it is moved.” Section 1011(1) provides “… A document may be served on a person to whom this section applies by leaving it at, sending it by post to, the person’s registered address.” Section 1011 (2) (a) further provides that “This section applies to the following persons:(a) a director or secretary of a company …”
From the above paragraph herein, the requisitioners issued a 14-day notice to convene a general meeting for removal of Directors. They failed to serve a special notice contrary to Section 139(2) as read together with Sections 279(4), Section 287(1), Section 1011(1) and 1011 (2) (a) of the Companies Act. The court could not therefore allow the General Meeting to proceed as it was in total contravention of the Companies Act. The court noted that that the 14 days’ notice is only applicable if it is impractical to issue the 28-days’ notice. The court further noted that the demonstration that it was impractical to issue the 28 days’ notice is a matter of trial.
From the above paragraph herein, the requisitioners issued a 14-day notice to convene a general meeting for removal of Directors. They failed to serve a special notice contrary to Section 139(2) as read together with Sections 279(4), Section 287(1), Section 1011(1) and 1011 (2) (a) of the Companies Act. The court could not therefore allow the General Meeting to proceed as it was in total contravention of the Companies Act. The court noted that that the 14 days’ notice is only applicable if it is impractical to issue the 28-days’ notice. The court further noted that the demonstration that it was impractical to issue the 28 days’ notice is a matter of trial.
Lastly, removal of Directors should be in line with the provisions of Articles of Association of the Company. In the Nairobi Hospital instance, the Articles of Association required a Notice of Meeting to provide 21 days’ notice. The requisitioners provided a 14 day notice rather 21 days as provided by Article 19 of the Articles of Association of the Company and contrary to Section 279(4) which provides that such meetings are to be convened “ …as nearly as practicable in the manner in which meetings are required to be convened by directors of the company”
In conclusion, allowing the meeting to proceed under such circumstances would have caused significant prejudice to the Hospital (company). The requisitioners’ actions, marked by a blatant disregard for the provisions of the Companies Act and the Articles of Association, undermined the principles of lawful and orderly corporate governance. Justice Mulwa’s ruling underscores the importance of adhering to due process and established legal frameworks when addressing disputes within a company.
Disclaimer: The information provided in this article is for general informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult a qualified legal professional at Teddy & Company Advocates, legal@teddyadvocates.com .
Authored by Boston Milimo and Teddy Enos Ochieng for Teddy & Company Advocates.
