Law Archives - Bellmac Consulting LLP

Civil Consequences Of Breach Of General Duties Of A Director

cwambugu — Mon, 12 Jun 2023 07:16:36 +0000

The Companies Act, 2015 (the “Act”) in Section 142-147 has outlined the various duties of directors as below;

1. Duty to act within powers and in accordance with the company constitution.

2. Duty to promote the success of the company.

3. Duty to exercise independent judgement.

4. Duty to exercise reasonable care, skill and diligence.

5. Duty to avoid conflict of interest and conflict of duties.

6. Duty to reject benefits/gifts from third parties.

Further, the Act provides that where a director breaches any of the duties listed above, then civil consequences for the breach should arise. The consequences of breach are the same in common law and in equity.

However, the duty to exercise reasonable care, skill and diligence is the only exception in terms of how it is enforced because it is a common law duty. The rest of the general duties of a director are equity-based duties which would be enforced as any other fiduciary duty of the directors to the company.

Consequences for breach of equity-based director duties have been established in the law of equity and on equitable principles. The remedies are as below;

1. Removal of the director from office; the shareholders must vote and decide whether to remove the director temporarily or permanently depending on the seriousness of the breach.

2. Return of company property; property which has been taken by a director must be returned upon breach of any duties of the director.

3. Restitution of profits; a court of law can order that where the company has suffered a loss because a director breached any duty, such a director should pay the company from his personal profits.

4. Injunctive reliefs; a court can issue an injunction to prevent further breaches of duties by a director to prevent further losses.

5. Setting aside of a transaction; a court may order that a transaction entered on behalf of the company by a director who is not acting within his powers and duties be set aside.

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LEGAL AND COMPLIANCE AUDITS

cwambugu — Tue, 28 Feb 2023 13:01:59 +0000

Legal compliance audits are an essential aspect of any organization’s risk management process. The objective of these audits is to ensure that an organization is complying with all applicable legal and regulatory requirements.

Legal compliance audits are conducted to assess an organization’s compliance with legal requirements and regulations ultimately assisting to identify potential legal risks and liabilities and mitigate them before they turn into legal problems.

Why Undertake Legal Compliance Audits for your Organization?

· Identification and assessment of potential legal risks and liabilities.

Legal risks can arise from a wide range of sources such as employment laws, environmental laws, contract laws, data protection laws, and health and safety laws. A legal compliance audit helps organizations to identify these risks and take appropriate measures to mitigate them before they turn into legal problems.

· Compliance with all applicable legal and regulatory requirements. Compliance with legal requirements is essential for organizations to maintain their reputation, avoid fines and penalties, and prevent legal action. Legal compliance audits helps organizations to identify any non-compliance issues and take corrective actions to comply with legal requirements.

· Strengthening internal controls and processes.

By conducting regular legal compliance audits, organizations can identify weaknesses in their internal controls and processes and take corrective actions to improve them. This, in turn, assists organizations to operate more efficiently and effectively, reduce the risk of legal issues, and enhance their reputation.

· Enhance Risk Management processes.

By identifying potential legal risks and liabilities, organizations can take proactive measures to manage and mitigate these risks. This helps organizations to minimize their exposure to legal risks and liabilities and protect their assets.

· Highly Regulated Industries

Such as healthcare, finance, and energy are subject to a wide range of legal and regulatory requirements, and non-compliance can result in severe consequences such as fines, penalties, and reputational damage. Legal compliance audits assists organizations in these industries to comply with legal and regulatory requirements and avoid legal problems.

Legal Compliance Audits are essential for any organization to identify and mitigate potential legal risks and liabilities. Given the importance of legal compliance audits, organizations should conduct regular audits to ensure that they are complying with all applicable legal requirements and regulations.

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Registration of Trusts in Kenya

cwambugu — Tue, 11 Oct 2022 09:00:57 +0000

A trust is an equitable obligation binding trustees to deal with assets over which they have control (Trust assets) for the benefit of persons (beneficiaries) whom they manage for, and in accordance with the terms of the Trust deed in the manner prescribed.

Trusts in Kenya are created under the Trustees (Perpetual Succession) Act (Cap. 164 of the Laws of Kenya) and are subject to other statutes that affect the operation of Trusts in Kenya such as the Income Tax Act and the Tax Procedures Act.

Benefits of Trusts

· Tax Savings – income of a registered trust is exempted from taxation. Charitable trusts are exempted from paying land rates payable on their immovable properties and are also exempted from paying stamp duty when buying land and property.

· A tool of estate and tax planning – Testamentary and Family trusts are another method of estate transfer, as they forego the need for a probate process and reduce the possibility of a court challenge

· Asset Protection – trusts offer specific parameters for the use of your assets

· Enhanced Certainty – revocable trusts can help during illness or disability – not just death.

A trust is established by way of a trust deed. The trust deed contains the objects of the trust, the name of the trust, the properties held under the trust, the power of the trustees, meetings of the trustees, and the trust’s administration.

Registration of trusts involves:

1. Preparation of a trust deed, a declaration of trust, and other relevant documentation.

2. Payment of stamp duty.

3. Registering trusts involves the following two stages.

· Registration at the Lands Registry under the Registration of Documents Act (Chapter 285 of the Laws of Kenya).

· Incorporation under the Perpetual Succession Act.

The registration and subsequent incorporation under the Act; accords the trust a separate legal status and it can own property in its own name, enter into contracts, and do any other thing in its own name gaining a separate and distinct legal identity.

Types of Trust

· Pension trusts

· Investment trusts

· Regulatory Compliance trusts

· Family Trusts including Testamentary trusts and Living trusts

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Kenya Trust Law

bella — Fri, 01 Jul 2022 11:33:40 +0000

Trust law in Kenya is predominately based on the English common law that recognize the ordinary trust with a settlor, trustee and beneficiary relationship. There is a legal framework, however, for the operation of public and private Trusts i.e. The Trustees (Perpetual Succession) Act, which governs the incorporation of trusts for any religious, educational, literary, scientific, social, athletic or charitable purposes or the Trustees of a pension fund or provident fund and the Trustees Act which sets out the authorized investments, the general powers of trustees and the appointment and discharge of trustees. The Act however still refers to the Laws of England when setting out investments to be made by the Trustees.

What is a Trust?

A trust is basically a legal arrangement where one person, the Settlor (donor), appoints another person, the Trustee, to manage certain property or assets, the Trust Asset or Trust Fund, for the benefit of another person, the Beneficiary.

The Settlor appoints the trustee pursuant to a written document called the trust deed, which sets out the manner in which the trustee is to administer the trust, the powers and duties of the trustee and the manner in which the beneficiaries can benefit from the trust.

Under a trust arrangement, the settlor must transfer the legal ownership of the property or assets to the trustees. This is called a settlement. The control of the assets lies with the trustee and the settlor cannot interfere with the assets or encroach upon the duties of the trustee. An interference into the trustees’ administration can result into the trust being a sham and as a result being unenforceable.

Failure to effect a transfer to the trustee will make the trust ineffective as held in the case of Milroy V Lord, where the settlor who owned shares in a Bank wanted to give the shares to his niece, signed a deed with a trustee to hold the shares in trust for his niece. The bank’s constitution required the shares to be transferred to the trustee. The shares were not transferred to the trustee and remained in the name of the settlor. The court held that no trust was created as the transfer of the trust property was not effective. In order for a trust to be valid, the settlor needs to do everything which is necessary to transfer the trust property and make that settlement binding.

Why establish a Trust?

A trust is a very useful tool used by high net worth individuals and family offices for the following purposes:

Succession Planning A trust can be used by a settlor who has established a successful family business to ensure that his assets and business continues for several generations. He may wish to provide for the financial security and opportunities to family members and to protect and manage family wealth through future generations. A trust, therefore, provides an efficient vehicle for the transfer of beneficial ownership interests on the death of a settlor. A trust can be used to hold shares in a company owning immovable property situated outside Mauritius, rather than directly in the real property itself, with the effect of transforming characterization of an interest from immovable to movable, which can present attractive opportunities for tax and financial planning.
Estate Planning Trusts can be used to preserve the continuity of ownership of assets, such as a business, within a family. By vesting legal ownership of assets in a trustee, the appointed beneficiaries under a trust may be able to continue to benefit from the assets, whilst avoiding fragmentation of ownership among a future generation of beneficiaries. The use of a trust avoids, on the death of a beneficiary, the risk of a share of assets becoming owned outside the family, and thus enables trust assets to be preserved intact with the trustee for the benefit of future generations.
Protective Trusts A settlor can provide for protection of vulnerable members of a family or certain beneficiaries by providing for their special needs under the trust. Likewise, a settlor can also protect beneficiaries who may be extravagant and spendthrift from wasting the trust assets and preserve it for future generations.
Asset Protection Trusts can also be used as a shield to help protect assets against the potential future liabilities of a settlor or beneficiary, as the trust asset do not form part of the settlor or the beneficiaries’ asset that can be attached by creditors. Trusts can also safeguard assets against strategic risks, such as confiscation or expropriation by the State.
Avoid Probate Process Where a settlor creates a trust and transfers his assets to the trustee during his lifetime, the trust assets will not form any part of the settlor’s estate upon his death. This may enable a settlor to avoid mandatory probate rules under the laws of succession, which dictate the persons to whom and proportions in which a settlor’s estate will devolve. In addition, the probate process is public and may require the assets of the deceased to be disclosed. A trust is a private document between the settlor and the trustee and there is no requirement for disclosure.
Provide for Charitable and Philanthropic Purposes A settlor can use a trust to provide for and achieve their charitable or philanthropy interests. The settlor can create a charitable trust to provide for a wide variety of philanthropic purposes.
Confidentiality The trust deed is a private document between the settlor and the trustees. There are no requirements for the trust deed to be filed with any public body or authority. Thus all information relating to a trust are not accessible to the general public.

Conclusion

Although trust have been used worldwide as a useful tool for succession planning, estate planning and wealth management, the trusts regime in Kenya is not flexible enough to accommodate more advanced relationships between Settlors and Beneficiaries. The Kenyan’ trust regime is based on the medieval English common law system where the legal ownership of the asset is transferred to the trustees absolutely.

The trustee is granted far more discretion than the settlor would desire while the beneficiary have no control over the assets and the trustees in the performance of their responsibilities, particularly in a discretionary trust. The current trust regime does not provide an adequate protection to the settlor and beneficiary particularly from fear of loss of control and rogue trustees.

To address this challenge, other jurisdictions have introduced the position of a protector in the trust relationship. The protector is an independent party appointed under the trust instrument to direct or restrain the trustees in relation to their administration of the trust.

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