Companies are facing “deadlocks” in terms of performing their day-to-day activities and meeting their various statutory obligations. The reasons behind these “deadlocks” may vary from the death of members, court cases, and in most cases the refusal, unwillingness, and sometimes inability of voting members of the company to attend general meetings and therefore making it impossible to pass relevant resolutions.
The ideal situation would be that a company manages its daily affairs and does not get frustrated by the impracticability of calling or conducting a general meeting to pass the necessary resolutions. The Companies Act, 2015 (the “Act”) sections 255, 256 and 257 has laid elaborate procedural requirements for passing company resolutions by members.
What happens when a company through the acts or omissions of its members (inadvertent or otherwise) is unable to meet the requirements of sections 255, 256, and 257 of the Act? What relief does a director or member have when it is impracticable or impossible to convene a meeting to pass relevant resolutions? What relief is there for Companies that are unable to meet the quorum requirements required by Section 292 of the Act on General Meetings?
To untie this Gordian knot, the Act at Section 280 contemplates that a Court can, in essence, compel the convening of a meeting for purposes of conducting business that needs a general meeting to be conducted. While a company is guided by the provisions of the Act or its Articles of Association, Section 280 (3) of the Act further gives the Court power to issue such “ancillary or consequential directions as it considers fit”.
The Application envisaged by Section 280 of the Act is not novel. Section 280 of the Act (and by extension the Companies Act, 2015) was borrowed from Section 306 of the United Kingdom (UK) Companies Act 2006. Courts in the United Kingdom (UK) have applied their Section 306 and issued orders for the convening of general meetings as was in Union Music Ltd. & Anor v Watson & Anor [2003] EWCA Civ 180.
In Kenya, a successful application of Section 280 of the Act was seen in Seruji Limited v Savannah Cement Limited; Savannah Heights Ltd (Interested party) (Miscellaneous Application E445 of 2021) [2021] where the Court not only issued orders directing that the convening of a general meeting but further invoked the provisions of Section 280 (3) by directing and limiting the period of the notice of the general meeting.
Presented by a Section 280 Application, a Court can therefore override the quorum requirements as contained in the Articles of Association adopted by Members in so far as the applicant is able to prove that its business is ultimately being hindered by the imperatives set by its Articles of Association or the Act. It is important to note that Courts in hearing a Section 280 Application, will be guided on a balance of probabilities and have regard to the circumstances of each case as presented.
The thinking behind the applicability of a Section 280 Application, suggests that Parliament had in mind that it may be “impracticable” to achieve quorum as outlined by the Act or Articles of Association of a company. To cure this, Parliament gave a director or member with a voting right, the option of approaching a Court for appropriate orders. It is however imperative that a Section 280 applicant is guided by the decision of Hon. Justice F. Tuiyott in Radio Frequency Systems (EA) Limited & another v Simon Horner & 2 others [2020] eKLR, where the court stated that the applicant(s) must demonstrate that he has used the avenue available under the statute to call for a meeting, was unable to marshal a quorum and therefore it has been impracticable to convene, hold and conduct a meeting.
This alert is for informational purposes only and should not be construed as a legal opinion. If you have any queries or need clarifications, please do not hesitate to contact Gregory Makambo, Partner, (gmakambo@makambolaw.com), Kelvin Mwaniki, Associate, (k.mwaniki@makambolaw.com) or your usual contact at our firm, for legal advice.