Company Investigations

By Cynthia Mbugua LLB (Hons)

The Companies Act provides a number of options for persons connected with the company to investigate.

1.      Derivative Action

Where directors are unwilling to act for losses as a company and by an individual

Part 30, provides for independent investigation of a company’s affairs.

This can be commenced by:

i.                    Application by members- Members must have at least 200 shares or at least a tenth of the issued shares or in the case of a company not limited by shares, at least a tenth of members of the company

ii.                  AG may order investigation into ownership of a company.

iii.                Members by special resolution. Members can make an application to the registrar. Members can apply to court, AG on his won motion or at the request of any member/ person interested in the company’s affairs.

Grounds independent investigation may be carried out

i.                    Company incorporated for wrong reasons/illegal reasons

ii.                  Business is conducted fraudulently, illegally or in a manner prejudiced to the interest of the members

iii.                Management carried out in an oppressive manner.

iv.                For any other good cause brought to court

AG’s scope for appointing independent investigation is dependent an ownership

AG will pierce veil to understand:

a.       Persons involved in or connected with or interested in the failure of the company

b.      Public policy interest

Investigation is appointed by:

·         Attorney General

·         Court

·         Registrar

Investigation is paid for by the Attorney General

Court’s registrar may require applicant to provide security not exceeding 500,000 Kenyan Shillings.

At the end of investigation, the investigation can recommend that persons identified to be liable to pay.

Powers

1.      Require production of any documents from any person deemed fit for purposes of investigation

2.      Require attendance of any director, any person for purposes of aiding in investigation

3.      Can take statements on oath from any person

4.      Can investigate any related company/ any related person for purposes of investigation

5.      Require assistance in the manner required of any officer/director.

Duties of directors- extends to affiliates, associates and subsidiaries

1.      Provide any information required

2.      Not to obstruct investigation

3.      To ensure safe custody of company records

Deliverables

Inspector will be directed by court/Attorney General on the reports required.

Prepare such reports, within such times as shall be provided for.

During course of investigation, appointing authority may vary orders of investigation.

Keep investigations and reports confidential.

An investigator can cease to be in office by death, unsound mind or any justifiable cause.

An investigator removed from office has the duty to return all material, reports, progress made up to that point.

Consequences of report.

Court can direct that any action in breach to cease forthwith.

Registrar can require change in stakeholding structure.

Make order in change in management and control of company

May order deregistration of company where a crime is committed, court will forward findings and require DPP to take action.

Court can order compensation for any person deemed to have suffered loss

Ensure:

ü  Companies operate within law

ü  Operate for purposes they were established