RULING
1. The plaintiffs/applicants filed an Originating Summons dated 28th October 2024 pursuant to the provisions of Section 280 of the Companies Act, 2015, Sections 1A, 1B & 3A of the Civil Procedure Act and all other enabling provisions of the law. The plaintiffs seek orders that the 1st plaintiff be granted leave to hold an Extraordinary General Meeting within 7 days, despite not meeting a quorum as per its Memorandum and Articles of Association and that pursuant to the provisions of Sections 280(3) & (4) of the Companies Act, 2015, by giving at least 3 days' notice to the defendant, the 2nd plaintiff be deemed to constitute a quorum for the meeting.
2. The application is premised on the grounds on the face of the Summons and it is supported by an affidavit sworn on the same day by Mr. Boris Owiye Agonga, a co-director of the 1st plaintiff and the 2nd plaintiff herein. He averred that the 1st plaintiff is unable to meet its financial and operational obligations including staff salaries and utility bills, because it cannot pass Board resolutions due to the defendant’s refusal to attend Board meetings. He stated that the 1st plaintiff has only two Directors/shareholders being the 2nd plaintiff and the defendant herein, each holding equal 450 ordinary shares. He asserted that since both Directors are required to make a quorum for a Board meeting, the defendant’s refusal to attend them has effectively paralyzed the 1st plaintiff's ability to hold lawful meetings or pass valid resolutions.
3. Mr. Agonga contended that the 1st plaintiff risks operational collapse if meetings are not held to make necessary resolutions. Further, that the continued failure to convene General Meetings is unlawful and exposes the company to legal risk. He stated that the Companies Act, 2015 under Section 280 empowers Courts to intervene in cases such as this one, in public interest and to safeguard proper corporate governance. Mr. Agonga averred that the defendant’s conduct is aimed at frustrating the 1st plaintiff’s ability to govern itself and function properly. He stated that it is just and necessary for this Court to permit the holding of an Extraordinary General Meeting (EGM) within 7 days, with the 2nd plaintiff alone constituting a quorum upon proper Notice.
4. In opposition to the application, the defendant herein, Mr. Boniface Gichane Maina, filed a replying affidavit sworn on 8th November 2024. He deposed that he is the founding Director of the 1st plaintiff alongside two former Directors, each initially holding 300 ordinary shares. He averred that in the year 2022, the 2nd plaintiff was appointed as a co-director of the 1st plaintiff. He admitted that both he and the 2nd plaintiff hold 450 ordinary shares in the 1st plaintiff with equal voting rights. He deposed that the 1st plaintiff operated smoothly until the 2nd plaintiff joined the company, and that he is now obstructing Board resolutions. The defendant denied absconding the 1st plaintiff’s Board meetings and provided minutes confirming that he has attended all the said meetings.
5. Mr. Maina denied that the 1st plaintiff is in financial distress and stated that it is able to meet its financial obligations including payment of salaries, utility bills and expenses. He stated that the print out of the pending approval annexed to the plaintiffs’ supporting affidavit is a transaction of his own salary which he raised on 24th October 2024 and was approved by him on 25th October 2024. He averred that the 2nd plaintiff was pressing for funds to meet his extraneous expenses at the expense and against the interest of the 1st plaintiff, its employees and shareholders. He stated that as Directors of the 1st plaintiff, together with the 2nd plaintiff, they have a duty to act in the best interest of the 1st plaintiff, thus he could not reasonably approve all the transactions which are not in its best interest.
6. Mr. Maina further stated that the 2nd plaintiff has in several instances threatened sell his 50% shares in the 1st plaintiff and/or lead it into liquidation, hence posing a risk to the 1st plaintiff company. He referred to Clause 12 of the 1st plaintiff’s Articles of Association and stated that the quorum for General Meetings is two members, thus any unilateral meetings are invalid. He opined that this Court lacks jurisdiction under Section 280 of the Companies Act to interfere with the internal management of the 1st plaintiff until internal dispute resolution mechanisms in the Articles of Association are exhausted. He averred that the 1st plaintiff risks unlawful decisions if the 2nd plaintiff is allowed to act alone. He denied the allegations that the 1st plaintiff’s Board has failed to meet due to lack of quorum.
7. In a rejoinder, the plaintiffs filed a further affidavit sworn on 9th December 2024 by Mr. Boris Owiye Agonga, the 2nd plaintiff herein and a co-director of the 1st plaintiff. He averred that upon being appointed as a co-director of the 1st plaintiff by the defendant after being allotted shares, he and the defendant were expected to act in the 1st plaintiff’s best interests, and where there was failure to do so, Section 280 of the Companies Act allows judicial intervention. Mr. Agonga deposed that simply attending Board meetings without signing minutes as the defendant has been doing, equates to non-participation. He averred that the defendant only approved payments after being served with pleadings from Court and not as part of standard procedures.
8. It was stated by Mr. Agonga that the defendant disrupted the 1st plaintiff’s operations by denying staff control panel login details to emails. He denied using company funds for personal gain and asserted that all facilitation requests were for legitimate client visits that grew the 1st plaintiff’s portfolio to international client-base. He asserted that commissions for client referrals are common practice and permitted under Article 3 (vv), (ww) & (dd) of the 1st plaintiff’s Memorandum of Association. Further, that client acquisition and business development fall within his job description, which includes mobilizing potential clients. Mr. Agonga stated that the defendant has threatened the 1st plaintiff’s stability by proposing its dissolution and his resignation, actions that have previously been discussed at Board level.
9. Mr. Agonga contended that Article 29 of the 1st plaintiff’s Articles of Association and the Arbitration Act do not apply to the current situation, as it is not a typical dispute. He stated that since the defendant has already responded to this suit, arbitration is no longer an option pursuant to the provisions of Section 6(1) of the Arbitration Act. He deposed that Section 280 of the Companies Act does not limit the Court's powers but facilitates judicial intervention to address procedural deadlocks and ensure proper company management. He averred that relying on Clause 12 of the 1st plaintiff’s Articles of Association to disallow the instant application would contradict the intent of Parliament under Section 280 of the Companies Act, which takes precedence over internal company rules.
10. The application herein was canvassed by way of written submissions. The plaintiffs’ submissions were filed by the law firm of Hashim & Lesaaigor Associates Advocates on 12th December 2024, while the defendant’s submissions were filed on 17th December 2024 by the law firm of Chege Kibathi & Company Advocates LLP.
11. Mr. Arubu, learned Counsel for the plaintiffs submitted that the success of any corporate association depends on the principle of uberrimae fidei (utmost good faith) among Directors. He argued that in this case the defendant has made the operations of the 1st plaintiff company inoperable by deliberately refusing to attend or sign Board minutes, thereby frustrating the quorum required under Clause 12 of the 1st plaintiff’s Memorandum and Articles of Association, which mandates the presence of both Directors to constitute a valid Board meeting. He submitted that while the defendant claims to have always been available for meetings, the plaintiffs had adduced evidence that shows that he only attends those meetings aligned with his personal interests but otherwise declines to participate or sign minutes, effectively paralyzing the Board’s function.
12. Mr. Arubu submitted that such conduct violates the good faith obligations expected of Directors under Section 280 of the Companies Act, which embodies Lord Atkin’s “neighbour principle” as articulated in the case of Donoghue v Stevenson [1932] AC 562 HL, to the effect that one must act to avoid foreseeable harm to those affected by one’s actions. Counsel urged this Court to grant the orders being sought in the application herein so as to prevent further harm to the 1st plaintiff as occasioned by the defendant’s obstructive conduct.
13. Mr. Juma, learned Counsel for the defendant submitted that Section 280(1) of the Companies Act only applies where it is impracticable to convene or conduct meetings as required by law or the Articles of Association. He stated that Clause 12 of the 1st plaintiff’s Articles of Association provides that two members constitute a quorum, and that both the 2nd plaintiff and the defendant meet this threshold. He contended that the allegations of the defendant’s non-attendance of Board meetings are false and unsubstantiated, as the plaintiffs have not produced any minutes showing missed meetings. He contended that the defendant had demonstrated that he not only attended but also signed minutes of recent meetings, where resolutions were passed. Counsel stated that the defendant had demonstrated by production of payroll and receipts, that salaries and other bills had been paid, and that the 1st plaintiff is able to meet its financial obligations.
14. Mr. Juma relied on the case of Radio Frequency Systems (EA) Limited & another v Simon Horner & 2 others [2020] eKLR, and asserted that the 2nd plaintiff had failed to meet the legal threshold required for the Court to invoke its jurisdiction under Section 280 of the Companies Act, thus the instant application ought to be dismissed.
15. Counsel stated that Article 29 of the 1st plaintiff’s Articles of Association requires the holding of General Meetings and referral of disputes to arbitration before seeking Court intervention, but in this case, the 2nd plaintiff had not demonstrated any attempt to convene a General Meeting, or that the defendant had failed to attend such a meeting and/or that the dispute herein was at one point referred to arbitration. He contended that the instant application is premature as the 2nd plaintiff has not exhausted the internal dispute resolution mechanisms provided for under the 1st plaintiff’s Articles of Association. He also contended that this Court’s jurisdiction under Section 280 of the Companies Act is limited and does not extend to every disagreement between Directors, especially where internal remedies exist.
ANALYSIS AND DETERMINATION.
16. I have considered the application filed herein, the grounds on the face of it, and the affidavits filed in support thereof. I have also considered the replying affidavit by the defendant and the written submissions by Counsel for the parties. The issue that arises for determination is whether the applicants herein should be granted leave to hold an Extraordinary General Meeting without constituting the necessary quorum.
17. Upon perusal of sections 276 & 277 of the Companies Act, Directors of a company may convene a General Meeting of a company at their own instance or at the instance of the members of the company.
18. In this case, the 1st plaintiff has only two Directors and shareholders. The 2nd plaintiff’s contention is that the 1st plaintiff has been unable to fulfill its financial and operational obligations which include paying staff salaries and utility bills, as it cannot pass Board resolutions. His claim is that this has been caused by the defendant’s persistent refusal to attend Board meetings. The 2nd plaintiff’s assertion is that since both Directors are needed to constitute a quorum, the defendant’s absence effectively cripples the company’s ability to convene valid meetings or make binding decisions. He stated that the ongoing failure to hold General Meetings is unlawful and places the 1st plaintiff at legal risk.
19. The defendant on the other hand contended that it is the 2nd plaintiff who is obstructing the passage of Board resolutions. He denied having missed Board meetings and presented minutes to show that he has attended all such meetings. The defendant also refuted claims that the 1st plaintiff is facing financial difficulties, and asserted that the company is capable of meeting its financial obligations including salaries, utility bills, and other expenses. He averred that the 2nd plaintiff is seeking funds to cover personal, non-essential expenses, which are contrary to the interests of the 1st plaintiff, its employees, and shareholders, and for that reason, he could not approve transactions that do not serve the 1st plaintiff’s best interests.
20. It is undisputed that Clause 12 of the 1st plaintiff’s Articles of Association requires a quorum of two members for a Board meeting to be held. Evidence from both parties indicates a breakdown in the management of the 1st plaintiff due to disputes between its two Directors. A Board meeting held on 13th September 2024 attended by both Directors, the Company Secretary, and an invited member, had an agenda that included inter alia, the possible dissolution of the company and the resignation of a Director. The Directors were however unable to reach an agreement on dissolution, and the defendant was given additional time to consider his resignation and report back to the Board.
21. Evidently, the minutes from the meetings held on 13th & 18th September 2024 were signed by both Directors, confirming their accuracy. It is also noteworthy that during the meeting of 18th September 2024, the defendant again requested for more time to decide on his resignation, and it was agreed that the next meeting would be held on 20th September 2024. At the meeting of that date, although both Directors were present, the issues of company dissolution and Director resignation were not discussed, and only the defendant signed the minutes.
22. From the evidence adduced, it is evident that while the 1st plaintiff may be facing financial strain due to a tough economic climate and business competition, there is no evidence that it has failed to meet its financial and/or operational obligations which include staff salaries and utility bills, as a result of inability to pass Board resolutions due to the defendant’s failure to attend Board meetings. To the contrary, this Court notes that the defendant has demonstrated that the 1st plaintiff was up-to-date on payments for staff salaries, rent, and utility bills as of the date of his replying affidavit. This Court further notes that the plaintiffs failed to adduce evidence to support their claims that the 1st plaintiff has either failed to pay salaries, utility bills and/or its service providers. He thereby failed to satisfy the provisions of Sections 107, 108 & 109 of the Evidence Act, which provide that he who asserts must prove.
23. This Court reviewed the extract of WhatsApp messages between the 2nd plaintiff and the defendant annexed to the plaintiffs’ affidavit in support of the application herein and observed that as at 2nd October 2024, the defendant was firmly in favour of winding up the 1st plaintiff rather than resigning. This Court also notes that although both parties had at some point expressed willingness to sell their shares, the defendant consistently maintained his position on dissolving the company, even after being given time to reconsider resigning as a Director of the 1st plaintiff. Further, in as much as the plaintiffs allege that the defendant has refused to attend Board meetings and approve resolutions, no evidence has been presented to support this allegation.
24. From the depositions made by the parties herein, there is lack of consensus between the two Directors/shareholders regarding the running and management of the 1st plaintiff, its possible dissolution, or the defendant’s resignation. In light of this deadlock, even if future meetings were to be held, passing of resolutions would remain unlikely due to the absence of a meeting of minds. It is now well settled that Courts do not interfere with the internal management of companies acting within their powers. See the holding by the Court in the English case of Foss v Harbottle [1843] 2 Hare 261. In Re K Boat Service [1998] KEHC 39 (KLR), the Court held that -
Courts will interfere only where the act complained of is ultra vires or is fraudulent character or not rectifiable by ordinary resolution. It is really very important to companies and to the economy of the country in general, that the Court should not, unless a very strong case is made out on the facts pleaded and proved or admitted, take upon itself to interfere with the domestic forum which has been established for the management of the affairs of the company. Accordingly, acts by or on behalf which require the authority of a resolution of the company and are done without it, or are otherwise irregular, but which can be regularized by the company at a general meeting and without a special resolution and are neither ultra vires nor of a fraudulent character, are not a ground for a Court’s interference upon a winding-up petition …., or a petition to remove a director by a minority shareholder … under the ‘just and equitable’ rule.
25. Courts will only intervene where the act in question is ultra vires, involves fraud, or cannot be remedied through an ordinary resolution. This Court therefore finds that due to the lack of consensus between the 1st plaintiff’s two Directors, no ordinary resolutions can be passed. The plaintiffs have shown instances where the defendant attempted to make unilateral decisions concerning the 1st plaintiff’s affairs. Additionally, the 2nd plaintiff has demonstrated that the 1st plaintiff’s Operations Manager has raised concerns that the ongoing disputes and conflicting directives from the Directors are adversely affecting staff performance and operational efficiency.
26. Jurisdiction for the High Court to interfere with the internal management of limited liability companies is provided for under Section 280 of the Companies Act which states as hereunder -
1) This section applies if for any reason it is impracticable -
a) To convene a meeting of the company in any manner in which meetings of that company may be convened; or
b) to conduct the meeting in the manner required by the articles of the company or this Act.
2) The Court may, either on its own initiative or on the application –
a) of a director of the company; or
b) of a member of the company who would be entitled to vote at the meeting,
make an order requiring a meeting to be convened, held and conducted in any manner the Court considers appropriate.
3) If an order is made under subsection (2), the Court may give such ancillary or consequential directions as it considers appropriate.
4) Directions given by the Court under subsection (3) may include a direction that one member of the company present at the meeting be regarded as constituting a quorum.
5) A meeting convened, held and conducted in accordance with an order under this section is taken for all purposes to be a meeting of the company properly convened, held and conducted.
27. The import of the provisions of Section 280 of the Companies Act were considered by the Court in the oft cited case of Radio Frequency Systems (EA) & another v Simon Horner & 2 others (supra), where it was held that -
The substance of this provision is similar to section 371 of the English Companies Act, 2015 1985. In a Jersy case of In the Matter of Inter-Channel Pharmaceuticals Ltd [2002] JRC 116A (10 June 2002), the Court observed as follows, regarding the Courts power under that provision.
‘We have been referred to three English Authorities namely, In Re El Sombrero Limited [1958] 3 WLR 900, In Re H.R. Paul & Son Limited [1974] 118SJ 166, and In Re Opera Photographic Ltd. In Re El Sombrero made it clear that the question raised by the word “impracticable” in the statutory provision is merely whether, in the particular circumstances of the case, the desired meeting of the company could as a practical matter be conducted. The case went on to hold that, if it is impracticable, a discretion then arose in the Court as to whether it should make an order as sought. In the El Sombrero case the applicant held 90% of the shares and the two respondents the remaining 10%. They were also the only Directors. By absenting themselves from any meeting they were effectively preventing the majority shareholder from exercising the rights attaching to his 90% shareholding to change the Board of Directors. The Court made an appropriate order to convene a meeting and allow it to proceed in the absence of the quorum required by the articles.
In all the three English decisions to which we have been referred the Court in effect made it clear that the quorum provisions should not be regarded as a right vested in the minority to frustrate the wishes of the majority. The facts in In Re Opera Photograph Limited were very similar to those in the present case. The majority shareholder wished to dismiss a director, but was prevented from doing so because the director, who was also the other member, declined to attend the meeting of members so that the meeting was without quorum.
It would seem that the overarching purpose of section 280 is to provide an inexpensive and speedy procedural remedy to overcome technical difficulties in a company convening, holding or conducting a meeting. It aids in the proper management of a company in the face of technical obstacles. (Emphasis added).
28. This Court concurs with the foregoing decision and adds that by enacting the Companies Act, 2015 the legislature in Kenya intended companies to manage their internal affairs without being obstructed by challenges in convening or conducting meetings as required by their Articles of Association or the law. Upon perusal of the evidence adduced, it is noteworthy that despite the fact that both the 2nd plaintiff and the defendant had at some point threatened to sell their shares in the 1st plaintiff, the defendant has remained firm on seeking the winding up of the 1st plaintiff, even after being given time to reconsider resigning as a Director. This state of affairs reflects a clear lack of interest by the defendant in maintaining the 1st plaintiff as a going concern.
29. This Court further finds that the argument that the plaintiffs failed to exhaust internal dispute resolution mechanisms under Article 29 of the 1st plaintiff’s Articles of Association before invoking this Court’s jurisdiction under Section 280 of the Companies Act lacks merit. This is because although Article 29 of the 1st plaintiff’s Articles of Association mandates arbitration for member disputes, Section 6(1) of the Arbitration Act requires a party to apply for stay of proceedings and referral of the dispute to arbitration if it involves a dispute covered by an Arbitration Agreement, before entering appearance or acknowledging the claim. In this case, the defendant filed a Notice of appointment and responded to the application herein before raising any objection, thereby submitting to this Court’s jurisdiction. As a result, the defendant is estopped from relying on the Arbitration Clause provided for under Article 29 of the 1st plaintiff’s Articles of Association to oppose the instant application.
30. In light of the above, this Court is satisfied that its jurisdiction has been properly invoked to enable the 1st plaintiff to continue its operations, hold meetings, and pass resolutions necessary for its effective management and continuity as a going concern. I am therefore persuaded that the 2nd plaintiff has made out a case to warrant being granted the orders sought herein.
31. This Court finds that the application herein is merited. It is hereby allowed in the following terms –
i) Despite not meeting a quorum as per its Memorandum and Articles of Association, the 1st plaintiff is hereby granted leave to hold an Extraordinary General Meeting (EGM) within 14 days from the date of this Ruling;
ii) That pursuant to the provisions of Sections 280(3) & (4) of the Companies Act, 2015, after at least 7 days' Notice to the defendant, the 2nd plaintiff shall be deemed to constitute a quorum for the meeting; and
iii) Costs of this application shall be borne by the defendant.
It is so ordered.
DATED, SIGNED and DELIVERED at NAIROBI on this 30TH day of JULY
2025. Ruling delivered through Microsoft Teams Online Platform.
NJOKI MWANGI
JUDGE
In the presence;-
Mr. Aluku for the applicants
Mr. Kiru holding brief for Mr. Juma for the respondent
Ms B. Wokabi – Court Assistant.
1. The plaintiffs/applicants filed an Originating Summons dated 28th October 2024 pursuant to the provisions of Section 280 of the Companies Act, 2015, Sections 1A, 1B & 3A of the Civil Procedure Act and all other enabling provisions of the law. The plaintiffs seek orders that the 1st plaintiff be granted leave to hold an Extraordinary General Meeting within 7 days, despite not meeting a quorum as per its Memorandum and Articles of Association and that pursuant to the provisions of Sections 280(3) & (4) of the Companies Act, 2015, by giving at least 3 days' notice to the defendant, the 2nd plaintiff be deemed to constitute a quorum for the meeting.
2. The application is premised on the grounds on the face of the Summons and it is supported by an affidavit sworn on the same day by Mr. Boris Owiye Agonga, a co-director of the 1st plaintiff and the 2nd plaintiff herein. He averred that the 1st plaintiff is unable to meet its financial and operational obligations including staff salaries and utility bills, because it cannot pass Board resolutions due to the defendant’s refusal to attend Board meetings. He stated that the 1st plaintiff has only two Directors/shareholders being the 2nd plaintiff and the defendant herein, each holding equal 450 ordinary shares. He asserted that since both Directors are required to make a quorum for a Board meeting, the defendant’s refusal to attend them has effectively paralyzed the 1st plaintiff's ability to hold lawful meetings or pass valid resolutions.
3. Mr. Agonga contended that the 1st plaintiff risks operational collapse if meetings are not held to make necessary resolutions. Further, that the continued failure to convene General Meetings is unlawful and exposes the company to legal risk. He stated that the Companies Act, 2015 under Section 280 empowers Courts to intervene in cases such as this one, in public interest and to safeguard proper corporate governance. Mr. Agonga averred that the defendant’s conduct is aimed at frustrating the 1st plaintiff’s ability to govern itself and function properly. He stated that it is just and necessary for this Court to permit the holding of an Extraordinary General Meeting (EGM) within 7 days, with the 2nd plaintiff alone constituting a quorum upon proper Notice.
4. In opposition to the application, the defendant herein, Mr. Boniface Gichane Maina, filed a replying affidavit sworn on 8th November 2024. He deposed that he is the founding Director of the 1st plaintiff alongside two former Directors, each initially holding 300 ordinary shares. He averred that in the year 2022, the 2nd plaintiff was appointed as a co-director of the 1st plaintiff. He admitted that both he and the 2nd plaintiff hold 450 ordinary shares in the 1st plaintiff with equal voting rights. He deposed that the 1st plaintiff operated smoothly until the 2nd plaintiff joined the company, and that he is now obstructing Board resolutions. The defendant denied absconding the 1st plaintiff’s Board meetings and provided minutes confirming that he has attended all the said meetings.
5. Mr. Maina denied that the 1st plaintiff is in financial distress and stated that it is able to meet its financial obligations including payment of salaries, utility bills and expenses. He stated that the print out of the pending approval annexed to the plaintiffs’ supporting affidavit is a transaction of his own salary which he raised on 24th October 2024 and was approved by him on 25th October 2024. He averred that the 2nd plaintiff was pressing for funds to meet his extraneous expenses at the expense and against the interest of the 1st plaintiff, its employees and shareholders. He stated that as Directors of the 1st plaintiff, together with the 2nd plaintiff, they have a duty to act in the best interest of the 1st plaintiff, thus he could not reasonably approve all the transactions which are not in its best interest.
6. Mr. Maina further stated that the 2nd plaintiff has in several instances threatened sell his 50% shares in the 1st plaintiff and/or lead it into liquidation, hence posing a risk to the 1st plaintiff company. He referred to Clause 12 of the 1st plaintiff’s Articles of Association and stated that the quorum for General Meetings is two members, thus any unilateral meetings are invalid. He opined that this Court lacks jurisdiction under Section 280 of the Companies Act to interfere with the internal management of the 1st plaintiff until internal dispute resolution mechanisms in the Articles of Association are exhausted. He averred that the 1st plaintiff risks unlawful decisions if the 2nd plaintiff is allowed to act alone. He denied the allegations that the 1st plaintiff’s Board has failed to meet due to lack of quorum.
7. In a rejoinder, the plaintiffs filed a further affidavit sworn on 9th December 2024 by Mr. Boris Owiye Agonga, the 2nd plaintiff herein and a co-director of the 1st plaintiff. He averred that upon being appointed as a co-director of the 1st plaintiff by the defendant after being allotted shares, he and the defendant were expected to act in the 1st plaintiff’s best interests, and where there was failure to do so, Section 280 of the Companies Act allows judicial intervention. Mr. Agonga deposed that simply attending Board meetings without signing minutes as the defendant has been doing, equates to non-participation. He averred that the defendant only approved payments after being served with pleadings from Court and not as part of standard procedures.
8. It was stated by Mr. Agonga that the defendant disrupted the 1st plaintiff’s operations by denying staff control panel login details to emails. He denied using company funds for personal gain and asserted that all facilitation requests were for legitimate client visits that grew the 1st plaintiff’s portfolio to international client-base. He asserted that commissions for client referrals are common practice and permitted under Article 3 (vv), (ww) & (dd) of the 1st plaintiff’s Memorandum of Association. Further, that client acquisition and business development fall within his job description, which includes mobilizing potential clients. Mr. Agonga stated that the defendant has threatened the 1st plaintiff’s stability by proposing its dissolution and his resignation, actions that have previously been discussed at Board level.
9. Mr. Agonga contended that Article 29 of the 1st plaintiff’s Articles of Association and the Arbitration Act do not apply to the current situation, as it is not a typical dispute. He stated that since the defendant has already responded to this suit, arbitration is no longer an option pursuant to the provisions of Section 6(1) of the Arbitration Act. He deposed that Section 280 of the Companies Act does not limit the Court's powers but facilitates judicial intervention to address procedural deadlocks and ensure proper company management. He averred that relying on Clause 12 of the 1st plaintiff’s Articles of Association to disallow the instant application would contradict the intent of Parliament under Section 280 of the Companies Act, which takes precedence over internal company rules.
10. The application herein was canvassed by way of written submissions. The plaintiffs’ submissions were filed by the law firm of Hashim & Lesaaigor Associates Advocates on 12th December 2024, while the defendant’s submissions were filed on 17th December 2024 by the law firm of Chege Kibathi & Company Advocates LLP.
11. Mr. Arubu, learned Counsel for the plaintiffs submitted that the success of any corporate association depends on the principle of uberrimae fidei (utmost good faith) among Directors. He argued that in this case the defendant has made the operations of the 1st plaintiff company inoperable by deliberately refusing to attend or sign Board minutes, thereby frustrating the quorum required under Clause 12 of the 1st plaintiff’s Memorandum and Articles of Association, which mandates the presence of both Directors to constitute a valid Board meeting. He submitted that while the defendant claims to have always been available for meetings, the plaintiffs had adduced evidence that shows that he only attends those meetings aligned with his personal interests but otherwise declines to participate or sign minutes, effectively paralyzing the Board’s function.
12. Mr. Arubu submitted that such conduct violates the good faith obligations expected of Directors under Section 280 of the Companies Act, which embodies Lord Atkin’s “neighbour principle” as articulated in the case of Donoghue v Stevenson [1932] AC 562 HL, to the effect that one must act to avoid foreseeable harm to those affected by one’s actions. Counsel urged this Court to grant the orders being sought in the application herein so as to prevent further harm to the 1st plaintiff as occasioned by the defendant’s obstructive conduct.
13. Mr. Juma, learned Counsel for the defendant submitted that Section 280(1) of the Companies Act only applies where it is impracticable to convene or conduct meetings as required by law or the Articles of Association. He stated that Clause 12 of the 1st plaintiff’s Articles of Association provides that two members constitute a quorum, and that both the 2nd plaintiff and the defendant meet this threshold. He contended that the allegations of the defendant’s non-attendance of Board meetings are false and unsubstantiated, as the plaintiffs have not produced any minutes showing missed meetings. He contended that the defendant had demonstrated that he not only attended but also signed minutes of recent meetings, where resolutions were passed. Counsel stated that the defendant had demonstrated by production of payroll and receipts, that salaries and other bills had been paid, and that the 1st plaintiff is able to meet its financial obligations.
14. Mr. Juma relied on the case of Radio Frequency Systems (EA) Limited & another v Simon Horner & 2 others [2020] eKLR, and asserted that the 2nd plaintiff had failed to meet the legal threshold required for the Court to invoke its jurisdiction under Section 280 of the Companies Act, thus the instant application ought to be dismissed.
15. Counsel stated that Article 29 of the 1st plaintiff’s Articles of Association requires the holding of General Meetings and referral of disputes to arbitration before seeking Court intervention, but in this case, the 2nd plaintiff had not demonstrated any attempt to convene a General Meeting, or that the defendant had failed to attend such a meeting and/or that the dispute herein was at one point referred to arbitration. He contended that the instant application is premature as the 2nd plaintiff has not exhausted the internal dispute resolution mechanisms provided for under the 1st plaintiff’s Articles of Association. He also contended that this Court’s jurisdiction under Section 280 of the Companies Act is limited and does not extend to every disagreement between Directors, especially where internal remedies exist.
ANALYSIS AND DETERMINATION.
16. I have considered the application filed herein, the grounds on the face of it, and the affidavits filed in support thereof. I have also considered the replying affidavit by the defendant and the written submissions by Counsel for the parties. The issue that arises for determination is whether the applicants herein should be granted leave to hold an Extraordinary General Meeting without constituting the necessary quorum.
17. Upon perusal of sections 276 & 277 of the Companies Act, Directors of a company may convene a General Meeting of a company at their own instance or at the instance of the members of the company.
18. In this case, the 1st plaintiff has only two Directors and shareholders. The 2nd plaintiff’s contention is that the 1st plaintiff has been unable to fulfill its financial and operational obligations which include paying staff salaries and utility bills, as it cannot pass Board resolutions. His claim is that this has been caused by the defendant’s persistent refusal to attend Board meetings. The 2nd plaintiff’s assertion is that since both Directors are needed to constitute a quorum, the defendant’s absence effectively cripples the company’s ability to convene valid meetings or make binding decisions. He stated that the ongoing failure to hold General Meetings is unlawful and places the 1st plaintiff at legal risk.
19. The defendant on the other hand contended that it is the 2nd plaintiff who is obstructing the passage of Board resolutions. He denied having missed Board meetings and presented minutes to show that he has attended all such meetings. The defendant also refuted claims that the 1st plaintiff is facing financial difficulties, and asserted that the company is capable of meeting its financial obligations including salaries, utility bills, and other expenses. He averred that the 2nd plaintiff is seeking funds to cover personal, non-essential expenses, which are contrary to the interests of the 1st plaintiff, its employees, and shareholders, and for that reason, he could not approve transactions that do not serve the 1st plaintiff’s best interests.
20. It is undisputed that Clause 12 of the 1st plaintiff’s Articles of Association requires a quorum of two members for a Board meeting to be held. Evidence from both parties indicates a breakdown in the management of the 1st plaintiff due to disputes between its two Directors. A Board meeting held on 13th September 2024 attended by both Directors, the Company Secretary, and an invited member, had an agenda that included inter alia, the possible dissolution of the company and the resignation of a Director. The Directors were however unable to reach an agreement on dissolution, and the defendant was given additional time to consider his resignation and report back to the Board.
21. Evidently, the minutes from the meetings held on 13th & 18th September 2024 were signed by both Directors, confirming their accuracy. It is also noteworthy that during the meeting of 18th September 2024, the defendant again requested for more time to decide on his resignation, and it was agreed that the next meeting would be held on 20th September 2024. At the meeting of that date, although both Directors were present, the issues of company dissolution and Director resignation were not discussed, and only the defendant signed the minutes.
22. From the evidence adduced, it is evident that while the 1st plaintiff may be facing financial strain due to a tough economic climate and business competition, there is no evidence that it has failed to meet its financial and/or operational obligations which include staff salaries and utility bills, as a result of inability to pass Board resolutions due to the defendant’s failure to attend Board meetings. To the contrary, this Court notes that the defendant has demonstrated that the 1st plaintiff was up-to-date on payments for staff salaries, rent, and utility bills as of the date of his replying affidavit. This Court further notes that the plaintiffs failed to adduce evidence to support their claims that the 1st plaintiff has either failed to pay salaries, utility bills and/or its service providers. He thereby failed to satisfy the provisions of Sections 107, 108 & 109 of the Evidence Act, which provide that he who asserts must prove.
23. This Court reviewed the extract of WhatsApp messages between the 2nd plaintiff and the defendant annexed to the plaintiffs’ affidavit in support of the application herein and observed that as at 2nd October 2024, the defendant was firmly in favour of winding up the 1st plaintiff rather than resigning. This Court also notes that although both parties had at some point expressed willingness to sell their shares, the defendant consistently maintained his position on dissolving the company, even after being given time to reconsider resigning as a Director of the 1st plaintiff. Further, in as much as the plaintiffs allege that the defendant has refused to attend Board meetings and approve resolutions, no evidence has been presented to support this allegation.
24. From the depositions made by the parties herein, there is lack of consensus between the two Directors/shareholders regarding the running and management of the 1st plaintiff, its possible dissolution, or the defendant’s resignation. In light of this deadlock, even if future meetings were to be held, passing of resolutions would remain unlikely due to the absence of a meeting of minds. It is now well settled that Courts do not interfere with the internal management of companies acting within their powers. See the holding by the Court in the English case of Foss v Harbottle [1843] 2 Hare 261. In Re K Boat Service [1998] KEHC 39 (KLR), the Court held that -
Courts will interfere only where the act complained of is ultra vires or is fraudulent character or not rectifiable by ordinary resolution. It is really very important to companies and to the economy of the country in general, that the Court should not, unless a very strong case is made out on the facts pleaded and proved or admitted, take upon itself to interfere with the domestic forum which has been established for the management of the affairs of the company. Accordingly, acts by or on behalf which require the authority of a resolution of the company and are done without it, or are otherwise irregular, but which can be regularized by the company at a general meeting and without a special resolution and are neither ultra vires nor of a fraudulent character, are not a ground for a Court’s interference upon a winding-up petition …., or a petition to remove a director by a minority shareholder … under the ‘just and equitable’ rule.
25. Courts will only intervene where the act in question is ultra vires, involves fraud, or cannot be remedied through an ordinary resolution. This Court therefore finds that due to the lack of consensus between the 1st plaintiff’s two Directors, no ordinary resolutions can be passed. The plaintiffs have shown instances where the defendant attempted to make unilateral decisions concerning the 1st plaintiff’s affairs. Additionally, the 2nd plaintiff has demonstrated that the 1st plaintiff’s Operations Manager has raised concerns that the ongoing disputes and conflicting directives from the Directors are adversely affecting staff performance and operational efficiency.
26. Jurisdiction for the High Court to interfere with the internal management of limited liability companies is provided for under Section 280 of the Companies Act which states as hereunder -
1) This section applies if for any reason it is impracticable -
a) To convene a meeting of the company in any manner in which meetings of that company may be convened; or
b) to conduct the meeting in the manner required by the articles of the company or this Act.
2) The Court may, either on its own initiative or on the application –
a) of a director of the company; or
b) of a member of the company who would be entitled to vote at the meeting,
make an order requiring a meeting to be convened, held and conducted in any manner the Court considers appropriate.
3) If an order is made under subsection (2), the Court may give such ancillary or consequential directions as it considers appropriate.
4) Directions given by the Court under subsection (3) may include a direction that one member of the company present at the meeting be regarded as constituting a quorum.
5) A meeting convened, held and conducted in accordance with an order under this section is taken for all purposes to be a meeting of the company properly convened, held and conducted.
27. The import of the provisions of Section 280 of the Companies Act were considered by the Court in the oft cited case of Radio Frequency Systems (EA) & another v Simon Horner & 2 others (supra), where it was held that -
The substance of this provision is similar to section 371 of the English Companies Act, 2015 1985. In a Jersy case of In the Matter of Inter-Channel Pharmaceuticals Ltd [2002] JRC 116A (10 June 2002), the Court observed as follows, regarding the Courts power under that provision.
‘We have been referred to three English Authorities namely, In Re El Sombrero Limited [1958] 3 WLR 900, In Re H.R. Paul & Son Limited [1974] 118SJ 166, and In Re Opera Photographic Ltd. In Re El Sombrero made it clear that the question raised by the word “impracticable” in the statutory provision is merely whether, in the particular circumstances of the case, the desired meeting of the company could as a practical matter be conducted. The case went on to hold that, if it is impracticable, a discretion then arose in the Court as to whether it should make an order as sought. In the El Sombrero case the applicant held 90% of the shares and the two respondents the remaining 10%. They were also the only Directors. By absenting themselves from any meeting they were effectively preventing the majority shareholder from exercising the rights attaching to his 90% shareholding to change the Board of Directors. The Court made an appropriate order to convene a meeting and allow it to proceed in the absence of the quorum required by the articles.
In all the three English decisions to which we have been referred the Court in effect made it clear that the quorum provisions should not be regarded as a right vested in the minority to frustrate the wishes of the majority. The facts in In Re Opera Photograph Limited were very similar to those in the present case. The majority shareholder wished to dismiss a director, but was prevented from doing so because the director, who was also the other member, declined to attend the meeting of members so that the meeting was without quorum.
It would seem that the overarching purpose of section 280 is to provide an inexpensive and speedy procedural remedy to overcome technical difficulties in a company convening, holding or conducting a meeting. It aids in the proper management of a company in the face of technical obstacles. (Emphasis added).
28. This Court concurs with the foregoing decision and adds that by enacting the Companies Act, 2015 the legislature in Kenya intended companies to manage their internal affairs without being obstructed by challenges in convening or conducting meetings as required by their Articles of Association or the law. Upon perusal of the evidence adduced, it is noteworthy that despite the fact that both the 2nd plaintiff and the defendant had at some point threatened to sell their shares in the 1st plaintiff, the defendant has remained firm on seeking the winding up of the 1st plaintiff, even after being given time to reconsider resigning as a Director. This state of affairs reflects a clear lack of interest by the defendant in maintaining the 1st plaintiff as a going concern.
29. This Court further finds that the argument that the plaintiffs failed to exhaust internal dispute resolution mechanisms under Article 29 of the 1st plaintiff’s Articles of Association before invoking this Court’s jurisdiction under Section 280 of the Companies Act lacks merit. This is because although Article 29 of the 1st plaintiff’s Articles of Association mandates arbitration for member disputes, Section 6(1) of the Arbitration Act requires a party to apply for stay of proceedings and referral of the dispute to arbitration if it involves a dispute covered by an Arbitration Agreement, before entering appearance or acknowledging the claim. In this case, the defendant filed a Notice of appointment and responded to the application herein before raising any objection, thereby submitting to this Court’s jurisdiction. As a result, the defendant is estopped from relying on the Arbitration Clause provided for under Article 29 of the 1st plaintiff’s Articles of Association to oppose the instant application.
30. In light of the above, this Court is satisfied that its jurisdiction has been properly invoked to enable the 1st plaintiff to continue its operations, hold meetings, and pass resolutions necessary for its effective management and continuity as a going concern. I am therefore persuaded that the 2nd plaintiff has made out a case to warrant being granted the orders sought herein.
31. This Court finds that the application herein is merited. It is hereby allowed in the following terms –
i) Despite not meeting a quorum as per its Memorandum and Articles of Association, the 1st plaintiff is hereby granted leave to hold an Extraordinary General Meeting (EGM) within 14 days from the date of this Ruling;
ii) That pursuant to the provisions of Sections 280(3) & (4) of the Companies Act, 2015, after at least 7 days' Notice to the defendant, the 2nd plaintiff shall be deemed to constitute a quorum for the meeting; and
iii) Costs of this application shall be borne by the defendant.
It is so ordered.
DATED, SIGNED and DELIVERED at NAIROBI on this 30TH day of JULY
2025. Ruling delivered through Microsoft Teams Online Platform.
NJOKI MWANGI
JUDGE
In the presence;-
Mr. Aluku for the applicants
Mr. Kiru holding brief for Mr. Juma for the respondent
Ms B. Wokabi – Court Assistant.