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The Role of Company Secretary in Corporate Environmental Compliance

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By Dr. Kariuki Muigua, PhD, Africa’s Leading Dispute Resolution and ESG Expert, Africa Arbitrator of the Year 2022/3, Africa ADR Practitioner of the Year 2022/3, Member of the Permanent Court of Arbitration nominated by the Republic of Kenya, Member of the National Environment Tribunal, University of Nairobi Senior Lecturer and Managing Partner at Kariuki Muigua & Co. Advocates.*

In recent years, the world has experienced awareness in the area of environmentalism. Companies want to reduce pollution, engage in cleaner production, conserve the environment and generally engage in environmentally responsible corporate behaviour. Some companies have incorporated environmental goals into their vision and mission statements. Ideas such as conservation, pollution control, recycling waste, public awareness and education, use of cleaner fuels and the use of Environmental Impact Assessment and Audits have found their way into the management principles of corporations. In turn, the Company Secretary as a member of the management finds herself engaged in environmental issues at both policy and operational levels. The survival of the corporate body may well depend on how environmental issues are handled and the Company Secretary finds herself deeply embroiled in issues of environmental compliance as a matter of law.

There is thus a need for knowledge of what the law requires in this regard. Indeed, it has been observed that many private firms across the world are have adopted different forms of private environmental governance to improve their environmental footprints, going beyond mere compliance with rules of traditional environmental law. As already pointed out in another section, the current Constitution of Kenya 2010 outlines the national values and principles of governance which must guide all persons makes or implements public policy decisions. These values and principles include among others, sustainable development. This is affirmed under the Companies Act, 2015 which provides that a director of a company should act in the way in which the director considers, in good faith, would promote the success of the company for the benefit of its members as a whole, and in so doing the director shall have regard to, inter alia- the impact of the operations of the company on the community and the environment.

In addition to the foregoing statutory requirements on environmental reporting, corporations are also notably bound by the provisions of EMCA depending on the various projects or activities that they are involved in. Under the Environmental Management and Coordination Act, when an offence under the Act is committed by a body corporate, the body Corporate and every director or officer of the body corporate who had knowledge of the commission of the offence and who did not exercise due diligence, efficiency and economy to ensure compliance with this Act shall be guilty of an offence. A Company Secretary is increasingly being viewed as an officer of the company. The law thus imposes a duty on the Company Secretary to ensure compliance with environmental law, rules and regulations. The penalties under EMCA are harsh and can include imprisonment and fines that ran into hundreds of thousands of shillings.

Offences under EMCA relate among other things, failing to submit to inspection, offences relating to Environmental Impact Assessment; offences relating to records; offences relating to standards; offences relating to hazardous waste; offences relating to pollution; and offences relating to restoration orders. The Act imputes personal liability even where the offence complained of was committed on account of another person (corporate body). It is thus possible for a Company Secretary to be personally liable for environmental offences committed by the Company. In other words, the role of the Company Secretary in Environmental Compliance is a statutory one.

The imposition of liability on the directors and officers of a corporation is meant to act as a disincentive to ensure that they establish corporate mechanisms for environmental compliance, and thus avoid passing the cost of non-compliance to consumers and the general public. A Company Secretary as an officer of the company must then logically ensure that where an Environmental Impact Assessment is required to be prepared, the same has been prepared in accordance with the law. Similarly, where an Environmental Audit is required to be carried out, the Company Secretary should ensure that it is prepared in accordance with the requirements of EMCA and its regulations. In brief, the Company Secretary being an Officer of the Company has a duty to ensure compliance with standards set out under EMCA and if s/he does not do so, then liability in criminal law attaches. Similarly, the Company Secretary is bound to ensure that hazardous waste and other chemicals and radioactive materials are handled properly to avoid liability.

The way forward in enhancing for company secretaries is ensuring enhanced corporate environmental compliance, adhering to principles of sustainable development and taking corporate social and environmental responsibility seriously. Environmental compliance by corporate organizations is mandatory under EMCA. The foregoing discussion has demonstrated that breach of environmental compliance may result in civil and criminal sanctions upon an organization. This relates to the sanctions that may be imposed for breach of environmental compliance requirements such as damages or closure of the corporation. Indeed, officers of corporations such as directors and company secretaries have to ensure that all environmental laws, regulations and policies are adhered to and breach of this duty may attract both civil and criminal liability under EMCA.

In addition, adhering to Principles of Sustainable Development Sustainable development is enshrined as one of the national principles under the Constitution and binds all persons including corporations. Sustainable development is also captured under EMCA and incorporates the principles of public participation, international co-operation, inter and intra generational equity, polluter pays principle and the precautionary principle. Corporations should, therefore, adhere to the principles of sustainable development to ensure that their economic activities meet the needs of both the present and future generations.

Related to sustainable development is the idea of Corporate Social Responsibility (CSR) with the difference that sustainable development is a legal requirement while CSR is a voluntary corporate undertaking. CSR is a transparent business practice based on ethical values, legal requirements compliance and respect for the community, people and the environment within which the business operates and contributes to the economic success of an organization through meeting the needs of stakeholders who are critical to its existence. According to proponents of CSR, a firm’s success is dependent on how it is able to safeguard relationship with stakeholders such as employees, communities and customers since being socially responsible helps it gain support from such stakeholders. In Kenya, studies have shown that corporations that have undertaken CSR initiatives such as environmental conservation programs have witnessed success in areas such as sales and market share. Corporations should therefore pursue corporate environmental responsibilities such as environmental conservation programmes which may include clean up exercises, restoration activities, tree planting exercises and environmental awareness campaigns. These activities have the ability to contribute to the economic growth of an organization.

Environmental Insurance can be used as a tool for environmental management. This however is yet to be popularized in Kenya and EMCA does not have provisions on environmental insurance. It has however been suggested that environmental insurance can be popularized in the country for both medium and large corporations to shield them against environmental liability which could turn out to be too costly. Some insurance providers have packages on environmental liability covering environmental damage and clean-up costs for pollution. Company secretaries should consider and encourage use of environmental insurance by corporates in the country since some cases of environmental liability may not be foreseen by a corporation and could arise due to natural acts. However, the strict liability rule imposes liability on the corporation even where such acts could not be foreseen. Through environmental insurance, it may be possible to shield a corporation from cases of environmental liability.

*This article is an extract from the Article: Securing Our Destiny through Effective Management, (2020) Journal of Conflict Management and Sustainable Development Volume 4(3), p. 1.  by Dr. Kariuki Muigua, PhD, Senior Advocate of the High Court of Kenya, Chartered Arbitrator, Kenya’s ADR Practitioner of the Year 2021 (Nairobi Legal Awards), ADR Lifetime Achievement Award 2021 (CIArb Kenya), African Arbitrator of the Year 2022, Africa ADR Practitioner of the Year 2022, Member of Permanent Court of Arbitration nominated by Republic of Kenya and Member of National Environment Tribunal (NET). Dr. Kariuki Muigua is a foremost Environmental Law and Natural Resources Lawyer and Scholar, Sustainable Development Advocate and Conflict Management Expert in Kenya. Dr. Kariuki Muigua is a Senior Lecturer of Environmental Law and Dispute resolution at the University of Nairobi School of Law and The Center for Advanced Studies in Environmental Law and Policy (CASELAP). He has published numerous books and articles on Environmental Law, Environmental Justice Conflict Management, Alternative Dispute Resolution and Sustainable Development. Dr. Muigua is also a Chartered Arbitrator, an Accredited Mediator, the Managing Partner of Kariuki Muigua & Co. Advocates and Africa Trustee Emeritus of the Chartered Institute of Arbitrators 2019-2023. Dr. Muigua is recognized among the top 5 leading lawyers and dispute resolution experts in Band 1 in Kenya by the Chambers Global Guide 2022 and was listed in the Inaugural THE LAWYER AFRICA Litigation Hall of Fame 2023 as one of the Top 50 Most Distinguished Litigation Lawyers in Kenya.

References

Muigua, K., “Securing Our Destiny through Effective Management,” (2020) Journal of Conflict Management and Sustainable Development Volume 4(3), p. 1.  

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Brief Overview of Kenyan Bankruptcy Law

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Bankruptcy refers to the state where a debtor is unable to pay their debts when the debts become due. For a person to be bankrupt there must be an order by the court stating that they are unable to pay their debts.

Who can apply for a bankruptcy order?

Either the debtor or the debtor’s creditor(s) may apply to court for the issuance of bankruptcy Order.

What conditions must be met for the court to issue bankruptcy order?

Where the application for bankruptcy order is made by a debtor, they must satisfy the court that:

  • They are either domiciled in Kenya, personally present in Kenya or three years preceding the date of the application they have been ordinarily resident or carried business in Kenya.
  • Their debt meets the minimum prescribed threshold
  • They have not previously been adjudged bankrupt
  • They are not in the process of being adjudged bankrupt

When the application for bankruptcy order is made by creditor(s), they must satisfy the court that:

  • The debtor is either domiciled in Kenya, personally present in Kenya or three years preceding the date of the application they have been ordinarily resident or carried business in Kenya.
  • The debtor owes them a sum of money equal to or above the prescribed threshold
  • The debt is for a liquidated amount payable to the applicant creditor(s) either immediately or at some certain future time, and is unsecured
  • The debt is one that the debtor appears to be unable to pay or to have no reasonable prospect of being able to pay
  • There is no outstanding application to set aside a statutory demand in respect of the debt
  • They have given a notice of not less than twenty one days seeking payment of debt due immediately and the duration has lapsed without being paid
  • They obtained Judgment, served it on the debtor and after 21 days the decretal sum has not been paid
  • They have served on the debtor a demand requiring the debtor to establish to their satisfaction that there is a reasonable prospect that the debtor will be able to pay a debt payable in future, when it falls due and 21 days have lapsed without the demand being complied with or set aside.

Upon being satisfied that the above conditions have been met, the court issues a bankruptcy Order.

Can court issue a bankruptcy order on an application by secured creditors?

Court can make bankruptcy order on application by secured creditor(s) only when:

  • The application contains a statement by the person having the right to enforce the security that the creditor is willing, in the event of a bankruptcy order being made, to give up the security for the benefit of all the bankrupt’s creditors; OR,
  • The application is expressed not to be made in respect of the secured part of the debt and contains a statement by that person of the estimated value at the date of the application of the security for the secured part of the debt.

Under what circumstances can court dismiss an application for bankruptcy order?

The Court may dismiss an application if it is satisfied that either the debtor is able to pay all of the debtor’s debts; OR—

  • That the debtor has made an offer to secure or compound for a debt in respect of which the application is made
  • That the acceptance of that offer would have required the dismissal of the application; and
  • That the offer has been unreasonably refused.

What are the consequences of a Bankruptcy Order?

  • Where a trustee in bankruptcy has been appointed, the property of the bankrupt vests in the trustee. If no trustee has been appointed, the property of the bankrupt will vest in the Official Receiver to act as the interim trustee.
  • The bankrupt suffers all the disabilities of law for instance: they cannot run for elected positions, they can’t directors of a company, they can’t file suits in their own name, and they can’t enter into contracts.
  • No civil proceedings can be instituted or continued against the bankrupt once the order is made
  • The bankrupt has an obligation to provide a true and accurate account of all his assets, income and liabilities
  • The official receiver is entitled to recover assets that the bankrupt has transferred within two years immediately preceding the bankruptcy.
  • Does not extinguish debts of a bankrupt but only protects them from creditors commencing recovery proceedings without leave of court.

Kiragu Wathuta & Company Advocates was established in 2013 by Mr. Kiragu Wathuta, an Advocate of the High Court of Kenya called to the bar in the year 2009. Our firm is run by an organized team of proffessionals who are highly skilled and widely exposed to diverse areas of law and the industry in general.

We have built a name for PROFESSIONALISM AND EXPERTISE in various disciplines of legal services including but not limited to civil and commercial litigation, conveyance and property matters as well as commercial and corporate law practice.

We provide value-added service in consonance with each individual client’s needs. For our clients, their interests are paramount and the client is our number one priority.

Our Portfolio of Clients is drawn from Property Owners, Developers, Investors and Joint Ventures, Corporate Entities, Financial institutions, Parastatals, Manufacturing Companies, Mortgage Institutions as well as individuals. We continue to endear our services to reach beyond our borders.

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What is Carbon Markets?

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Written by Faith Nyambura Kabora, Advocate.

Carbon markets are a mechanism designed to reduce greenhouse gas emissions which are essentially gases that trap heat in the atmosphere and contribute to the negative impacts of climate change such as prolonged drought and rising of sea levels.

Carbon markets operate on the principle of putting a price on carbon emissions to create commercial/economic incentives for public and private entities to reduce their carbon footprint and invest in cleaner, sustainable practices.

Ideally, by putting a price on carbon, the carbon markets encourage sustainable environmental practices and help counties meet their emission reduction targets under international treaties, like the Paris Agreement, which Kenya is a signatory to. For a broader understanding, here is how a carbon market works;

  1. A Government establishes a limit on the total amount of greenhouse gas emission/pollution is allowed within its geographical limits;
  2. A grant, say permissions are created and distributed to eligible participants. This allowance represents the right to emit a certain amount of greenhouse gas;
  3. The participants can then buy and sell the allowances. Ideally, those who reduce their emissions more efficiently sell their surplus allowance to those who find it more challenging to reduce the emissions. If a company pollutes a lot, they need to buy more permissions, and if they do not pollute as much, they can sell their extra permissions.
  4. Entities are required to hold enough allowances to cover their actual emissions. If they exceed allocated allowances, they face penalties or, as expounded above, they buy additional allowances. This is the part where compliance becomes mandatory for all the key players.
  5. The price of the allowances fluctuates based on supply and demands and reflects the cost of emitting greenhouse gases. It is essentially like paying for pollution.

A carbon market plays a pivotal role in advancing climate action and promoting sustainable practices by incentivizing companies to reconsider their pollution practices, which can result in financial consequences as pollution becomes a costly endeavor. In Kenya, the introduction of a Carbon Market is imperative as the world confronts the dire consequences of climate change. Furthermore, it offers a commercial opportunity for investors considering the growing demand for environmentally friendly and carbon neutral products and services.

As mentioned above, the Paris Agreement is one of the most important international treaties dedicated strengthen global response to the negative impact of climate change. Ultimately, the Agreement’s goal is to motivate countries to limit global emissions and more importantly, to hold them accountable for their actions around reducing their carbon footprints.

Kenya as a signatory to the Paris Agreement has made significant contributions towards fulfilling the obligations under the Paris Agreement of limiting global temperature. The Climate Change (Amendment) Act 2023, nudges Kenya towards the realization of Article 6 of the Paris Agreement by introducing provisions and regulation of and participation in carbon markets.

As one of the top law firms in Nairobi, MMA Advocates is renowned for its proactive strategy and innovative legal lawyer advice. Our firm is committed to delivering strategic assistance that not only tackles current difficulties but also equips clients for future legal trends and advancements. As top lawyers in Nairobi Kenya, we take great satisfaction in our ability to combine in-depth legal knowledge with creative problem-solving. We keep a close eye on business trends and legal advancements to deliver timely guidance that enables our clients to make wise choices.

Our main goal as MMA Advocates is to establish long-lasting partnerships based on integrity, decency, and reliability. Since every client’s circumstance is unique, our best advocates in Kenya offer timely service and individualized attention at every stage of our collaboration. We make sure our clients are informed and empowered throughout their legal journey because we value openness and transparency in communication. In every case we take on, we are deeply committed to obtaining positive results and client satisfaction. This is just one aspect of our unwavering commitment to quality.

Whether you are a startup negotiating regulatory obstacles, an established corporation expanding, or a private citizen seeking legal assistance on personal problems, our Best Corporate Lawyers in Kenya are dedicated to becoming your legal partner. Our expertise include Commercial Litigation, Real Estate & Development, Fintech, Public Procurement (Public Private Partnerships), Project Finance, Public Law Litigation, Legal Audits & Compliance Advisory and Crisis Management.

We hope to arm you with the legal know-how and strategies needed to achieve your objectives. Our team enjoys taking on challenging legal matters with creativity and strategic understanding, protecting your rights and effectively achieving your goals. With a thorough comprehension of both regional laws and global norms, we are prepared to confidently and competently lead you through the complexities of corporate law.

In the intensely competitive legal arena, our tailored legal and strategic solutions distinguish us. We value depth over breadth, guaranteeing our clients our full dedication and unparalleled efficiency. Where many spread themselves wide, we narrow our focus to a select few of the most challenging cases. We tread the path less traveled.

To find out more about how MMA Advocates in Nairobi Kenya can help you with your legal issues, get in touch with us. With our team of committed professionals and our standing as one of the top law firms in Nairobi, we are well-positioned to offer outcomes that surpass expectations and guarantee your success in a legal environment that is always changing.

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Review: Alternative Dispute Resolution (ADR) Journal, Volume 12(3), 2024

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The Alternative Dispute Resolution (ADR) Journal, Volume. 12, No.3, 2024 covers pertinent and emerging issues across all ADR mechanisms. This volume exposes our readers to a variety of salient topics and concerns in ADR including Building Peace in Africa, Public Policy as a Ground of Setting-Aside an Arbitral Award, Ethics, Integrity and Best Practice in Mediation, Accessing Justice in Kenya, Sports Arbitration, ESG Arbitration, Arbitration of Investor-State Dispute in Kenya, Article 159(2) of the Constitution of Kenya 2010 and issuance of interim measures by Arbitral Tribunals. The ADR Journal is a publication of the Chartered Institute of Arbitrators, Kenya Branch. It provides a platform for scholarly debate and in-depth investigations into both theoretical and practical questions in Alternative Dispute Resolution.

The journal is edited by Professor of Law at the University of Nairobi, Faculty of Law Hon Prof. Kariuki Muigua, a distinguished law scholar, an accomplished mediator and arbitrator with a Ph.D. in law from the University of Nairobi and widespread training and experience in both international and national commercial arbitration and mediation. Prof. Muigua is a Fellow of Chartered Institute of Arbitrators (CIArb)- Kenya chapter and also a Chartered Arbitrator. He is a member of the Permanent Court of Arbitration, The Hague. He also serves as a member of the National Environment Tribunal. He has served as the Chartered Institute of Arbitrator’s (CIArb- UK) Regional Trustee for Africa from 2019 -2022.

In the paper “Building Peace in Africa through Alternative Dispute Resolution”  Hon. Prof. Kariuki Muigua critically discusses the role of Alternative Dispute Resolution (ADR) mechanisms in peace building in Africa. The paper argues that ADR mechanisms can play a fundamental role in building peace in Africa. The paper further posits that ADR mechanisms are able to enhance sustainable peace in Africa due to their focus on reconciliation and restorative justice. It proposes solutions towards building peace in Africa through ADR.

In “the Emergence of the International Commercial Court: A Threat to Arbitration of Investor-State Dispute in Kenya” Marion Injendi Wasike and Dr. Kenneth W. Mutuma argue that the proliferation of international commercial courts, including their introduction in Kenya, necessitates a thorough analysis of their implications on arbitration’s role in investor-state disputes. By juxtaposing these emerging judicial entities against traditional arbitration paradigms, the discussion aims to unravel the complexities and potential shifts in dispute resolution preferences, highlighting the balance between innovation in legal adjudication and the sustenance of arbitration’s revered position in the international legal order.

Kamau Karori SC, MBS in “Striking a Balance: A Delicate Dance Between Sanctity and Scrutiny” notes that the continuing debate —between upholding the inviolability of arbitral awards and judicial intervention in cases of egregious injustice points to the need for delicate balancing between non-interference and the need to correct unmistakably unjust awards. The urgency of this discourse is informed by the need to prevent consumers or potential consumers of arbitration services opting to exclude arbitration clauses due to perceived deficiencies. The article seeks to navigate the genesis of the debate, delicately dissect the different perspectives, and draw comparisons with global practices.

The article “Reforming Kenya’s Law on Probation and Aftercare Services to Promote Alternative Dispute Resolution” by Michael Sang engages in a comprehensive exploration of Kenya’s Probation of Offenders Act within the context of the growing role of Alternative Dispute Resolution (ADR) principles in the nation’s criminal justice system. Drawing inspiration from international legal instruments such as “The Beijing Rules,” “Bangkok Rules,” and “Tokyo Rules,” the study evaluates the Act’s provisions, strengths, and limitations. It concludes with a call for thoughtful reforms that align Kenya’s criminal justice system with international standards, emphasizing a balanced and compassionate approach to justice.

The “Upholding Ethics, Integrity and Best Practice in Mediation” by Hon. Prof. Kariuki Muigua, OGW critically discusses the need for standardization of mediation practice in Kenya by adopting best practices. It examines some of the challenges facing mediation practice in Kenya. It is also explores measures adopted towards fostering best practices in mediation at both the global and national level. The paper further suggests recommendations aimed at upholding ethics, integrity and best practice in mediation. In “Exploring the Role of Mediation in Promoting Small and Medium Enterprises (SMEs) and Fostering Economic Growth in Kenya” Atundo Wambare offers an in-depth analysis of the use of mediation in promoting the growth of small and medium enterprises (SME’s). He makes recommendations on how best mediation can be harnessed as a tool for economic growth in Kenya.

James Njuguna and Nyamboga George Nyanaro in “Compulsory Resolution or Autonomy Erosion? The Debate on Mandatory Sports Arbitration delve into the contentious issue of mandatory sports arbitration, questioning its role as a potential future pathway for dispute resolution. Their research examines the implications of compulsory arbitration on athletes’ autonomy, juxtaposing it with the benefits of expedited dispute resolution.

Paul Ngotho in “Constitution of Kenya 2010 Article 159.2.(c): Ancestry, Anatomy, Efficacy & Legacy” traces the rather odd origin and everlasting effect of the often-cited Article 159.2.(c) of the Constitution of Kenya 2010. It acknowledges the central role played by two members of the Chartered Institute of Arbitrators Kenya Branch, quietly and privately, away from the mainstream constitution making process. One of them chairman of the Branch, the other the Minister of Justice, National Cohesion and Constitutional Affairs.

David Onsare in “Navigating The ESG Maze: Emerging Trends in Arbitration and Corporate Accountability” embarks on a timely exploration of the dynamic interplay between Environmental, Social and Governance (ESG) factors and arbitration, a field gaining critical importance in the realm of corporate accountability. By offering a comprehensive view of the complexities and practical implications of ESG in arbitration, the article serves as a crucial guide for legal professionals navigating the evolving landscape of corporate responsibility and arbitration. In “Public Policy as a Ground of Setting-Aside an Arbitral Award: Musings on the Centurion Engineers Civil Appeal Judgment”

Ibrahim Kitoo argues a case for upholding of public policy as a ground for the nonrecognition, non-enforcement and setting aside of an arbitral award in cases where to recognise and enforce such awards proves to be a clear violation of the law and against the public good. Juvenalis Ngowi in “Arbitral Tribunals: Do they have the power to issue interim measures during the proceedings?” discusses the powers of the Arbitral Tribunal to grant such orders and examines some procedural rules which empower arbitrators to issue such orders, the scope of those powers, and the factors to be considered when granting interim measures in the arbitral proceedings.

In “Examining the Efficacy of Mediation as A Tool for Accessing Justice in Kenya: Opportunities, Challenges, and Future Perspectives” Murithi Antony undertakes a thorough examination of mediation as a form of ADR in the Kenyan context. He identifies opportunities arising from the integration of mediation into the country’s legal system and explores barriers impeding its widespread adoption. The article concludes with a resounding call to action for all stakeholders to champion the use of mediation collaboratively and proactively, given its proven efficacy in dispute resolution.

Kariuki Muigua & Company Advocates is a Top-Tier Kenyan law firm situated at the heart of Nairobi city in Kenya. We are a broad-based practice with a reputation for offering a full range of quality services to our domestic and international clients.

At KM&CO, we take pride in offering personalized attention to our diverse clientele. Our practice aspires to offer efficient and cost-effective legal solutions that meet our esteemed clients’ needs in a timely and competent manner.

KM&CO was founded in 1993 by the current senior Advocate, Dr. Kariuki Muigua. It is based in the Central Business District of Nairobi at the Pioneer Assurance House located opposite 7th August Bomb Blast Memorial Park enjoying the convenience of close proximity to major financial, commercial and governmental institutions.

We are open for consultations with our clients worldwide; we have lawyers on standby for 24 hours to cover diverse time zones that impact on our global clients.

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