PROTECTING YOUR REGISTERED COMPANY NAME, REMEDIES:
Background
The assumption that informs this write is that Company A and B have a similar name successfully registered. They have a director in common. It is understood that the business of either company is obtained through the company names. However, by virtue of the common director, company B siphons the businesses and consequently profits meant for company A. Company A now seeks to have company B de-registered from the companies register.
Issues to be determined:
- Procedure to de register a company limited by shares.
- What are the legal remedies for the aggrieved company;
Rule of Law
The Companies Act No. 17 of 2015 “the Act” foresees both winding up and the striking off of a company.1 A company may be wound up either by:
- a court,
- voluntarily; or
- subject to the supervision of a court on application by creditors.
Importantly, if a company is struck off the register, the liability of any director, officer or member continues as if the Company had not been dissolved and also that courts still have the power to wind up a company whose name has been struck off the register.2
Analysis
A company's life is not determined by the longevity of its members, shareholders, promoters, directors, employees or anyone else. There are two ways to end the life of a company. This can either be by dissolution or striking off. Unless otherwise by virtue of external factors, the life of a company is perpetual. This is by the prescribed form as discussed above.
Therefore, issues such as use of name can be made through breach of intellectual property rights or claims for breach of directors’ duties. In all the claim should be anchored on premise that there is a right to the company that has been breached.
Common law rights in unregistered trademarks are recognized under Section 5 of the Trademarks Act under the laws of Kenya. These may be enforced through a passing-off action.3 In a passing-off action, the proprietor of the unregistered mark must demonstrate that its trademark has acquired sufficient reputation through use for members of the public to be misled by a defendant’s conduct into thinking that the defendant’s goods are those of the proprietor. The business name may be illustrated as a trademark if anything.
In addition, unregistered trademarks are also protected under Section 15A of the Trademarks Act on proof of their well-known status in Kenya. Well-known marks generally require a great degree of use (not necessarily direct use in Kenya) that has resulted in a high degree of knowledge or recognition of the mark in the relevant sector in Kenya. Ideally, any person that claims to be the proprietor of a trademark, that it uses or proposes to use may apply to register the mark.
Other than that, there’s also the option to commence a civil suit against the common director(although this would not conclusively resolve the issue of company name and its use). The duties of a director are provided for under the Act.4 It is now established in law that the directors have the following duties:5
- Duty of director to exercise reasonable care, skill and diligence
- Duty of director to avoid conflicts of interest.
- Duty not to accept benefits from third parties.
- Civil consequences of breach of general duties.6
- Consent, approval or authorization by members.
These duties are legally enforceable upon breach.7 By being in both companies, it is likely that the that there is conflict of interest. In addition, the director who is in both companies did not obtain consent from members to establish such close associations with the adverse company.8 This may be construed to mean that he accepts benefits from third parties which is specifically a breach of duty.
Conclusion
It is our opinion that the aggrieved company may pursue several remedies other striking off of the adverse company. The issues that emanate revolve around breach of duty by the director as well as, passing of the business name. in any event, it’s probable that the same is addressed by civil ways.
3 Passing off is similar to trade mark infringement, but applies to protect unregistered rights associated with a particular business, its goods or services. Passing off actions can be brought in a wide range of situations, including to protect business names and features of “get-up” or “trade dress”.
The principle underlying the tort of passing off is that “A man is not to sell his own goods under the pretenses that they are the goods of another man” Perry v Truefitt (1842)).
1 Division 2 of the Companies Act 2015.
2 Ibid Section 247.
4 Division 3, s. 140-150 of the Act.
5 City Equitable Fire Insurance Co. Ltd (1925) Ch 407
6 Section 148 of the Act.
7 Cook vs. Deek (1916)
8 Aspects of derivative action against the Director; part XI of the Act under s. 238, Regal Hastings Ltd vs. Guilliver (1942)