In November 2019, the Business Laws (Amendment) Bill was introduced in the National Assembly. The bill was sponsored by the majority party leader, Hon. Aden Duale, with the principal objective to ease the doing business in Kenya.
The Bill was assented into law by the president on 18th March, 2020 and it amends various existing statutes:
The Law of Contract Act is amended to reflect the following change:
The definition of the word “sign” is amended to capture both physical and electronic affixing of a signature. This amendment is crucial in the awake of e-commerce. Recognition of electronic signatures on instruments will save online contracting parties on costs associated with delivery of an instrument for the purpose of physically affixing the signature. Moreover, electronic signing will save on time and simplify doing of business between parties from different geographical areas.
The Companies Act, 2015 is amended to reflect the following changes:
- Elimination of the requirement to use a common seal of a company in execution of documents, deeds or contracts. Execution of an instrument will be valid if it is signed by two authorized signatories of a company or by one director in presence of a witness who attests to his/her signature. This will help in adoption of modern trends in developed jurisdiction where instruments need only be executed by natural persons on behalf of a company.
- Bearer shares are completely abolished. A bearer share is an equity security wholly owned by a holder of a physical stock certificate. Such holders are mostly unregistered by the issuing company. Currently, the Companies Act, 2015 prohibits issuance of a bearer share. However, prior to the commencement of the Companies Act, 2015 there were companies that had issued a bearer share. Therefore, the new amendment sees to the mandatory requirement of conversion of previously issued bearer shares into registered shares. Failure to abide by this requirement within nine months of commencement of the application of the Business Laws (Amendment) Act, will attract a prescribed fine. The amendment aims to keep track of the particulars of all shareholders and negate chances of money laundering.
- For a takeover transaction, the offeror will have the power to “squeeze in” the minority shareholders only if the offeror has acquired not less than 90% of the shares to which the offer relates. The Companies Act, 2015 was in 2019 amended to reflect that “squeeze in” can be exercised upon acquisition of not less than 50% of the shares to which the offer relates. The Business Laws (Amendment) Act, 2019 sees to the maintenance of the threshold of squeezing in to 90%. This will ensure protection of minority shareholders.
Amendments to the Insolvency Act include:
- Provision of a way to ensure protection of creditors to a company that is under insolvency. Creditors have a right to access information in relation to the insolvency process through writing a request to a relevant insolvency practitioner. The insolvency practitioner shall respond within 5 working days after receipt of the request or such longer period as may be agreed with the requesting creditor.
- Provides additional factors to be considered by a Court when lifting a moratorium for a company that is under administration. These factors are whether the movable property that forms subject of the application is perishable and whether the movable property is used to maintain the company as a going concern.
The amendments to the Insolvency Act are aimed to increase lender protection in case of insolvency of a company. This will attract more investors in local companies due to the guaranteed protection.
Amendments to the Land Registration Act include:
- The Act is amended to allow for electronic execution of instruments processed under the Act. This will facilitate the adoption of modern technology and ease execution of documents by parties contracting from different geographical areas.
- There is abolishment of the need to produce the land rent clearance certificate and the land rates clearance certificate to the Land Registrar before an instrument can be registered to effect transfer of Land. This intends to save costs and time associated with the application to the relevant county government for a clearance certificate. The burden is now on the purchaser of land to ensure that the vendor has paid all land rates and rents as the Land Registrar will not demand proof of payment.
- Provides on procedure to be followed by a person who is claiming indemnity for an error on a copy or extract from the register issued by the Land Registrar. The procedure shall involve making application to the Chief Lands Registrar in the prescribed manner. Any person aggrieved by the decision of the Chief Land Registrar shall appeal to Court in the prescribed manner.
In addition, the Stamp Duty Act has been amended to allow for electronic stamping, an addition to the current stamping by a franking machine or an adhesive stamp.
The Kenya Information and Communications Act has been amended to reflect electronic signing.
The Registration of Documents Act has been amended to allow for electronic filing of documents. Further, the Registrar of Documents has been empowered to establish and maintain the Principal Registries at Nairobi and at the Coast in both manual and electronic form. Ultimately, this will facilitate electronic offering of services.
Through the amendments introduced to the Occupational Safety and Health Act, employers with less than one hundred employees are allowed to conduct business without having registered the workplace premises. The allowance is however for a period of one year from the date of registration of the business. This amendment aims at making it cheaper and easier for Small Medium Enterprises (SMEs) to start business.
The National Construction Authority Act has been amended to empower the Authority to enforce the prescribed Building Code in the construction industry. In addition, the Authority has been authorized to conduct mandatory inspections of construction sites and make regulations to facilitate the same.
The Survey Act is amended to allow for the electronic affixation of the seal of the Survey of Kenya and lodging of documents through electronic form. This will increase efficiency in offering of services.
There is an amendment to the Income Tax Act to provide for investments deductions on capital expenditure incurred for the construction of bulk storage facilities for supporting the Standard Gauge Railway (SGR). In addition, the Value Added Tax Act has been amended to provide for the exemption of taxable supplies and services procured locally or imported, with a minimum capital investment of 10 billion shillings and a minimum storage capacity of 100 metric tonnes, in support of the SGR operations.
A twenty-five (25%) tax has been imposed on imported glass bottles under the Excise Duty Act.
The most prominent amendment in the Business Laws (Amendment) Act, 2020 (the Act) is introduction of electronic signing and lodging of documents through the electronic form which will save on time, money and labour. As a result, it is predictable that e-commerce activities will increase and facilitate economic growth.
However, as much as the Act will bring about economic benefits, there are certain challenges presented by the Act. These challenges include:
- Execution of a document through electronic signature is likely to sprout problems. Digital signature requires parties to trust that the individual creating the signature have kept his/her private key a secret. A private key is used by its owner to encrypt the digital signature on the electronic document. Therefore, if someone else has access to the key, other than the owner, it is possible to fraudulently create a digital signature.
- In case of online disputes relating to enforcement of an e-contract, there lacks elaborate legal framework on how to deal with such disputes. For example, where the contracting parties are from different geographical areas, the issue of applicable law and court jurisdiction arises.
- The realization of the benefits of the Act in terms of adopting use of electronic signature may be limited especially in instances where other countries lack a legal framework that allows creation of an e-contract.
- The removal of land rent clearance certificate and land rates clearance certificate as completion documents in a land transaction, poses a heavy burden on a purchaser in ensuring that the vendor pays the rates and rent. The focus shifts on what are the likely legal implications on an innocent purchaser who has acted in good faith and has no reasonable cause to notice that the vendor has not paid the rates and/or rent.
In conclusion, the Act has economically benefiting amendments. However, in the light of the above challenges, more needs to be done to create an enabling environment to facilitate the realization of the benefits of the Act.
This alert is for informational purposes only and should not be taken to be or construed as a legal opinion. For further clarification, please do not hesitate to contact Jane Makena Kirimi (jkirimi@jmkadvocates.co.ke) or Jacklyne Kanu (jkanu@jmkadvocates.co.ke).