REVIEW OF THE BUSINESS LAWS (AMENDMENT) (NO.2) ACT, 2021

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 Introduction

The Business Laws (Amendment) (NO.2) Act, 2021 (the “Act”) was assented to and came into effect on 30th March, 2021. The Act is a second of its kind and comes into force about one year after the first Business Laws (Amendment) Act, 2020 was enacted. The Act’s principal objective is to facilitate the ease of doing business in Kenya just like the preceding Business Laws (Amendment) Act, 2020.  

In order to actualize the Act’s principal objective as mentioned herein above, the Act introduces various amendments to various existing statutes. Following below is a concise highlight of the aforesaid amendments.

Law of Contract Act Cap 23

The Act amends the Law of Contract Act, Cap 23, to align it with the amendments that was introduced to the Companies Act, 2015 by the Business Laws (Amendment) Act, 2020. The amendment is to the effect of abolishing the previously provided requirement to use a company’s common seal when executing contractual documents disposing an interest in land. In essence, as per the amendment, such contractual documents will be properly executed, if signed by two authorised signatories (director or secretary of a company) or a director of the company in the presence of a witness who attests the signature.

The amendment aims to promote modern trends by developed jurisdictions whereby instruments need to be executed by natural person (s) on behalf of a company.

Companies Act, 2015

Introduction of Virtual and Hybrid Meetings

The Act amends the Companies Act, 2015 to provide for Virtual and Hybrid General Company Meetings. To start with, the definition of ‘’general meeting’’ has been amended to assert that a general meeting held by a company may be physical, virtual or hybrid meeting.

The Act further defines a virtual company meeting as one where all members may join and participate in the General Meeting through electronic means including video conference, audio conference and web conference among others.

On the other hand, a hybrid meeting has been defined as the conduct of a meeting through both the physical and virtual means. Implying that some participants may participate in the meeting whilst gathered together in a physical location while other participants join the meeting through electronic means.

The Requirements of holding a proper virtual or hybrid general meeting of a company

In order to hold a proper virtual or hybrid general meeting, the Act provides that a company must specify the means by which the meeting can be electronically accessed and mode of participation in such a meeting, such specifications shall be indicated in the notice of the meeting. Among other things that are already required, as per the relevant provisions of the Companies Act, 2015, to be indicated in the notice of the meeting include the time, date and agenda of the meeting. Moreover, as per the Companies Act, 2015, the quorum and keeping of proper records of the hybrid or virtual meeting must be observed, among other requirements.

The amendment provision for holding a virtual or hybrid general meeting is preceded by the High Court’s order in the HC Comm. Misc. E721 of 2020 Nicholas Alexander Nesbitt and Registrar of Companies and the corresponding Guidelines on the Conduct of Hybrid and General Meetings by the Companies (the “Guidelines”) as issued by the Registrar of Companies pursuant to Section 876 of the Companies Act, 2015, as well as the High Court’s Order under Miscellaneous Application No. E680 dated and delivered at Nairobi on the 29th April 2020 and the corresponding circular issued by the Capital Markets Authority on the Requirements For Convening And Conducting Virtual General Meetings By Issuers Of Securities To The Public. These two court orders and the guidelines issued therewith were issued in the light of the Covid-19 pandemic and the preventive and control measures that restrained the holding of physical meeting and were to the effect of allowing the conduct of virtual or hybrid meeting by private as well as listed and non-listed public companies. Thus, the amendments by the Act are a crystallization of the aforementioned court’s orders and will to a great extent ease the conduct of meetings by companies.

Common seal

The Act amends the Companies Act, 2015 by deleting the transitional provision that provided for companies that had an official seal under the pre 2015 company law regime to continue the use of it under the Companies Act, 2015.

The transitional provision in the sixth schedule was the only remaining provision on common seal under the Companies Act, 2015, after the Business Laws (Amendment) Act, 2020 deleted other sections that provided for the use of common seal. The effect of this amendment is that the Official Company Seal has been completely removed from our company law.

Insolvency Act, 2015

New right for Floating charge holders

The Insolvency Act, 2015, currently provides that where a company is under liquidation or administration and its assets are subject to a floating charge, the liquidator or administrator shall make available for distribution a portion of the company net assets in favour of unsecured creditors.

The Business Laws (Amendment) (NO.2) Act, 2021, amends the Insolvency Act, 2015 to introduce the right for holder of a floating charge, to challenge by way of an application to court the distribution of a company’s net assets to unsecured creditors on the grounds that such distribution may unfairly harm its interests.

Prior to the amendment only the liquidator, administrator or provisional liquidator could make the application to court challenging the distribution to unsecured creditors on the grounds that the costs of distribution would outweigh its benefits. The amendment brings added protection to the interest of a holder of a floating charge in an insolvent company.

Pre insolvency Moratorium

The Act amends the Insolvency Act, 2015 to introduce a pre-insolvency moratorium for companies that are experiencing financial distress. The moratorium will operate as a temporary protection from creditors as the company tries to find a way out of the financial distress. Previously, the moratorium on debt payments was only obtainable once the directors of a company made a proposal for a voluntary arrangement with creditors.

Thus, a company intending to benefit from the pre-insolvency moratorium, will be required to appoint a monitor who is a qualified insolvency practitioner and who will be a supervisor over the company, and will have to present to the monitor the documentation stating why the moratorium is desirable in the circumstance, and based on the comments of the monitor, the company shall proceed to apply to the court for a moratorium order. The moratorium will be valid for thirty (30) days with an option to extend for further 30 days once the court determines that such extension will be necessary to fully realize the objectives for which the moratorium was first obtained, mostly the rescue of the company from being a victim of insolvency proceedings.

The pre-insolvency moratorium will be a rescue to financially distressed company and in the long term goals a rescue to the overall economy by preserving the operation of businesses in Kenya.

National Social Security Fund Act, 2013 & National Hospital Insurance Fund Act, 1998

The Act amends the NSSF Act and NHIF Act to provide that every Employer shall remit their employees contribution to the funds by the 9th day of every month. The intention is to harmonise payroll deductions and make it easier for employers to comply.

With regard to the remittance to the NSSF Fund, the Act deletes the previously provided one month period that was afforded to defaulting employers before the 5% penalty would apply and instead provides that the 5% penalty shall apply from the date the payment is due being the 9th of every month.

Industrial Training Act, Cap 237

The Industrial Training Act, Cap 237 is amended by the Act to introduce a new deadline within which the training levy (which is known as the industrial training levy or NITA Levy) must be remitted to the National Industrial Training Institute. The deadline is now to pay the training levy before the end of each financial year but not later than the 9th day of the month following the end of the financial year.

Previously, if any person failed to pay an amount payable by him by way of the training levy within the time prescribed by the training levy order a sum equal to five per cent of that amount would be added to the amount for each month or part of a month thereafter that the amount due remained unpaid. Thus, the amendment will offer businesses more time to pay the training levy.

Small Claims Court Act, 2016

The Act amends the Small Claims Court Act, 2016 to provide a deadline for determination of all proceedings before the Small Claims Court within a period of (60) sixty days.  Matters before the court must still be heard and determined on the same day or, on a day-to-day basis but must be finalised within 60 days from the date of filing the claim.

This is a good amendment to ensure immediate determination of matters in the court and to avoid the perennial predicament of Case backlog.

Stamp Duty Act Cap 480

The Act amends the Stamp Duty Act to provide that contracts which are chargeable as conveyances on sale and which attract a fixed duty of KES 100 as provided for under section 49 of the Stamp Duty Act are exempted from stamp duty payments.

Conclusion

The introduction of the pre insolvency moratorium will definitely aid financially distressed companies in rescuing their businesses, however, the question that ought to be determined in the utilization of the moratorium is what will constitute a financially distressed company.

On the other hand, the provisions of unified remittance of NHIF, NSSF and NITA levy are in alignment with the Unified Payment Return (UPR) rolled out by the Kenya Revenue Authority (KRA) in collaboration with NSSF, NHIF & NITA to enable a one-off declaration as well as one-off payment of the Pay as You Earn (PAYE) together with the deductions to the respective funds/authority, with the aim to reduce employer’s compliance efforts and costs.

Moreover, the amendments to the effect of holding of virtual or hybrid meetings by companies are in essence a consolidation into law of the herein above highlighted High Court Orders.

In a nutshell, we can assert that the stipulated amendments by the Business Laws (Amendment) (No.2) Act, 2021, speak to the stretching of the objective of the Business Laws (Amendment) Act, 2020 being to facilitate the ease of doing business in Kenya.

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 Faith Karanja (fkaranja@jmkadvocates.co.ke).

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