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07 Apr 2020
BY Binti Shah AND Matthew Arrumm

Kenya: key highlights of the Business Laws (Amendment) Act, 2020

The Business Laws (Amendment) Act, 2020 (the “Act”) was assented to by the President on 18 March 2020, introducing several significant changes to various existing laws, improving the ease of doing business.

We have outlined the key highlights of the Act, which came into force on its date of assent, below:

Electronic execution and records

Electronic signatures: Parties can now sign contracts using advanced electronic signatures, thus aligning the provisions of the Law of Contract Act, Cap. 23 (the “LCA”) with those of the Kenya Information and Communications Act, 1998 (the “KICA”). Whilst the KICA already made provision for the conducting of electronic transactions and the use of electronic signatures and advanced electronic signatures, application of these provisions has been unconventional. The new amendment will hopefully see parties embrace technology and conclude contracts virtually, making it more efficient to carry on business.

Land instruments: Significantly, land instruments under the Land Registration Act, 2012 (the “LRA”) are now recognised in both physical and electronic forms in a move that may see land transactions dealt with and concluded electronically, a first in the country. The requirement for rates and rent clearance certificates and consent from the national or county governments for purposes of registration of instruments transferring, vesting or creating an interest in land, have also been deleted. With the obtaining of these consents sometimes presenting potential bottlenecks in transactions, this welcome development will hopefully facilitate better turnaround times and expedited completion of land transactions.

Stamp duty: Stamp duty payments can also be endorsed electronically with amendments to the Stamp Duty Act, Cap. 480 (the “Stamp Duty Act”). The definition of “stamp” now includes a mark embossed or impressed by electronic means, in addition to the conventional dye, franking machine or adhesive stamp. The Cabinet Secretary responsible for matters related to finance has been granted the power to make regulations concerning electronic stamping and, as such, rules regarding the application of the same may be expected.

Electronic registries: The Government has taken further steps to digitise its records pursuant to amendments to the Registration of Documents Act, Cap. 285 (the “RDA”). The Registrar of Documents is permitted to maintain electronic registers in respect of both the Principal (Nairobi) and Coast registries. Additionally, parties are now permitted to file their documents in both physical and electronic forms for registration under the RDA.

Survey documents: We may also see the Survey Office converting to digitised records, with the Survey Act, Cap. 299 (the “Survey Act”) having been amended to provide parties with the alternative of depositing their documents at the Survey Office electronically, and the introduction of electronic processing and authentication of survey plans, field notes, computations and related documents. Documents processed electronically and bearing a prescribed security feature will be deemed to bear the imprint of the seal of the Survey of Kenya.

Company law – discarding the company seal and protection of minority shareholders

The Companies Act, 2015 (the “CA”) has been amended to:

  • no longer allow companies to execute documents under seal. This applies to all documents executed by companies, including share certificates. Companies will continue to execute documents by two authorised signatories (defined as director or company secretary) or by a director of the company in the presence of a witness who attests the signature;
  • make it necessary to convert bearer shares in issue into registered shares, notwithstanding any contrary provisions in a company’s memorandum or articles of association. This seems to be in line with recent amendments to the CA, which requires a company to keep a register of its beneficial ownership and the recently passed Companies (Beneficial Ownership Information) Regulations, 2020, which attempt to ensure information on the ownership of companies is disclosed; and
  • provide greater protection to minority shareholders with ‘squeeze-out’ thresholds in the CA amended to 90% as opposed to the previously provided 50%. Majority shareholders will be required to hold or be unconditionally contracted to acquire not less than 90% of the shares of a company prior to implementing a squeeze out of minority shareholders.

Insolvency law

Creditors will now have additional grounds to seek the lifting of a moratorium while a company is under administration, with amendments to the Insolvency Act, 2015 (the “IA”) providing for further considerations that a court or administrator may take into account before approving the same. These include inter alia whether:

  • the value of the secured creditor’s claim exceeds the value of the encumbered asset;
  • the secured creditor is not receiving protection for the diminution in the value of the encumbered asset;
  • the provision of protection may be feasible or overly burdensome to the estate;
  • the encumbered asset is not needed for the reorganisation or sale of the company as a going concern;
  • relief is required to protect or preserve the value of assets such as perishable goods; or
  • in reorganisation, a plan is not approved within six months.

Employment law

The Government has taken steps to cushion new businesses with amendments to the Occupational Safety and Health Act, 2007 (the “OSHA”), which exempt new businesses with less than 150 employees from the requirement to register a workplace . This exemption applies for the first year from the date of the registration of the business.

Employers will also appreciate amendments to the Industrial Training Act, Cap. 237 (the “ITA”), which now provides for annual accrual of penalties for non-payment of training levies, as opposed to the previous monthly accrual.

Construction law

With various ambiguities surrounding the Building Code, the National Construction Authority Act, 2011 (the “NCA Act”) has been amended to provide for the Building Code in the construction industry, with the National Construction Authority (the “NCA”) having powers to enforce the same. Mandatory inspections by the NCA have been introduced in a bid to promote and ensure adherence to quality standards in the construction industry. The Cabinet Secretary responsible for matters relating to public works is expected to provide regulations on the Building Code and the manner of conducting the mandatory inspections.

Conclusion

The various amendments are primarily geared towards Government’s efforts to improve the ease of doing business in the country. It is anticipated that transaction costs and timelines will be greatly reduced and Government service delivery will be enhanced. From a broader perspective, the amendments certainly provide timely alternatives in the wake of the coronavirus (COVID-19) pandemic and the various related business disruptions.

For more information on this, please contact:

Binti Shah
Partner | Kenya
bshah@ENSafrica.com
+254 733 731 222

Matthew Arrumm
Associate | Kenya
marrumm@ENSafrica.com
+254 722 881 228