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KENYA INTRODUCES A NEW COMPANIES ACT AND THE INSOLVENCY ACT

Thursday, October 08, 2015
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The Companies Act, 2015 (the “Companies Act, 2015”) and The Insolvency Act, 2015 (the “Insolvency Act”) were both assented to by the President of Kenya on Friday, 11 September 2015 and gazetted on 18 September 2015. However, the laws are not yet operational. Both acts give the Cabinet Secretary power for the implementation of legislation. The Insolvency Act does not define Cabinet Secretary but the Companies Act, 2015 defines it as “the Cabinet Secretary for the time being responsible for matters relating to companies” (“Cabinet Secretary”).

Winding-up of companies was previously provided for under Part VI of the Companies Act (Chapter 486 of the Laws of Kenya) (“Cap 486”), while the insolvency of natural persons was covered in the Bankruptcy Act of Kenya (No. 32 of 1930). Cap 486 is based largely on the United Kingdom’s Companies Act of 1948, which is very out of date with modern business practice. There was, therefore, a great need to update and modernise Kenyan company and insolvency laws and these two new laws go a long way towards doing so.

The Companies Act, 2015 has many similarities to the Companies Act, 2006 of the United Kingdom.

The Companies Act, 2015

The Companies Act, 2015 will come into operation in stages. Section 1 of the Act, which deals with the short title and commencement, comes into force today (18 September 2015) since a notice in the Kenya Gazette was published. Gazetting starts the process of bringing the myriad of provisions in the Companies Act, 2015 into force. The Cabinet Secretary will bring the law into operation in stages by publishing further notices in the Kenya Gazette. He has nine months to do this. If this is not done then Parliament may, by resolution of each of its Houses, bring into operation those provisions which have not yet been commenced.

Transition to the Companies Act, 2015

The old Companies Act, Cap 486, will continue to operate until the remaining provisions of the Companies Act, 2015 come into force. The Sixth Schedule of the Companies Act, 2015 contains comprehensive Transitional and Savings provisions which are intended to repeal the corresponding provisions of Cap 486 once the new provisions under the Companies Act, 2015 are brought into force. For the time being the Companies Registry will continue as is and registration of companies and all other company-related matters will continue under Cap 486. It will be necessary to introduce new subsidiary rules and regulations, as well as new filing forms and returns.

Some provisions of Cap 486 will remain in force including, among other things:

  • the validity of any companies registered under Cap 486 and company instruments (such as share certificates, register of members etc.)
  • the application of Table A (template Articles of Association provided under Cap 486) in so far as it applies to an existing company prior to the commencement of the New Companies Act
  • changes made to companies including change of names and alterations to memorandum and articles of associations that occurred under the provisions of Cap 486
  • the validity of acts of directors, as in force immediately before the repeal of Cap 486, will continue to apply
  • the rights of debenture  holders under debentures created under Cap 486.

We will be providing more detailed analyses of the Companies Act, 2015 in the coming days and as and when the Cabinet Secretary Gazettes the commencement of specific parts of the new law.

The Insolvency Act

The overhaul of Kenyan legislation relating to insolvency is designed to consolidate the laws relating to the insolvency of natural persons and incorporated and unincorporated bodies, and to provide for matters relating to insolvency in greater detail.

The Insolvency Act contains provisions relating to alternative procedures to bankruptcy and winding-up that will facilitate the management of the affairs for the benefit of persons, companies and creditors. This includes, in the case of companies, the introduction of rights to conduct restructurings and bankruptcy work-outs under an administration process.

Transition to the Insolvency Act, 2015

The Insolvency Act (either in its entirety or portions thereof) will come into operation on such date as the Cabinet Secretary may direct by notice in the Kenya Gazette. However, if any provision has not been brought into force within nine months from the publication of the Insolvency Act, then these provisions will be deemed to have come into force on the expiry of the nine months.

The Cabinet Secretary has an obligation to repeal the Bankruptcy Act (or certain provisions thereof) and certain provisions of the Cap 486 by notice published in the Gazette as and when corresponding provisions of the Insolvency Act comes into operation. Furthermore, section 89 of the Law of Succession Act (Chapter 160 of the Laws of Kenya) (the “Succession Act”) will also be repealed when Part V of the Insolvency Act comes into force.

The transitional provisions of the Insolvency Act provide that, despite the repeal of Cap 486, the Bankruptcy Act and section 89 of the Succession Act (collectively, the “Repealed Acts”), the relevant provisions of these Repealed Acts will continue to apply to any ’past events’. These past events relate to specific action taken under the repealed legislation and include, for example, the passing by a company of a special resolution prior to the commencement of the Insolvency Act resolving that the company be wound up. The Insolvency Act also gives the Cabinet Secretary power to make regulations that may be necessary to transition from the Bankruptcy Act and Cap 486 to the Insolvency Act.

We will be providing more detailed analyses of the Insolvency Act, 2015 in the coming days and as and when the Cabinet Secretary Gazettes the commencement of specific parts of the new law.