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The Business Laws (Amendment) Act, 2020

7 April 2020
– 9 Minute Read

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The Business Laws (Amendment) Act, 2020 (the Act) has been enacted into law. In our article published by the Business Daily on 26th March 2020, we shared our insights on the effect of the Act and its role in improving the ease of doing business in Kenya.

Businesses are set to be the biggest beneficiaries of the Act. The Act was enacted primarily to improve the ease of doing business in Kenya by digitising transactions, reducing the formalities and documents required to complete transactions and reducing the costs of starting a business in Kenya.

We highlight below the some of the changes brought about by the Act and their potential impact.

  1. The Law of Contract Act

The Act amends the Law of Contract Act to provide for use of advanced electronic signatures. An advanced electronic signature is defined as an electronic signature which is:

(a)   uniquely linked to the signatory;

(b)   capable of identifying the signatory;

(c)   created using means that the signatory may maintain under his sole control; and

(d)   linked to the data to which it relates in such manner that any subsequent change to the data may be detectable.

An electronic signature is defined as data in the electronic form affixed to or logically associated with other electronic data which may be used to identify the signatory in relation to the data message and indicate the signatory’s approval of the information contained in the data message.

The impact of this amendment is that contracts that required to be signed to be valid can now be signed by way of an advanced electronic signature. Such contracts include contracts for a disposition of an interest in land and contracts of guarantee.

This amendment is in line with technological advancements which facilitate electronic contracting. It will also be particularly helpful in the current situation where lock-downs or social distancing are critical for combating the Covid-19 pandemic.

  1. The Registration of Documents Act (the RDA)

The Register in the Registry of Documents may now be kept in electronic form. The Registries, located in Nairobi and Mombasa, may now be digitised. We anticipate that, like the Companies Registry, they will be accessible through the e-citizen platform.

The Act also amends the RDA to permit (a) use of electronic signatures and advanced electronic signatures in execution of documents, and (b) electronic filing of documents at the Registry of Documents.

  1. The Stamp Duty Act

Documents may now be stamped by marks embossed or impressed by electronic means. As such, the entire stamp duty process could be a fully online process. Given that the process of stamp duty payment is already done online through the iTax portal, we anticipate that measures will be implemented by the Kenya Revenue Authority and the registries to ensure that the process could be fully digitised.

  1. The Survey Act

The Survey Act has been amended to enable:

(a)   the use of electronic signatures and advanced electronic signatures;

(b)   electronic processing of the seal of Survey of Kenya;

(c)   electronic processing of documents including plans;

(d)   surveyors to submit documents to the Director of Survey electronically; and

(e)   electronic authentication of documents by the Director of Survey.

We anticipate that transactions requiring the input from the Survey of Kenya offices will now be faster, safer and cheaper. The digitisation aims at improving the previously long and laborious survey processes which have been a significant drawback in transactions. Processes such as the change of user process will be completed in a timely manner due to quicker processing of documents. Moreover, because of online security features, the amendments could provide greater confidence and certainty as to the authenticity of survey records thus increasing investor confidence.

  1. The Land Registration Act (the LRA)

The LRA has also been amended to provide for use of electronic signatures and advanced electronic signatures. Moreover, the LRA permits electronic processing of instruments relating to land. As such, instruments relating to land may be processed electronically and executed electronically. However, it may take a while to implement this as land registries in Kenya are yet to create electronic records and become fully digitised.

The Act has also done away with the need to obtain land rent and land rates clearance certificates before dealing in land. This amendment is welcome to land owners, banks and conveyancing practitioners as the clearance certificates were significant barriers to expeditious land dealings including, among others, sales, change of user processes and general developments on land. Sections 55 (b) and 56 (4) of the LRA (which are yet to be amended or deleted) provide that land rent clearance certificates are required for registration of leases and charges respectively. As such, until these sections are amended or deleted, land rent clearance certificates will still be required for registration of leases and charges.

Please however note that land rent and land rates are still payable under law. The amendment only does away with the need to obtain clearance certificates when effecting registration of instruments.

  1. The Kenya Information and Communication Act (KICA)

The Act has amended the KICA to permit the use of electronic signatures in executing title documents.

Pursuant to the terms of the KICA, the Communication Authority of Kenya (the CA) will have a crucial role to play in the new space of electronic signatures. The CA is mandated with the licensing of electronic certification service providers whose role will be to generally support electronic signatures and to adhere to procedures that ensure that the secrecy and privacy of the electronic signatures.

  1. The Companies Act

Companies no longer require a company seal. Contracts entered into by companies may be executed by the directors, the company secretary or a person holding a power of attorney.

The Act also amends the Companies Act to phase out bearer shares. Holders of bearer shares have documentation of share ownership but are not recorded as members in the register of members of the company. Companies are now required to convert all bearer shares to registered shares within 9 months of enactment of the Act and to notify the Registrar of such conversion within 30 days.

The Act also amends the Companies Act to change the thresholds required for “squeezing-in” and “selling-out”. The threshold for “squeeze-ins” and “sell-outs” has now been reinstated at 90%. In 2019, the Companies Act had been amended to reduce the threshold from 90% to 50%.

“Squeezing-in” permits an investor, following a takeover for a Kenyan company, to acquire minority shareholdings on a compulsory basis if it has acquired or unconditionally contracted to acquire not less than 90% in value of the shares to which the takeover offer relates and not less than 90% of the voting rights carried by the shares to which the offer relates.

On the other hand, “selling-out” permits a minority shareholder to be bought out by the bidder if the bidder has acquired or unconditionally contracted to acquire 90% in value of the target company’s shares and 90% of the voting rights carried by the shares (whether by virtue of acceptances of the offer or by other acquisitions of the shares).

The reversion to 90% is very welcome to investors. The previous threshold of 50% was impractical and not in line with the global practice

  1. Insolvency Act

The Insolvency Act has been amended to provide that, unless otherwise agreed between the creditor and the insolvency practitioner, the insolvency practitioner must provide a creditor with information within 5 days of request.

Provisions relating to moratoria have also been amended. A moratorium is a period of time during which transactions or legal processes (in respect of companies under administration) are restricted from proceeding without the approval of the administrator or a court. During a moratorium, assets belonging to a company cannot be realised or sold without the administrator’s approval. However, courtesy of the amendments brought about by the Act, a court may, for instance, take into account the perishability of a movable asset (and whether or not it is being used to maintain the company as a going concern) when considering an application to lift a moratorium.

  1. The Occupational Safety and Health Act (the OSHA)

The Act amends the OSHA such that workplaces with less than 100 employees are no longer required to register and obtain a certificate of registration from the National Council for Occupational Safety and Health for the first twelve months from the date of registration of the business. In effect, such workplaces will not be required to pay the requisite fees for the first year of business. This will make it cheaper and easier to start businesses in Kenya.

  1. National Construction Authority Act (the NCAA)

The NCAA has been amended to bring about the following:

(a)   Enforcement of the prescribed Building Codes;

(b)   Mandatory inspections to be undertaken by the National Construction Authority (NCA);

(c)   Additional powers to the board of the NCA to appoint investigation officers to conduct investigations; and

(d)   Create an offence for failure to comply with an order given by an investigating officer which is punishable by a fine of KES 1 million or an imprisonment term of 3 years or both.

These amendments seek to bring about accountability in the construction industry. The construction industry in Kenya has, for a long time, been plagued with issues around poor workmanship, negligence, recklessness and blatant disregard for the law (such as the Building Codes). The mandatory inspections and the appointment of investigating officers will assist in ensuring that these issues are dealt with.

Overall, the amendments seek to improve the ease of doing business in Kenya. There is an ever-growing need for transactions to be concluded swiftly but at the same time, with utmost transparency. These laws aim to address both aspects. However, more needs to be done to create an enabling environment and ensure the potential benefits are realised. This will require proper capacity building initiatives and clear-cut public-private solutions.