21 April 2021 by Corporate & Commercial Alert

Amendments by Business Laws Act facilitate ease of doing business in Kenya

The Business Laws (Amendment) (No. 2) Act, 2021 (the Act) which came into force on 30 March 2021, makes amendments to various statutes to facilitate the ease of doing business in Kenya, including the Law of Contract Act, the Companies Act and the Insolvency Act. We consider below some of the amendments introduced by the Act.

Execution of contracts relating to an interest in land

The Law of Contract Act has been amended to provide expressly that a company incorporated under the Companies Act can now execute a document relating to an interest in land without using a common seal. Such a document will be validly executed if it is signed on behalf of the company by two authorised signatories or by a director of the company in the presence of a witness who attests the signature.

The Companies Act has also been cleaned up to remove hangover provisions relating to the use of the common seal abroad by companies that were incorporated before 2015.

Other entities that are not companies and which require to use the common seal by virtue of law, or their constitutional documents will still be able to do that when executing such documents.

Virtual or hybrid meeting

A company can now undertake either a physical, virtual or hybrid general meeting pursuant to the provisions of the Companies Act. This will come as a great relief for companies that wish to hold meetings whilst complying with the restrictions relating to the COVID-19 pandemic and is in keeping with increased use of digital communication platforms.

The inclusion of virtual and hybrid general meetings into the Companies Act codifies the guidelines issued by the Business Registration Service in 2020 and thus ensure that all companies can now conduct virtual or hybrid meetings, not just companies whose articles of association permit the conduct of virtual or hybrid meetings.

A virtual general meeting is a meeting where all the members join and participate through electronic means whereas a hybrid meeting as the name suggests is a meeting where some participants are in the same physical location while other participants join the meeting through electronic means. Electronic means is deemed to include video conference, audio conference, web conference or such other electronic means.

In setting up these sorts of meetings, companies are required to ensure, among other things, that notices for virtual or hybrid general meetings to members specify the means of joining and participating in the meeting.

Distribution of Assets realised from a floating charge

The Insolvency Act has been amended to provide a window for a lender to oppose the setting aside of a portion of the company assets subject to a floating charge for the satisfaction of unsecured debts. The portion of assets that are to be made available for the satisfaction of unsecured debts presently is twenty per centum. The new amendment presents for unsecured creditors a return to the former potentially perilous existence where they would not recover any money from an insolvent company although the criteria for accessing the window by the holder of a floating charge is anything but straightforward.

In opposing the distribution, the liquidator or administrator will require to apply to court on the ground that the cost of making a distribution to unsecured creditors would be disproportionate to the benefits. In addition, the holder of the floating charge will also be required to apply to the court on the grounds that the distribution will unfairly harm its interests. The High Court will then determine if the distribution should not be made or allow distribution subject to such conditions as it considers appropriate.

Business rescue moratorium

The categories of companies that are eligible to apply for a moratorium has been expanded to include those that are “financially distressed”. What amounts to financial distress has not been defined and it remains to be seen how it will be applied. The companies that are illegible to apply for a moratorium remains largely the same expect that the illegibility of companies having liability outstanding under an agreement of one billion shillings or more has been removed.

Where a moratorium is in place, the Insolvency Act has been amended to provide that is will not be possible to appoint an administrative receiver. This clarifies previous suggestions that the appointment of an administrative receiver could be considered in certain cases as this was not expressly prohibited by statute.

The process for applying for a moratorium has also changed to provide that a person will now also need to provide, among other things, a document describing why a moratorium should be granted. Such reasons may include evidence that it will assist in achieving an informal restructuring or other agreement with creditors or entering a formal insolvency procedure that could lead to the rescue or efficient liquidation of the company. An officer to be known as a monitor, previously provisional liquidator, but still an insolvency practitioner will be appointed to “monitor” the company.

The moratorium if obtained will be for a short and likely unrealistic 30 days, but this can be extended for a further period of at least 30 days if the court considers it desirable to do so in order to achieve the aims for which the moratorium was originally granted.

There are further changes to the Insolvency Act and the effect of these will be considered in a separate alert.

Payment of training levies

The Industrial Training Act has been amended to provide that the payment of training levies due under a training levy order by a business will be remitted at the end of the financial year of the business, but not later that the 9th day of the month following the end of the financial year. This is a change from the previous requirement to pay these levies monthly although practical reasons may necessitate a person to opt for monthly payments particularly where there are routine frequent changes to the employees.

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