INTRODUCTION
On 19th March 2020, the Business Laws (Amendment) Bill 2019 was signed into law by the President. The aim of the new Act is to modify various pieces of legislation to facilitate the ease of doing business in Kenya. The Act has made amendments to about 16 laws. This Bulletin provides an analysis of the laws that have been affected by the new Act and the implications of the amendments on doing business in Kenya.

LEGISLATING DIGITIZATION EFFORTS

1. Application of E-signatures and Advance E-signatures
The Law of Contract Act has been amended to create a broader definition of the term “sign.” According to the amendment, signing now includes; making one’s mark or writing one’s name or initial physically or by means of an advanced electronic signature…

Additionally, the amendment introduces the term “advanced electronic signature” in line with the definition under the Kenya Information and Communications Act. An advanced electronic signature meets all the following requirements:-

a) it is uniquely linked to the signatory;
b) it is capable of identifying the signatory
c) it is created using means that the signatory can maintain under his sole control; and
d) it is linked to the data to which it relates in such a manner that any subsequent change to the data is detectable.

Previously, the Law of Contract Act was silent regarding e-signatures and their validity thereby posing inconsistencies with other laws including the Kenya Information and Communications Act and the Evidence Act which both recognized the validity of e- signatures.

Parties to a contract can now easily execute contracts electronically through advanced e-signatures without the need for physical presence or signatures.

Besides business efficiency, the use of e-signatures is now more than ever necessary and timely with the recent COVID-19 pandemic. Parties to commercial transactions can now be able to execute contracts without having to sign or meet physically lessening the interruption caused by the pandemic.

2. Recognition of Electronic Title Documents

The Kenya Information and Communications Act has been amended by deleting paragraph (c) of section 83 (1), which excluded title deeds from writing or signature in electronic form.

This amendment actualizes the legal recognition of e-signatures in property transactions. In practice, this means that title documents can now be issued either physically or electronically through the digital registries that are contemplated by like-minded amendments under other pieces of legislation discussed within this Bulletin.

3. Electronic Registration of Documents

The Registration of Documents Act now caters for e-transactions at the registries. The Act has introduced electronic books and recognizes the application of advanced electronic signatures and electronic signatures.

The Act now allows for both the Principal and the Coastal Registries to be maintained in electronic form and filing of documents in either physical or electronic form.

The reforms shall ease the process of document registration by cutting the time and cost used to prepare and present documents for registration.

Besides efficiency, the digital registries now present the opportunity for enhanced transparency since information will now be more accessible. The registries shall be able to offer searchable digital databases to the public. The necessity of the digital transformation of the registries has been compounded by the current business restrictive circumstances caused by the COVID-19 pandemic. These reforms, if quickly implemented, offer an opportunity for business continuity through functioning registries.

4. Electronic Stamping of Documents

The Act provides for electronic stamping of documents by amending the Stamp Duty Act. The Cabinet Secretary for National Treasury will subsequently provide regulations to outline further provisions to enable electronic stamping.

5. Simplification and Digitization of Land Transactions

The Act promotes the digitization and simplifies the processing and registration of documents in land transactions as follows:

Surveying processes

The Act allows the Survey of Kenya to now process, authenticate and seal survey maps and the related documents electronically by amending the Survey Act (Chapter 299 of the Laws of Kenya).

Registration of documents at the Lands Registry

The Act enhances a few aspects of land transactions at the registration stage by amending the Land Registration Act, (No.3 of 2012). In particular:-
a) Documents can now be presented for registration either in physical or electronic form.
b) Documents presented for registration shall be deemed validly executed if processed and executed electronically.
c) Rates and rent clearance certificates are no longer required for interests on land to be registered. It is worth noting that while these two documents have been dropped as a requirement for the registration processes, banks, and financial institutions may still require their production to ensure their security interest is properly protected. This amendment, however, allows for the flexibility of these documents being produced as a condition subsequent in cases where their production would unnecessarily delay drawdown to facilitate expedited drawdown while at the same time ensuring the security interest is not prejudiced.

TRANSFORMATION OF CORPORATE LAW

1. Transactions undertaken by Companies

Companies no longer need to use their common seal to for execution of company documents including contracts, share certificates or securities issued by the company and in essence aligning with the application of electronic and advanced electronic e-signatures

2. Transparency and Information Sharing

In a bid to enhance transparency, the Companies Act now requires companies listed on the stock exchange to share information with their members regarding any new item on the agenda that is meant to be dealt with at the members’ general meeting. It also provides more power to members that hold at least 5% of the paid-up capital to request for information from the company.

3. Conversion of Bearer Shares to Registered Shares
In line with global trends, the Companies Act now requires the transition of all bearer shares to registered shares. Bearer shares are unregistered equity that is held through possession of physical share documents in favor of the “bearer.” Bearer shareholders will no longer enjoy rights attached to their shares including entitlement to dividends.
Bearer shares have in the past afforded their holders privacy and anonymity. This legislative change coupled with the recent passing of the Companies (Beneficial Ownership Information) Regulations, seeks to among others, guard against illicit financial activities. Several jurisdictions have outlawed bearer shares since they lack any form of meaningful regulation and control.

As a matter of best practice, various companies have voluntarily converted their bearer shares to registered shares in order to communicate with their shareholders in a reliable, transparent and open manner. Registration of shareholders will allow companies to know their shareholders and their ownership structure placing them in a position to address their shareholders directly and enhance investor relations activities in a more direct and efficient manner.

Companies in Kenya now have a period of 9 months to implement the conversion, failing which both the company and its officers would attract criminal liability whose potential exposure may amount to up to Kshs. 500,000/-.
In light of this, companies will need to guide their shareholders appropriately to ensure the smooth and effective implementation of these requirements. For listed companies, communication strategies that layout in a clear and concise manner the rationale for the conversion, its implications on the rights of the shareholders, advantages resulting from the conversion, consequences of conversion and/or refusal to convert and data protection measures that the company intends to put in place are essential.

4. Protection of Minority Shareholders in Takeovers: Increased Threshold for Squeeze In Mechanisms

The Act has increased the takeover threshold by adopting the initial 90% provided under the Companies Act from the 50% which was introduced last year through a miscellaneous amendment. The 50% threshold was considered too low posing a risk to investor confidence in Kenya’s capital markets as well as undermining the right of minority shareholders to decline takeover offers.

This means that a takeover offeror that acquires (or is bound to acquire) 90% (instead of 50%) of the shares and voting rights to which the offer relates, may exercise its statutory rights to compulsorily acquire the remaining minority shareholders.

5. Increased Considerations for the lifting of the moratorium of a company under administration

The Act has amended the Insolvency Act by increasing the items for consideration by the court in any application to lift the moratorium that applies once a company is placed under administration. These include the:-

• legitimate interests of the applicant and creditors of the company;
• value of the secured creditors claims vis-à-vis the value of the encumbered asset;
• protection for the diminution value of the encumbered asset;
• feasibility of provision of protection;
• needs of the reorganization or sale of the company as a going concern;
• protection or preservation of the value of assets i.e. perishable goods;
• duration of approval of the plan in reorganization i.e. if approval of the plan is not obtained within 6 months.

The consideration of the ‘conduct of the parties’ in the application to lift the moratorium has been dropped. Conduct of the parties was not expressly defined in the past, however, courts would ordinarily consider the transparency and openness of the parties and show of good faith.

Further, the lifting of the moratorium has been limited to not more than twenty-eight days. Previously there was no prescribed time limit.

PROMOTION OF PROJECTS AND INFRASTRUCTURE

1. Additional oversight powers to the National Construction Authority over construction projects.

The National Construction Authority (“NCA”) has now been empowered to conduct mandatory inspections of sites, and enforce the building code in the construction industry. It is now an offence for a party to fail to comply with an order of an investigation officer to suspend all or any construction works due to a failure of compliance with the National Construction Authority Act (No. 41 of 2011). The penalty for this offense is a fine not exceeding Kenya Shillings one million and/or imprisonment for a term not exceeding two years.

2. Some materials for construction of bulk storage facilities supporting the standard gauge railway operations are now exempt from import declaration fee

Goods imported or purchased for the construction of bulk storage facilities are now exempt from import declaration fee if they meet the following conditions:-
• the purpose of the storage facility is to support the standard gauge railway operations;
• have a minimum storage capacity of one hundred thousand metric tonnes of supplies as approved by the Cabinet Secretary for Transport, and
• imported or purchased before clearance through customs.

REDUCTION OF ADMINISTRATIVE AND COMPLIANCE BURDEN FOR EMPLOYERS

1. Industrial Training Levy

The new law lifts the administrative and compliance burden for employers in Kenya. Employers in the past were expected to remit Kshs. 50 per employee per month with an accompanying monthly return. The levy has been consolidated into an annual fee of Kshs. 600 per employee with a corresponding annual return. Further, the Industrial Training Act now provides a grace period of 12 months for employers with less than 100 employees with effect from the date of registration of the business.

2. Occupational Health and Safety

Similarly, the Occupational Safety and Health Act has been amended with the aim of lessening the burden of regulatory compliance for start-ups. Initially, the Act required new employers to register their workplace by issuing a notice containing particulars of the workplace with the Director of Occupational Safety and Health Services (DOSH).
Doing so required new employers to apply for registration of their workplace by filling a prescribed form, completing a Workplace Self-assessment Report, paying the Occupational Safety and Health levy (Ksh. 3,000) and registration fee (Ksh. 2,000) prior to registration.

Now employers with less than 100 employees are exempt from undergoing this process during the initial 12 months following registration of business. However, the Cabinet Secretary for Labour and Social Protection may exempt certain premises from the application of the exemption, presumably workplaces that are susceptible to health and safety risks.

INSTITUTIONAL REFORMS

1. Management of Public Finances

The Public Finance Management Act has been amended by removing the requirement of having the Finance Bill strictly assented to by 30th June each year creating agility and flexibility for change within the fiscal year. On the other hand, flexibility may adversely affect fiscal planning for affected entities.

Secondly, the Act has been amended by removing the requirement for revenue recommendations made by the National Assembly to be consistent with the Division of Revenue Act.

The spirit of this amendment is to reduce bureaucracies that would hinder the introduction of the Finance Bill in Parliament. However, the amendment may cause the country to lose out on benefits of the Division of Revenue Act which is considered to be more dynamic, practical and directly touching on the budgetary issues of the county and the national government considering that the approved fiscal framework is deemed to be more static, general and a projection of how funds should be allocated. The amendment raises the issue of whether solely relying on the fiscal framework would be enough to appropriately cater for the budgetary needs of the counties and their stakeholders.

2. Reconstitution of the Business Service Registration Board

The Act restructures the constitution of the Board to include the Principal Secretary for the time being responsible for business reform and transformation as opposed to trade to properly align operations of the board with the law.