The Companies Act_Comparison_Kenya 2015

7/24/2019 The Companies Act_Comparison_Kenya 2015

1/12

The Companies Act, 2015

Introduction

Many people will now be aware that Kenya has embarked on its long overde transition to modern

company and insolvency laws with the recent enactment o! the new Companies Act, 2015 and the

"nsolvency Act, 2015# The prpose o! this article is to highlight some o! the main changes $and

challenges% that will come with the new Companies Act, 2015 $New Act%#

The &ew Act has drawn heavily on the Companies Act, 200' o! the (nited Kingdom# At 1,02' sections

rnning to over 1,'00 pages $withot schedles% the &ew Act is by !ar the most e)tensive piece o!

legislation on the statte books in Kenya# *y comparison, the old Companies Act $Cap +'% had +0'

sections covering 2-0 pages $which inclded a regime !or corporate insolvency%. the 2010 Kenya

Constittion has /st 2'0 sections $withot schedles%# The scale o! the new law is monmental# The

comprehensiveness o! its provisions will reire a great deal o! ad/stment#

The (K Companies Act 200' took more than three years to implement# Kenyans have been allowed /st

nine months to prepare themselves o! the new regime# "n many instances e!!ective implementation will

depend on the introdction o! sbsidiary legislation by the Cabinet ecretary !or the time being

responsible !or matters relating to companies3 $Cabinet Secretary%# These will have to be dra!ted# The

instittions to spport the implementation o! the &ew Act will need to be set p, or re!ormed !rom their

crrent operations nder the old Act# "ndividals will reire a signi!icant amont o! training in order to

be able e!!ectively to administer the reirements o! the &ew Act#

Transition To The Companies Act, 2015

4or the time being the old6 Companies Act, Cap +', will contine to operate ntil the corresponding or

new provisions o! the Companies Act, 2015 come into !orce throgh legal notices prepared by the

Cabinet ecretary in the Kenya 7a8ette# The i)th chedle o! the &ew Act contains comprehensive

Transitional and avings provisions#

4or the time being the Companies 9egistry will contine as is3 and registration o! companies and all

other company:related matters will contine nder Cap +'# "t will be necessary to introdce new

sbsidiary rles and reglations, as well as new !iling !orms and retrns#

Kenyan company law is heavily based on the principles o! ;nglish company statte law and the

common law, as handed down throgh /dge:made decisions o! the corts# The &ew Act preserves this

heritage in the ;nglish system#


2/12

"t is important to be assred that the &ew Act will not annl or invalidate the actions, rights and powers

o! e)isting companies incorporated in or already registered in Kenya# There will not be an overnight

need to re:register or re:write the rles#

A Comprehensive Law

=hile the &ew Act does not sher in a whole new code !or corporate governance and doing bsiness in

Kenya that revoltionises the law what it does do is to introdce a mch heavier regime reiring

sbstantial compliance# Companies in Kenya will need to devote greater resorces to ensring that their

a!!airs are rn in accordance with the new laws# The &ew Act is both a consolidation o! laws on

companies in Kenya and a modernisation o! statte law on the sb/ect#

The Kenyan administration and the /diciary will be nder pressre in terms o! resorces and know:how

in helping with the application and interpretation o! the &ew Act# ;nglish law decisions, which are o!

persasive vale in the corts, are likely to be even more in!lential as we /mp several generations o!

evoltion o! legal practice !rom early twentieth centry company law to early twenty:!irst centry law#

The Two e!imes" #rivate And #ub$ic Companies

>ne important !eatre o! the &ew Act is the deliberate distinction now to be made between the reglated

a!!airs o! a private company and those o! pblicly:owned or stock e)change oted companies# The

emphasis has been to introdce a lighter:toch regime !or small companies ths redcing the time and

cost o! bsiness, while ensring that companies with pblic participation are sb/ect to greater levels o!

scrtiny and accontability#

%eavier Sanctions

>ne o! the !eatres o! Cap +' was the la)ity with which many o! its reirements were complied with#

nce the new law comes into operation, the comprehensive provisions, the e)tensive

sanctions and potential conseences !or company directors, o!!icers and members will be serios#

Companies and individal directors !ace civil and potentially criminal sanctions !or non:compliance# The

!ines range !rom K; 100,000 to K; 15 million# Many !ines are in the K; 500,000 to K; 1 million

range# "mprisonment terms !or indictable o!!ences rn !rom between one and !ive years, and in

e)ceptional cases $e#g# !rad% 10 years#

>ne o! the !eatres o! the &ew Act is that many provisions carry their own individal sanctions regime#

Also, daily de!alt !ines are introdced#

%i!h$i!hts &' (ain Chan!es


3/12

The !ollowing highlights the main changes broght abot by the &ew Act when compared to the crrent

system nder Cap +'?

Company )ormation

"t will become possible !or a single person to !orm a private and a pblic company# 4ormerly it was

necessary to have at least two members !or a private company and seven !or a pblic company# A

private company is still restricted to 50 members#

>ther types o! companies may be !ormed, as nder the e)isting law? companies limited by garantee

$withot or withot share capital% and nlimited companies#

Constitutiona$ *ocuments

A company@s articles o! association will become its main constittional docment and the company@s

memorandm will be treated as part o! its articles# =hile it will still be important to !ile a memorandm o!

association to incorporate a new company, it will no longer !orm part o! the company6s constittion#


4/12

Birectors will have the option o! providing the 9egistrar with a service address, which will in !tre

enable their home addresses to be kept on a separate register to which access will be restricted#

Company Secretaries

A private company with a share capital o! less than K; 50 million will not need to appoint a company

secretary# This !nction can be carried ot by an agent or by a director o! the company# rivate

companies whose share capital is more than K; 50 million, and all pblic companies, mst appoint a

company secretary#

Consents To Appointment

At the time o! registration o! a company, and at any time a new director $or secretary% is appointed sch

person mst consent to the appointment in writing# This is a new reirement# The &ew Act does not

contain a reirement that resignations mst be e!!ected by way o! letter spported by a stattory

declaration by the otgoing o!!icer, as is the crrent practice o! the Companies 9egistry# "t remains to be

seen i! the Cabinet ecretary will introdce this reirement by reglation#

+ecution &' *ocuments

4ormalities !or e)ection o! company docments and contracts as a deed are introdced so that a

single director can e)ecte a docment as a deed on behal! o! the company by a simple signatre in the

presence o! a witness# A docment will be deemed to be validly e)ected as a deed i! the docment is

dly e)ected by the company and delivered as a deed# "t is no longer mandatory !or a company to

have a common seal# The modes o! e)ection o! docments will still need to be !ollowed as reired

nder other stattory reirements sch as the aw o! Contract Act and the and Act#

Company Names

The main change on naming o! companies $name approval and reservation with the 9egistrar will still

be applicable% is on the distinction between private and pblic companies# blic limited companies may

only be registered with a name that ends with the words pblic limited company3 or the abbreviation

plc3 while the name o! a private limited company mst end with the word limited3 or the abbreviation

ltd#3 Changes o! name mst be !iled within 1+ days and become e!!ective only pon issance o! a new

certi!icate by the 9egistrar#

+n'ranchisin! Indirect Investors

All companies will also be able to inclde provisions in their articles to identi!y some other party to

e)ercise additional rights o! the shareholder#

&ominee shareholders o! listed companies will be able to nominate persons on behal! o! whom they

hold shares to receive copies o! company commnications and annal reports and acconts# This is to

address the concern that shares in pblicly listed companies are !reently held in an intermediary@s


5/12

name, which makes it more di!!iclt !or the bene!icial owners o! the shares to e)ercise their rights as

shareholder#

The shareholders@ ability to rati!y any condct o! a director $inclding breach o! dty, negligence, de!alt

or breach o! trst% is reglated by the &ew Act, althogh it leaves the door open !or common law

principles, previosly the only gide on this#

(nder the &ew Act, directors who are also shareholders, or persons connected to them, are not entitled

to vote in relation to any rati!ication resoltion concerning their actions#

;)isting restrictions on companies indemni!ying directors against certain liabilities will be rela)ed to

permit indemnities by grop companies to directors o! corporate trstees and occpational pension

schemes#

The &ew Act gives shareholders a stattory right to prse claims against the directors !or mis!easance

on behal! o! a company $a derivative action%, althogh the shareholders need the consent o! the cort to

proceed with sch a claim#

Certain transactions between the company and its directors which were previosly prohibited by law

have become law!l sb/ect to the approval o! shareholders $!or e)ample, loans !rom the company to its

directors%#

*irectors- *uties

The general dties o! the directors as set ot in the &ew Act are owed to the company and are largely

based on common law and eitable principles in so !ar as they relate to directors#

The &ew Act replaces and codi!ies the principal common law and eitable dties o! directors, bt it

does not prport to provide an e)hastive statement o! their dties, and so it is likely that the common

law dties srvive in a redced !orm# Traditional common law notions o! corporate bene!it have been

swept away, and the new emphasis is on corporate social responsibility# The stattory dties shold be

interpreted and applied in the same way as corresponding common law rles and eitable principles

$ths allowing developments in common law and eity to in!lence the interpretation o! the stattory

dties%#

The seven codi!ied dties are as !ollows?

to act within their powers : to abide by the terms o! the company@s memorandm and articles o!

association and decisions made by the shareholders.

to promote the sccess o! the company : directors mst contine to act in a way that bene!its

the shareholders as a whole, bt there is now an additional list o! non:e)hastive !actors to

which the directors mst have regard# These !actors are?


6/12

o the long term conseences o! decisions

o the interests o! employees

o

the need to !oster the company@s bsiness relationships with sppliers, cstomers andothers

o the impact on the commnity and the environment

o the desire to maintain a reptation !or high standards o! bsiness condct

o the need to act !airly as between members.

to e)ercise independent /dgment : directors mst not !etter their discretion to act, other than

prsant to an agreement entered into by the company or in a way athorised by the

company@s articles.

to e)ercise reasonable care, skill and diligence : this mst be e)ercised to the standard

e)pected o!

o someone with the general knowledge, skill and e)perience reasonably e)pected o! a

person carrying ot the !nctions o! the director $the ob/ective test% and also

o the actal knowledge, skill and e)perience o! that particlar director $the sb/ective

test%.

to avoid con!licts o! interest : methods !or athorising sch con!licts by either board or

shareholder approval are also to be introdced.

not to accept bene!its !rom third parties. and

to declare an interest in a proposed transaction with the company : there are to be carve ots

!or matters that are not likely to give rise to a con!lict o! interest, or o! which the directors are

already aware# There will be an additional stattory obligation to declare interests in relation to

e)isting transactions#

&ther #rovisions &n *irectors

A company director6s service agreement !or a term o! more than two years reires shareholder

approval#

There are comprehensive controls o! the rights o! companies to make payments to directors !or loss o!

o!!ice# The general proposition is that sch payments are prohibited nless approved by the members#


7/12

There are several e)ceptions to this contained in the relevant section $payments made in discharge o!

an e)isting obligation, etc#%#

"t is no longer a reirement to register details o! other directorships held by a director#

*irector-s *is.ua$i'ication

4or the !irst time the &ew Act introdces stattory provisions covering the disali!ication o! persons

acting as directors# A director can be disali!ied nder the &ew Act or nder the insolvency laws or any

other enactment prescribed by reglations !or the prposes o! the section e#g# the Capital Markets Act#

A disali!ication order made by the cort will !nction against the !ollowing o!!ice holders?

an o!!icer o! the company.

a liidator or provisional liidator o! a company. and

administrator o! a company nder administration#

A disali!ied person will cease to be director or a secretary o! the company and will not be athorised

to act as a liidator or administrator with regard to the company or spervise any volntary

arrangement entered into by the company# A disali!ication prohibits the person !rom being involved

with the promotion, !ormation or management o! a company, directly and indirectly#

Bisali!ication can be !or anything between two and !i!teen years, as ordered by the cort# Anyone who

de!ies a disali!ication order or ndertaking may be !ined p to K; 1 million or imprisoned !or p to 5

years, or both#

An ndischarged bankrpt may not be appointed as a director and persons who are disali!ied !rom

holding o!!ice as a director in a !oreign /risdiction may likewise be barred in Kenya#

Shareho$ders (eetin!s And eso$utions

hareholders@ written resoltions in private companies : the reirement !or nanimity in shareholders@written resoltions has been abolished, and the reired ma/ority is similar to that !or shareholder

meetings : a simple ma/ority o! the eligible shares !or ordinary resoltions, or -5D !or special

resoltions#

Abolition o! Annal 7eneral Meetings $A7Ms%: private companies are no longer reired to hold A7Ms,

althogh they can elect to provide !or them in their articles i! they wish#

hort notice o! meetings : private companies can convene meetings at short notice where consent is

given by holders o! E0D by nominal vale o! shares carrying the right to vote#


8/12

The notice o! a general meeting !or a pblic company may be given in hard copy or electronic !orm, or

by means o! a website# The crrent practice o! issing notices o! meetings by newspaper advertisement

is not catered !or and is there!ore nlaw!l, nless the 9eglations change this#

A pblic company is reired to hold its A7M within si) months o! the end o! its !inancial year#

hareholder commnications : The &ew Act makes it easier !or companies to commnicate

electronically $e#g# by email or by website% with their shareholders by e)press agreement $which

agreement can be obtained nder the articles, or by the shareholder !ailing to indicate that they do not

wish to commnicate via the website, as well as by more conventional methods%#

Share Issues

The &ew Act introdces a stattory !ramework !or pre:emption rights on new isses o! shares# These

can be dis:applied completely by private companies bt not by pblic companies F where general or

speci!ic waivers o! sch rights can be obtained !or speci!ied amonts and !or ! i)ed periods o! time#

hares in pblic companies mst be paid p as to a minimm o! one arter o! their nominal vale#

A pblic company is prohibited !rom allotting shares as partly or !lly paid p otherwise than in cash

nless the consideration !or the allotment has been independently valed in the manner set ot in the

&ew Act#

)inancia$ Assistance

A private company will be permitted to provide !inancial assistance !or the prchase o! its own shares i!

the company6s principal prpose in providing the !inancial assistance is not to give it !or the prpose o!

any sch acisition, or the giving o! the assistance !or that prpose is only an incidental part o! some

larger prpose o! the company and the assistance is given in good !aith in the interests o! the company#

4inancial assistance !or the acisition o! shares in a pblic company is still prohibited to be made by

the company or any other company that is its sbsidiary o! it#

There are certain stattory carve:ots to the prohibition on !inancial assistance that i! properly strctred

may open the door to what are called leveraged:!inanced acisitions#

(n!ortnately there appear to be some dra!ting errors in the &ew Act on these provisions which will

need to be tidied p be!ore the relevant provisions are broght into law#

Share /uy/acs

The &ew Act also permits companies to by:back or reprchase their own shares# This is only permitted

!or a pblic company i! e)tensive procedres !or approval and terms are !ollowed# hare by:backs

have not been speci!ically e)clded !rom the !inancial assistance provisions in the &ew Act# Accordingly,


9/12

there cold be di!!iclty in implementing share by:backs as they cold argably be sb/ect to the

!inancial assistance provisions##

&''ers To The #ub$ic

The &ew Act sets ot provisions on the meaning o! and reirements !or an o!!er to the pblic# The

provisions o! this part need to be reconciled with the e)tensive provisions o! the Capital Markets Act on

pblic o!!ers6 as contained in the Capital Markets blic >!!ers isting and Bisclosres 9eglations#

Treasury Shares

Treasry shares are shares that, e!!ectively, a company holds in itsel!# hares can only be trans!erred

into treasry where they have been prchased by a company !rom a shareholder ot o! distribtable

pro!its in accordance with the &ew Act and the shares are ali!ying shares $i#e# are inclded in the list

in accordance with the Capital Markets Act, or they are traded on a reglated market%#

Interests In Shares

"n order to create greater transparency the &ew Act allows a pblic company to investigate the

ownership o! its own shares throgh a notice procedre# This right may be circmscribed by reglations#

Tae&vers &' #ub$ic Companies

The &ew Act will establish a stattory !ramework !or the reglation o! takeover activity# The Capital

Markets Athority $the CMA3% may make rles called Takeover 9les which may reglate bids, merger

transactions and transactions that have or may have a direct or indirect e!!ect on the ownership or

control o! companies# The Takeover 9les mst be pblished by the CMA# "t remains to be seen how

these provisions will interact with the e)isting CMA reglations on takeovers#

Cap +' did not speci!ically reglate mergers and acisitions, bt had an impact on the !inancing o! an

acisition since it prohibited a company !rom giving !inancial assistance to any person in aciring its

shares# The &ew Act, however, provides a stattory and procedral !ramework, together with the law o!

contract, which !orms the legal basis !or the prchase and sale o! pblic companies in Kenya# The &ew

Act introdces a new perspective on handling isses to deal with mergers and acisitions o! pblic

companies in Kenya and it is not clear how this art will interact with the rles o! take:overs o! pblic

companies in the &ew Act and as legislated !or nder the Capital Markets Act#

Annua$ )inancia$ Statements

(nder the small companies regime a small company is one which satis!ies two or more o! the !ollowing

reirements?

has a trnover o! not more than !i!ty million shillings $K; 50,000,000%.


10/12

the vale o! its net assets as shown in its balance sheet as at the end o! the year is not more

than twenty million shillings. and

it does not have more than !i!ty employees#

A small company does not need to prepare grop !inancial statements#

Companies that are e)clded !rom the small companies6 regime inclde a pblic company, a grop

company whose grop6 consists o! a company which is a pblic company, a body corporate whose

shares are admitted to trading on a secrities e)change or other reglated market in Kenya or a person

who carries on bsiness in the insrance market or a banking activity#

(nder the &ew Act, both private and pblic companies are reired to lodge their !inancial statements

with the 9egistrar#

A new regime allowing !or preparation and circlation o! smmary !inancial statements has been

introdced#

Bormant companies are no longer to be reired to prodce acconts#

"n a similar vein small companies are not reired to appoint aditors so long as they contine to ali!y

!or the e)emption on preparing adited !inancial statements#

Annua$ eturns

The +2 day period allowed !or !iling annal retrns with the 9egistrar has been redced to 2 days#

#rotections A!ainst &ppressive Conduct

rotection o! members o! a company has been enhanced# Members now have the locus standito go to

cort and challenge a condct that they think is oppressive or n!air#

Any investigations by or on behal! o! the CMA $nder section 1GA o! the CMA Act% can now be acted

pon by the Attorney 7eneral where members o! a listed company have been treated n!airly oroppressively in a manner pre/dicial to interests o! members#

Company Char!es

The deadline !or registration o! a charge is now G0 days !rom the day on which the charge is created,

down !rom the crrent period o! +2 days# This cold pose a challenge i! there are delays in stamping o!

charges#

*isso$utions, +tc


11/12

The &ew Act contains more sbstantial provisions on the procedres !or dissoltion o! companies by the

9egistrar, striking:o!! and applications !or restoration to the register#

)orei!n Companies

The &ew Act contains more e)tensive disclosre and compliance reirement !or companies that are

incorporated otside Kenya that wish to register to do bsiness in Kenya, inclding the ne)pected

reirement to have at least thirty percent o! the company6s shareholding held by Kenyan citi8ens by

birth# 4ailre to comply carries a !ine o! K; 5 million#

There will be a !oreign company register and the Cabinet ecretary will have to isse speci!ic 4oreign

Companies 9eglations#

o !ar as we can tell this reirement will not apply to e)isting !oreign companies that are already

registered in Kenya nder Cap +'#

)raudu$ent Tradin!

The &ew Act codi!ies the common law o!!ence o! !radlent trading and makes persons who carry on a

bsiness o! a company with the intent to de!rad creditors o! the company or creditors o! any other

person, or !or any !radlent prpose liable on conviction to imprisonment o! a term not e)ceeding ten

years, or a !ine o! an amont not e)ceeding ten million shillings, or both#

Company ecords

Company records may be kept in hard copy or electronic !orm and arranged in a manner the directors

deem appropriate so long as it ensres that the in!ormation is accessible !or !tre re!erence, and can

be converted into hard:copy !orm i! needed#

Service &' *ocuments

The Cabinet ecretary is to make reglations $the Companies Commnications 9eglations% that are to

have e!!ect on the provisions o! Kenyan stattes that reire or permit docments to be sent or spplied

by or to a company#

Transmission o! company docments in electronic !orm is permitted, althogh a member or debentre

holder can reest that the docment is delivered in hard copy !orm# Bocments and in!ormation in

either hard copy or electronic !orm are taken to be received by the intended recipient + hors a!ter it

was sent or spplied#

4or in!ormation pblished on a website, it is taken to have been received by the recipient when the

material was !irst made available on the website or i! later, when the recipient received notice that the

material was available on the website#

)urther e!u$ations


12/12

The Cabinet ecretary is given varios powers to make reglations !or the prposes o! the &ew Act#

=ithot limitation the reglations may prescribe a range o! matters, inclding?

Acconting standards bodies.

Maintaining and lodging docments with the 9egistrar.

Allocation o! nie identi!ying nmbers !or companies.

&ew or amended !orms $Company 4orms% and how they can be signed or athenticated.

rescribed reirements !or sending notices o! meetings, lodging o! resoltions, proceedings

at meetings etc#.

Methods o! appointment o! pro)ies.

rescribe time periods. and

rescribe o!!ences#

Sith Schedu$e 3 Transitiona$ And Savin!s #rovisions

The Cabinet ecretary has the powers to make savings and transitional reglations# The i)th chedle

contains important Transitional and aving rovisions#

ome e)amples o! the savings provisions that will srvive the &ew Act inclde?

the validity o! any companies registered nder Cap +' and company instrments $sch as

share certi!icates, register o! members etc#%.

the application o! Table A $template Articles o! Association provided nder Cap +'% in so !ar as

it applies to an e)isting company prior to the commencement o! the &ew Act.

changes made to companies inclding change o! names and alterations to memorandm and

articles o! associations that occrred nder the provisions o! Cap +'.

the validity o! acts o! directors, as in !orce immediately be!ore the repeal o! Cap +', will

contine to apply. and

the rights o! debentre holders nder debentres created nder Cap +'#

The Companies Act_Comparison_Kenya 2015

Documents

Transcript of The Companies Act_Comparison_Kenya 2015