On the 18th of March 2020, H.E. President Uhuru Kenyatta assented into law the Business Laws (Amendment) Act, 2020 (hereinafter “the Act”). The Act which came into force on the date of its assent has a total of 43 clauses that amend 16 Acts of Parliament. The sole objective of the Act is to facilitate the ease of doing business in the country.The Act comes into effect at a time where Kenya has received improved rankings by the World Bank Ease of Doing Business Index 2020, ranking 56 among 190 economies. The Ease of Doing Business Index ranks countries against each other based on how their regulatory environment is conducive to business operations.
Effectively, the Act improves the legal framework around digitization of transactions. In a catch up to global best practice that is having countries formulate legislations for digital transactions, the Act recognizes electronic signatures and advanced electronic signatures as a valid mode of execution of documents and contracts.
Below is a summary of some of the business aspects that have been impacted by the amendments in the Act.
Contracts in General
The Act amends the Law of Contract Act, Cap 23, to recognise the use of electronic signatures and advanced electronic signatures as an indication that one intends to bind themselves to the contents of an instrument. As already defined under the Kenya Information and Communication, 1998 an advanced electronic signature means 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.
The Act defines an electronic signature as data in 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.This amendment is expected to greatly profit and provide convenience for online businesses that require execution of contracts for their validity. Kenya joins the bandwagon of the few countries that recognize advanced electronic signatures in their legal regimes.
The Act has introduced significant amendments with regards to land transactions under the Land Registration Act, 2012 that include:
1. Recognition of the use of electronic signatures and advanced electronic signatures in the execution of land instruments;
2. Permission of electronic processing of instruments. Instruments under Land Registration Act are now recognised to exist in physical and electronic form; and
3. Abolishment of the requirement to produce Land Rate and Land Rent Clearance Certificates in the registration of an interest in land under this Act [It is however worth noting that Sections 55 (b) and 56 (4) which require production of a Land Rent Clearance Certificate for registration of leases and charges respectively have not been amended, as such the requirement remains in force).
The amendments relating to land transactions are in line with the ongoing digitization of land records aimed at easing the property registration process. The amendments are expected to significantly reduce the time within land transactions are concluded.
Registration of Documents
The Registration of Documents Act, Cap 285, has been amended to:
1. Permit the use of use of electronic signatures and advanced electronic signatures in the execution of documents;
2. Allow for the Register in the Registry of Documents to be kept in electronic form. The Registrar of Documents is allowed to establish the Principal and Coast Registry in electronic form; and
3. Permit the electronic filing of documents.
Registration of Workplaces
The Act amends the Occupational Safety and Health Act, 2007 to the effect that workplaces with less than one hundred (100) employees are no longer required obtain a certificate of registration from the National Council for Occupational Safety and Health for the first twelve (12) months from the date of registration of the business.
The amendment serves as an incentive to Small and Medium Size Enterprises (SMEs) who are often burdened with numerous regulatory compliance requirements when starting their business operations.
Several sections of the Companies Act, 2015 have been amended to the effect that:
1. Companies are no longer required to use company seals in the execution of documents. As such, a company document is deemed duly executed if it has been executed by two of its authorized signatories, being either directors of the company, the company secretary or persons holding a power of attorney over the company.
2. There is a mandatory requirement for companies to convert any issued bearer shares to registered shares, notwithstanding the provisions of the company’s memorandum and articles of association, within nine (9) months of coming into force of the Act. Companies are further required to notify the Registrar within thirty (30) days of such conversion. The amendments brought by Act make it an offence for a company or any of its officers to contravene this provision and goes ahead to prescribe monetary penalties for companies convicted of such contravention.
3. Protection of minority shareholders with the squeeze-out thresholds restored to 90% as opposed to the 50% threshold previously provided by the 2019 amendment to the Companies Act.
The Act amends the Insolvency Act, 2015 to the extent that;
1. It introduces additional factors for consideration by the courts or administrators of a company when lifting a moratorium of insolvency. The factors for consideration inter alia include whether:
- the value of a secured creditor’s claim exceeds the value of the secured asset;
- the secured creditor is not receiving protection for the diminution in the value of the encumbered asset;
- the provision of protection may be feasible or overly burdensome to the estate;
- the encumbered asset is needed for the reorganization or sale of the company as a going concern;
- relief is required to protect or preserve the value of assets such as perishable goods; or
- In reorganisation, a plan is not approved within six months.
2. It protects the rights of creditors making requests for information to the Insolvency Practitioner by providing that unless otherwise agreed between the creditor and the Insolvency Practitioner, the creditor is entitled to such information within five (5) days of the request. Further, the amendments in the Act make reservations for the Insolvency Practitioner to extend the five (5) day period through a notice in writing to the requesting creditor, if satisfied that an extension of time is required due to the nature of the insolvency request.
The amendments which improve lender protection in the event of borrower insolvency are expected to boost investor confidence within the country and consequently stir economic growth.
The Survey Act, Cap 299, has been amended to:
1. Permit the use of electronic signatures and advanced electronic signatures in survey documents.
2. Allow for the electronic processing of documents or plans.
3. Recognize the electronic processing of the seal of Kenya. Documents or plans processed electronically and bearing a prescribed security feature will be deemed to bear the imprint of the seal of the Survey of Kenya.
4. Allow surveyors to submit documents to the Director of Survey electronically.
5. Allow for the electronic authentication of plans by the Director of Survey.
The Act has amended the National Construction Authority Act, 2011 in the following manner:
1. Provision of the Building Code in the construction industry which shall be enforced by the National Construction Authority (hereinafter “the Authority”).
2. Creation of a punishable offence for persons who fail to comply with the order of an Investigation Officer.
3. The Authority is permitted to undertake mandatory inspections on construction sites at any time.
4. Additional powers for the Cabinet Secretary in charge of public works in consultation with the Authority, to provide regulations on the Building Code and the manner of conducting mandatory inspections.
The amendments are set to greatly improve the ease of doing business in Kenya, with investor attraction pegged largely on the digitization of transactions. It is also expected that transactional costs and turn-around times for the digitized transactions are to greatly reduce. Most notably, the amendments have provided viable options for businesses that may be experiencing various business related disruptions such as the Covid-19 pandemic.
However, to fully achieve the objective of the Act, more needs to be done with regards to capacity building of national resources within various business environments i.e. the provision of infrastructure to support digitized government registries.
Monthly Insight by Ernest Muriungi, Associate at MMAN Advocates