HIGHLIGHTS OF THE BUSINESS LAWS (AMENDMENT) (NO. 2) ACT, 2021


 

On the 30th of March 2021, the Business Laws (Amendment) Act, 2021 (hereinafter “the Act” or “business laws amendments”) was assented into Law. The Act which came into force on the date of its assent, comes a year after a similar Act was enacted with the primary objective of facilitating the ease of doing business in Kenya.

The business laws amendments were sponsored as a Bill by the Majority Leader of the National Assembly, Hon. Amos Kimunya, in December 2020. At the time, the Bill had sought to amend ten (10) statutes. However, this approach was abandoned when the Speaker of the National Assembly gave the consent for the withdrawal of amendments to statutes which concern county governments.

The Act is aimed at repositioning the economy onto a steady and sustainable growth trajectory as part of the government’s post-COVID-19 Economic Recovery Strategy (ERS). The ease of doing business is set to improve as highlighted below:

Doing away with the use of company seals

The Act deletes paragraph 11 of the Sixth Schedule of the Companies Act, 2015, effectively eliminating the need for an existing company to seal its official documents as a mandatory document validation procedure.

Further, the Act amends the Law of Contract Act, Cap. 23, by adding a further definition to the term ‘sign’, to the extent that execution of corporate documents as per Section 37 of the Companies Act, 2015, will be held as valid for purposes of enforcing contracts. What this means is that it will not be mandatory for companies to affix their official seal to contracts they execute. Instead, if a contract is signed by two (2) of a company’s authorized representatives or its director in the presence of a witness, it is held that the company intends to be bound to the contents of the contract.

Digitizing the management of company affairs

The business laws amendments have provided for virtual meetings and hybrid meetings as alternatives to physical general meetings. The amendment to the Companies Act, 2015, has defined hybrid meetings as general meetings where some participants are in the same physical location while other participants join the meeting through electronic means including video conference, audio conference, web conference or such other electronic means.

On the other hand, virtual meetings have been defined scribed as general meetings where all members join and participate in the meeting through electronic means including video conference, audio conference, web conference or such other electronic means.

The Act has made it a requirement that in giving a notice for a hybrid or virtual meeting, the means of joining and participating in the meeting must be specified. The same is seen as responding to the needs of the modern business environment where most companies are compelled to conduct their affairs virtually.

Provisions on pre-insolvency moratorium

Prior to the business laws amendments amending the Insolvency Act, 2015, the option of moratoria on debt payment was only available upon directors making a proposal for a voluntary arrangement. With the amendments, the definition of the term ‘proposal’ together with the steps to be taken by directors of eligible companies to a mortarium are deleted.

Except for the expressly prescribed categories of companies that are ineligible for a moratorium, the Companies Act now generally allows for companies that are financially distressed to be considered for a moratorium. Worth noting, the provision in the Insolvency Act declaring companies with large outstanding debts as ineligible companies for a moratorium has been repealed.

The business laws amendments also substitutes the term ‘professional supervisor’ in the Insolvency Act, 2015, with ‘monitor’. In qualifying for a moratorium, the amendments provide that an eligible company shall be required to prepare a document setting out why a moratorium is desirable and appoint as its monitor an insolvency practitioner who shall agree to supervise it. The company shall then forward the document to its appointed monitor for consideration and comments. Upon the monitor being satisfied that a company has prospects of being rescued, they shall submit a statement to the directors of the company who are thereafter at liberty to apply to the court for orders of a moratorium.

Additionally, the amendments provide that a moratorium shall end after thirty (30) days from the date which it takes effect, unless it is extended under Section 69 of the Insolvency Act, 2015. That notwithstanding, directors of a company can make an application to the court for extension of a moratorium for a period of at least thirty (30) days. The same may be granted if the court believes that the extension is desirable to achieve the aims for which the moratorium was initially obtained.

Faster determination of small claims

Markedly, the Act has amended Section 37 of the Small Claims Court Act, 2015, where it is now provided that in so far as it is practicable, all matters coming up before the small claims court shall be heard and determined within sixty (60) days from the date of filing of the claim.

It is expected that the constant issue of backlog of cases will be effectively dealt with since the adjudicating authorities are now required by law to resolve small claims within the statutory provided two-month period.

Convenient remittance of NHIF and NSSF contributions

The Act having amended the National Hospital Insurance Fund Act, No.9 of 1998, as well as the National Social Security Fund Act, 2013, has allowed for contributions to be made to the respective authorities on or by the ninth (9th) day of every month and not the first (1st) as previously provided.

These business laws amendments come as a great convenience to contributing employers, who are often penalized for failure to ensure compliance in making contributions before the first of every month.

Convenient remittance of the training levy payable under the Industrial Training Act, Cap. 237

The Act has additionally introduced a provision within the Industrial Training Act, Cap 237, with respect to when the amount due under a training levy order shall become payable. Noteworthy, once a training levy order is made, the amount payable under the levy is to be remitted at the end of the financial year of the business but not later than the ninth (9th) day of the month following end of the financial year.

Prior to the enactment of the Act, a training levy order would prescribe when the amount under a levy would become due. Failure to remit the amount payable under a training levy within the prescribed period attracts a penalty of five percent of the amount due.

The effect of the above amendment is that businesses conducting industry training will have sufficient time to sort their financial affairs prior to payment of their running cost in the form of the training levy.

Conclusion

It can well be seen from the Act that there is an intention to greatly ease the mode of doing business within the country, especially during these uncertain times of the Covid-19 pandemic. The provision of virtual general meetings for instance will certainly assist in the management of company affairs during lockdowns or even when members are generally resident in different locations.

We anticipate that the legislature will make further amendments to various business laws in the near future, as the need to rescue businesses from going under ever increases.

 

Monthly Insights by Ernest Muriungi. Ernest is a Junior Associate with a background in Litigation and Commercial Dispute Resolution.

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