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KEY AMENDMENTS UNDER THE BUSINESS LAWS (AMENDMENT) ACT NO. 1 OF 2020


The Business Laws (Amendment) Act No. 1 of 2020 (the “Amendment Act”) was assented to on 18th March, 2020 and came into force upon assent.

The main objective of the Amendment Act is to enhance ease of doing business in Kenya by amending various laws which were, in some way, seen as impediments to transacting effectively in Kenya. Some of the key changes introduced by the Act include:

  • Validation of the use of electronic signatures in land transactions;
  • Abolition of the requirements to produce Land Rates and Rent clearance certificates and to obtain certain consents as pre-requisites for registration of instruments of transfer of land;
  • Abolition of the requirement of affixing a company seal in the execution of company documents;
  • Requirement to convert all bearer shares into registered shares;
  • Raising the threshold to buy out minority shareholders from 50% to at least 90%; and
  • Tax incentives for bulk storage investors of the Standard Gauge Railway project

1Validation of the use of electronic signatures in land transactions 

The Amendment Act amended the following laws to allow the use of electronic signatures in land transactions:

a.  Law of Contract Act, Cap 23, Laws of Kenya

The definition of the term “Sign” under Section 3(6) of the Act was amended to include by means of an advanced electronic signature. The term “advanced electronic signature" is defined under Section 2 of the Kenya Information and Communications Act, 1998 (the KICA) to mean an electronic signature which is :-

  • uniquely linked to the signatory;
  • capable of identifying the signatory;
  • created using means that the signatory may maintain under his or her sole control; and
  • linked to the data to which it relates in such a manner that any subsequent change to the data may be detectable.

Section 2 of the KICA defines the term “electronic signature” to mean 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 to indicate the signatory’s approval of the information contained in the data message.

b.  Registration of Documents Act, Cap 285, Laws of Kenya (the RDA)

The Amendment Act amended the definition of the words “book”, “signature” and “signed” in Section 2 of the RDA to include “advanced electronic signature and electronic signature” (as defined above) in addition to affixation of marks on registrable documents.

In view of the proposed digitization and electronic registration of documents, the Amendment Act also amended Sections 3 and 4 of the RDA by extending the establishment, maintenance and registration of documents to also include electronic format, in both the Principal and Coast Registries.

c.   Land Registration Act, 2012

The Act was amended as follows:

  • To allow for the use of electronic signatures and electronic seals in execution of instruments relating to land. The Amendment Act provides that an instrument processed and executed electronically by persons consenting to it by way of an advanced electronic signature or an electronic signature shall be deemed to be a validly executed document.
  • To give the Registrar the power to dispense with verification of execution of an instrument if the instrument has been electronically processed and executed by the parties consenting to it.
  • To give the Registrar the power to maintain the Principal Land Registry in Nairobi and the Coast Registry in Mombasa in both physical and electronic forms. This will ease and expedite the process of conducting property searches, and presumably registration once the ongoing digitization process has been completed.
  • To provide clarity on the issue of applications for an indemnity by providing that any person claiming indemnity shall apply to the Chief Land Registrar, whose decision may be subject to appeal.

d.  Stamp Duty Act, Cap 480, Laws of Kenya

The Amendment Act amended the Stamp Duty Act to allow for instruments to be stamped electronically. The Amendment Act further mandates the relevant Cabinet Secretary to make regulations relating to, among other things, electronic stamping.
The aforementioned amendments (including those relating to the use of electronic signatures and seals) are in line with the Government’s plans to digitize all land registries by 2021 with a view to ease doing business in Kenya and in particular the property registration processes.

Additionally, it will now be incumbent upon purchasers of land to protect themselves against liabilities relating to unpaid land rates and/or rent together with accrued penalties, if any. A purchaser will need to carry out extra due diligence on the proposed land and possibly obtain a land rates and /or rent demand prior to the Completion Date to ensure that all rates and/or rent are paid by the vendor prior to the completion of the sale. In the alternative, the purchaser may retain the status quo by insisting on being provided with Clearance Certificates on the Completion Date, as part of the completion documents, as conclusive proof of payment of land rates and/or rent (together with the penalties, if any).

2.  Abolition of the requirement to produce Land Rates and Rent clearance certificates as pre-requisites for registration of instruments of transfer of land

The requirements under the Land Registration Act to produce Land Rates and Land Rent Clearance Certificates when submitting instruments of transfer of land for registration at the Land Registries were abolished. These amendments (including those relating to the use of electronic signatures and seals) are in line with the Government’s plans to digitize all land registries by 2021 with a view to ease doing business in Kenya and in particular the property registration processes.

It will now be incumbent on purchasers of land to protect themselves against liabilities relating to unpaid land rates and/or rent together with accrued penalties, if any. A purchaser will need to carry out extra due diligence on the proposed transfer in order to ensure that all rates and rents have been paid by the Vendor so as to avoid assuming the liability to pay any outstanding land rates and /or rent that should have been paid by the vendor.

3. Abolition of the requirement of affixing a company seal or official seal in the execution of company contracts, documents or deeds

The Companies Act No. 17 of 2015 (the “Companies Act”) was amended to provide that company documents (including share certificates), contracts or deeds shall be validly executed by a company if they are signed on behalf of the company by two authorized signatories; or by a director of the company in the presence of a witness who attests the signature.

4. Requirement to convert all bearer shares into registered shares

Bearer shares are equity securities which are not listed on any share register but ownership is vested on the person who has physical possession of a share warrant issued by the company. The Companies Act prohibits issuance of bearer shares by companies after the commencement of the Act on 15th September, 2015. Bearer shares issued under the repealed Companies Act (Cap 486) continued in effect under the 2015 regime notwithstanding the repeal of Cap 486.

The relevant provisions were amended to mandate companies to convert all bearer shares issued before and after the commencement of the Companies Act into registered shares and to notify the Registrar of Companies within 30 days of such conversion.

This requirement applies notwithstanding any contrary provision in the company's memorandum or articles of incorporation.
Companies now have 9 months from the date of commencement of the Amendment Act (18th March, 2020 –now past) within which to comply with this requirement. Failure to comply with the requirement will amount to an offense punishable by a fine not exceeding Kshs. 500,000.00 upon conviction and a further fine of Kshs. 50,000 for each day the requirement is contravened after conviction. The penalty is imposed on a company and each of its officers in breach.

A right attached to a bearer share shall also not be exercised unless the bearer share is converted into a registered share.

5. Raising the threshold to buy out minority shareholders from 50% to at least 90%

Tthe Companies Act initially required an offeror to have acquired or unconditionally contracted to acquire both 90% of the shares and 90% of the voting rights in the company to which the offer relates in order to buy out minority shareholders.

The Act was amended in 2019 by the Statute Law (Miscellaneous Amendments) Act No.12 of 2019, to lower the threshold to 50%. This amendment was not well received by investors and analysts as it was deemed to undermine the rights of minority shareholders of a company to decline a takeover offer effectively diminishing investor confidence in capital markets.

This provision has now been amended to raise the takeover threshold back to 90% with a view to protect minority shareholders from compulsory acquisition/sell-outs orchestrated by the majority shareholders.

6. Tax incentives for bulk storage investors of the Standard Gauge Railway (SGR) project

The following laws were amended to facilitate completion of the SGR project by the Government of Kenya:

a. Income Tax Act, Cap 470, Laws of Kenya

Part V of the Second Schedule to the Act was amended to include an investment deduction of 150% of the capital expenditure of at least five billion shillings incurred on the construction of bulk storage and handling facilities used for SGR operations. This amount will be deducted when computing the gains or profits of the person incurring the expenditure for the year of income. The deduction is only applicable to facilities of a minimum storage of 100,000 metric tonnes of supplies used for supporting the SGR operations.

b. Miscellaneous Fees and Levies Act, 2016

The Act was amended to exempt goods imported or purchased for the construction of bulk storage facilities with a minimum storage capacity of 100,000 metric tonnes of supplies for supporting the SGR operations from import declaration fee and the railway development levy. The exemptions apply PROVIDED THAT the goods are imported or purchased before clearance through customs and the bulk storage facilities are approved by the Cabinet Secretary responsible for transport.

7. Other notable amendments

a. Survey Act

The Amendment Act amended the Survey Act with the introduction of the definitions for “advanced Electronic Signature” and “signature”, such that they mirror the new definitions that have been inserted into the Law of Contract Act and the RDA. With regard to the affixing of the Seal of Survey of Kenya, Section 5 of the Survey Act has been amended to read as follows:-
“A document or Plan that has been processed electronically and bears a prescribed security feature shall be deemed to bear the imprint of the seal of the Survey of Kenya.”

Section 30(1) of the Survey Act has been amended to include the use of electronic submission of all plans, field notes, and computations to the Director of Survey, following the carrying out of a survey in accordance with the terms of the Act.

b. Occupational Safety and Health Act, 2007
The Act makes it an offense for any person to occupy or use any premises as a workplace without having obtained a certificate of registration from the Director of Occupational Safety and Health Services. This has been amended by the insertion of a new sub-clauses 44 (11) and (12) which exempt workplaces with less than 100 employees from registration under the Act unless registration of such workplaces is required by the Cabinet Secretary for the time being responsible for labour matters. The exemption will apply only for the first twelve months from the date of registration of the business, after which, continued operations without the certificate of registration is prohibited.

c. Excise Duty Act, 2015

Imported glass bottles (excluding imported glass bottles for packaging of pharmaceutical products) are now subject to excise duty, payable by the importer at the rate of 25% of the customs value of the bottles.

Authors

Ashwini Bhandari
Ashwini Bhandari
Partner
Nairobi
Lilian Lofty
Lillian Lofty
Partner
Nairobi
Jacinta Ngumo
Jacinta Ngumo
Associate
Nairobi