HIGHLIGHTS ON THE BUSINESS LAWS (AMENDMENT) ACT 2021

Introduction

On 30th March 2021, the Business Laws (Amendment) Act, 2021 (the Act) was assented to by the President and it came into force on the same date. This Act comes after the enactment of the Business Laws (Amendment) Act 2020. The Act has amended several existing statues including: The Law of Contract Act (Cap 23), National Social Security Fund Act, 2013, the National Hospital Insurance Fund Act, 1998, the Insolvency Act (Act No.18 of 2015), Small Claims Court Act (Act No.2 of 2016) and the Companies Act, 2015 (the Companies Act).

We highlight below some of the changes brought into force by the Act.

Running of businesses

Elimination of the use of a company seal 

The Act amends the Companies Act, 2015 (No 17 of 2015) by eliminating the use of a company seal in operations of companies incorporated under the Companies Act.  Similarly, the Act amends the Law of Contract Act, Cap 23 to eliminate the requirement of a company seal in execution of documents for companies registered under the Companies Act, No 17 of 2015. The impact of these amendments is that they are going to significantly enhance business in this era of e- commerce.

The further recognition of “sign” as including ‘advanced electronic signature’ as defined by the Kenya Information and Communication Act will save online contracting parties on costs associated with delivery of an instrument for the purpose of physically affixing the signature. Moreover, electronic signing will save on time and simplify doing of business between parties from different geographical areas.

Contributions under National Hospital Insurance Fund Act, 1998 and the National Social Security Fund Act, 2013

The Act amends the National Hospital Insurance Fund Act, 1998 to provide for the contributions under the Act to be collected on the ninth day of the month for purposes of harmonizing payroll deductions through the Unified Payroll Return. It also amends the National Social Security Fund Act, 2013 to provide for the contributions under the Act to be collected on the ninth day of the month for purposes of harmonizing payroll deductions through the Unified Payroll Return.

In March, 2020, the Kenya Revenue Authority (KRA) and the National Social Security Fund (NSSF) developed a unified payroll return for joint declaration and payment of Pay As You Earn (PAYE) and NSSF deductions. The Authority recognized this initiative as one of the initiatives under the Government of Kenya Ease of Doing Business agenda. The Act therefore seeks to give that development a legal backing.

Owing to the numerous declarations and payments that companies are tasked with, the unification of such payments and declarations is in order as ideally it seeks enhance ease of corporate compliance in effecting declarations and payments. However, the amendment should also include the return date for all other taxes and monthly declarations such as VAT. In that event companies are now only required to make a one-off declaration of all taxes and statutory payments on one day of the month, hence the ease of doing business is likely to be enhanced.

Companies may hold meetings through hybrid or virtual setting

The Act amends the Companies Act, 2015 (No 17 of 2015) to facilitate companies to hold meetings either through hybrid or virtual setting. The amendments proceed to enlarge the scope of what constitutes the term “general meeting” by inserting the words “which may be a physical, virtual or hybrid meeting’ immediately after the words “general meeting”. “Hybrid meeting” in relation to a company general meeting has been defined as a meeting 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. “Virtual meeting” in relation to a company general meeting has also been described as a meeting where all members join and participate in the meeting through electronic means including video conference, audio conference, web conference or such other electronic means.

These amendments in totality lessen the stringent traditional modes by which company meetings have been held. By extension, the amendments enhance the ease of doing business in Kenya.

Business related disputes

Pre- Insolvency Moratorium
The Act amends the Insolvency Act to introduce a pre-insolvency 30 – day moratorium period to prevent creditors from taking an enforcement action while a company considers its option for rescue. Financially distressed companies can now take advantage of the new pre-insolvency moratorium while trying to achieve a turnaround.  There is no restriction on which companies can apply for this. This will be welcome news for many debtors as the moratorium prevents creditors from taking adverse action against the company.
This amendment is likely to inspire creditor’s confidence in corporations as it lessens the bureaucracy that has often surrounded insolvency procedures and with specific regards to the centrality of the court in insolvency.

Additional Rights for Floating Charge Holders

The Act has amended the Insolvency Act to allow a holder of a floating charge to apply to the Court for an order restricting the distribution of assets of a company where there is floating charge over the company’s property by a liquidator or administrator or provisional liquidator for purposes of satisfying the unsecured debts of the insolvent company.

The right to make the application to the Court was previously only available to the liquidator, administrator or the provisional liquidator of the Company. Under the Insolvency Act, notwithstanding the existence of a floating charge over a company’s property, a liquidator or administrator or provisional liquidator may avail up to 20% of the net assets of the insolvent company for the satisfaction of unsecured debts and may not distribute that portion to the floating change holder unless it exceeds the amount required to satisfy the unsecured debts of the Company.

This is an additional protective measure for asset-based lenders who lend to companies that later become insolvent.

Determination of cases at the Small Claims Court

The Act also proposes to amend the Small Claim Courts Act, 2016 to make provision to fast track procedure for small claims by providing a sixty-day timeline for adjudication of small claims. This amendment has the impact of enhancing the ease of doing business by reducing the turnaround time through which business disputes and other ancillary disputes are solved.