December 19 2011
Efforts to reform Kenya's key commercial laws have been ongoing for the better part of the past two decades. The aim has always been to review, modernise and simplify the laws. Renewed impetus for the reform of commercial laws has been anchored on the Kenyan government's far-reaching policy objectives – for instance, Vision 2030 and the Economic Recovery Strategy for Wealth and Employment Creation. Chief among the commercial laws in need of reform is the Companies Act.
The Companies Act (Chapter 486 of the Laws of Kenya) is based extensively on the United Kingdom's Companies Act 1948, and there has been a need, desire and intent to update it. The Companies Bill 2010 is a follow-up to the Companies Bill 2008 and is intended to repeal Chapter 486. These laws aim to modernise Kenya's business sector, making it easier for local and foreign entities to invest in Kenya.
The bill aims to develop a modern company law to support a competitive economy in a comprehensive form, taking into account current trends of globalisation and regional integration, with a particular focus on the East African Community. It is further intended to reflect the prevailing circumstances of carrying on business – including modern patterns of regulation and ownership.
The bill has gone through two of the three parliamentary reading stages; the first reading was on March 30 2011 and the second reading was on May 24 2011. It awaits the committee stage before the final, third reading – following which it will need to receive presidential assent. Thereafter, a commencement date will be announced.
At almost twice the length of Chapter 486, the bill is a more detailed and comprehensive piece of legislation. It codifies common law principles – in particular, the indoor management rule and common law fiduciary duties of directors. Along with this, it modernises company law by recognising electronic communication and the use of websites and other electronic avenues for a company's communications. The bill also comes with a greater sting, as penalties and fines for offences relating to companies are significantly increased.
Sections 92, 93 and 95 provide that private companies should have at least one director, whereas public companies must have at least two directors, who must be natural persons and over the age of 18. This raises questions as to whether it is intended that corporate entities should no longer be directors of companies, as is the case under the current act.
Sections 162, 163 and 164 permit members of a private company to pass a resolution either at a meeting or as a written resolution, which may be sent in hard copy or electronic form. An ordinary resolution can be passed through a written resolution (passed by members representing a simple majority of the total voting rights of eligible members), while a special resolution can be passed in writing (passed by members representing not less than 75% of the total voting rights of eligible members). However, written resolutions cannot be used to remove a director or auditor before expiration of his or her term.
The current act requires that every company have a secretary who is qualified in accordance with Section 20 of the Certified Public Secretaries Act 1988. Section 152 of the bill provides that private companies with a nominal capital of less than KSh5 million are not required to have a secretary. However, a director or authorised person may assume the duties of a secretary.
This proposal has been met with opposition from the Institute of Certified Public Secretaries of Kenya, which is said to be lobbying for amendment so that company secretaries are required for all public companies, private companies with a nominal capital of at least KSh100,000 and companies of a public nature that are effectively registered as limited by guarantee. Additionally, the institute proposes that the bill be revised so that the position of company secretary may be occupied only by a person registered with the institute.
Section 293 introduces the requirement for trading certificates for public companies, which must be obtained before doing business or exercising any borrowing powers. The registrar of companies will issue a trading certificate if he or she is satisfied that the nominal value of the allotted share capital of the company is not less than the authorised minimum (ie, KSh6.75 million). The trading certificate is effective from the date of issue and is conclusive evidence that the company is entitled to do business and to exercise any borrowing powers. If a company enters into a business transaction in contravention of this provision and fails to comply with its obligations under such a transaction within 21 days, the directors at the time of entering into the transaction will be jointly and severally liable to indemnify any other party to the transaction for any loss or damage suffered.
For further information on this topic please contact Chris Muratha at Njoroge Regeru & Company by telephone (+254 20 271 8482), fax (+254 20 271 8485) or email (firstname.lastname@example.org).
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