Executive summary
The Business Laws (Amendment) (No.2) Act of 2021 (the Act) came into force on 31 March 2021. The amendments introduced by the Act are intended to support business activities in Kenya.
The key statutes amended by the Act include the Law of Contract Act, Stamp Duty Act, National Social Security Fund Act (2013), National Hospital Insurance Fund, Industrial Training Act, Companies Act (2015) and the Insolvency Act.
This Alert summarizes the key changes under these Acts.
Detailed discussion
Convenient remittance of employment statutory deductions
The Act has aligned the remittance dates for the National Hospital Insurance Fund (NHIF) and the National Social Security Fund (NSSF) to the due date for the remittance of Pay As You Earn (PAYE). These statutory deductions are now due by the ninth day of each month.
Moreover, employers are now allowed to remit National Industrial Training Authority (NITA) payments at the end of their financial year provided the same is remitted not later than the ninth day of the month following the financial year end.
However, the Act repealed the one-month delay afforded to employers for the remittance of NSSF contributions. Employers are required to remit the contributions on the prescribed date, otherwise a 5% late payment penalty accrues.
Execution of documents by companies
The provisions of the Law of Contracts Act have now been aligned to the provisions of the Companies Act, 2015. The use of company seals is no longer mandatory in the execution of company documents.
The Companies Act, 2015 provides that documents may be executed by a company by:
- Two authorized signatories
- A director of a company in the presence of a witness who attests the director’s signature
- A duly appointed attorney
Virtual and hybrid company meetings
To adopt to the new ways of doing business necessitated by the COVID-19 pandemic, the Act has now amended the Companies Act, 2015 to allow virtual and hybrid general meetings.
A hybrid meeting in relation to a company’s general meeting is 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.
A virtual meeting in relation to a company general meeting is a meeting where all members join and participate in the meeting through electronic means.
Documents exempt from stamp duty
Contracts, chargeable as conveyances on sale and that attract a fixed duty of KES100 are now exempt from stamp duty.
Insolvency
The Act has made the following amendments to the Insolvency Act, among others:
- To obtain a moratorium, company directors must prepare a document setting out the terms of the proposal and a statement of the company’s financial position containing such particulars of its creditors and of its debts and other liabilities and of its assets.
- Directors are required to establish why a moratorium is necessary to assist in agreeing to an informal restructuring or other agreement with creditors or entering a formal insolvency procedure which could lead to the rescue or efficient liquidation of the company.
- Directors are now required to submit the financial statements to the Monitor for consideration and comment.
- A moratorium ends after 30 days from and including the day on which it takes effect, unless the moratorium period is extended under Section 669.
- During a voluntary arrangement, the Company is now required to appoint a Monitor, not a provisional supervisor as previously required. The Monitor has to be an insolvency practitioner who will supervise the voluntary arrangement including issuing an opinion as to whether a moratorium has a reasonable prospect of achieving its aim and if the company is likely to have sufficient funds available to it during the proposed moratorium to enable it carry on its business.
Other recent changes
Employment (Amendment) Act, 2021
This Act provides that an employee who adopts a child is now entitled to one month's pre-adoptive leave with full pay from the date of the placement of the child.
The employee is required to give the employer a notice of at least 14 days of the intention of the adoption society to place the child in the custody of the employee. The notice shall be accompanied by documentation evidencing the intention of the adoption society to place the child in the custody of the employee and written authority by the adoption society allowing the employee to adopt.
Intellectual Property Bill, 2020
The Intellectual Property Bill, 2020, (the Bill) was published in 2020 with the aim of consolidating the existing intellectual property laws in Kenya. Currently, intellectual property in Kenya is regulated under the Kenya industrial Property Act, the Trademarks Act, the Copyright Act and the Anti-Counterfeit Act.
These Acts in turn establish various governing bodies namely: the Kenya Industrial Property Institute (patents, trademarks, technology innovations and utility models), the Kenya Copyright Board (copyright administration), and the Anti-Counterfeit Authority (deals with counterfeit goods and related rights). The Bill proposes the merger of all these existing governing bodies into one institution, the Intellectual Property Office of Kenya (IPOK), to be responsible for the promotion and protection of intellectual property rights. IPOK will deal with the registration, custody and enforcement of intellectual property in Kenya.
The Bill proposes that the Cabinet Secretary responsible, in consultation with stakeholders, develop a national intellectual property policy and strategy to govern the intellectual property framework in Kenya and create public awareness about economic, social and cultural benefits of intellectual property rights.
The Bill proposes to establish an Intellectual Property Tribunal (the Tribunal) to have original and appellate jurisdiction over all intellectual property matters in Kenya.
The Data Protection Act, 2019
The Data Protection Act of 2019 was assented to by Kenya’s President on 8 November 2019 (the Act). The key highlights of this Act include:
- Establishment of the Office of the Data Protection Commissioner – the Commissioner is mandated with the following responsibilities: overseeing the implementation and enforcement of this Act; establishing and maintaining a register of data controllers and data processors; exercising oversight on data processing operations; receiving and investigating any complaint by any person on infringements of the rights under this Act; publicizing the provisions of this Act; carrying out inspections of public and private entities with a view to evaluating the processing of personal data; and promoting international cooperation in matters relating to data protection, among others. The first Data Protection Commissioner was appointed on 12 November 2020.
- Registration of data controllers and data processors – the Act provides that the Commissioner is granted authority to prescribe the threshold for registration of data controllers and data processors to be registered with the Office of the Commissioner.
- Transfer of personal data outside Kenya – the Act provides that data controllers and processors can only transfer personal data to another country where they have evidenced to the Commissioner the appropriate safeguards with respect to the security and protection of the personal data.
- Exemptions to the provisions of the Act – exemptions include where it relates to processing of personal data by an individual in the course of a purely personal or household activity; if it is necessary for national security or public interest; disclosure is required by or under written law or order of the court; it is required in the prevention or detection of crime; it is required in the assessment or collection of a tax or duty; or where publication of data would be in the public interest.
Most recently, the Data Commissioner issued various Regulations (i.e., draft Data Protection (General) Regulations, 2021,the draft Data Protection (Compliance and Enforcement) Regulations, 2021, and the draft Data Protection (Registration of Data Controllers and Data Processors) Regulations, 2021) for public consultation.
Companies Act (Beneficial Ownership Information) Regulations 2020
The Companies Act, 2015, now requires companies to maintain a register of their beneficial owners. Pursuant to this amendment, companies are now required to file with the Registrar a copy of their register of beneficial owners (in a prescribed form) within 30 days of its preparation. Any amendments to the register are to be filed with the Registrar within 14 days of making the amendments.
The Companies (Beneficial Ownership Information) Regulations, 2020 define a beneficial owner as “the natural person who ultimately owns or controls a legal person or arrangements or the natural person on whose behalf a transaction is conducted, and includes those persons who exercise ultimate effective control over a legal person or arrangement.”
The Regulations further identify a beneficial owner as a person who meets any of the following conditions:
i. Holds at least 10% of the issued shares in the company either directly or indirectly.
ii. Exercises at least 10% of the voting rights in the company either directly or indirectly.
iii. Holds a right, directly or indirectly, to appoint or remove a director of the company.
iv. Exercises significant influence or control, directly or indirectly, over the company.
By a notice dated 27 January 2021, the Companies Registry extended the deadline, from 31 January 2021 to 31 July 2021, for companies to prepare and file their registers of beneficial owners with the Registrar of Companies in accordance with the Regulations.
Enforcement of local ownership rule in the Information, Communication, Technology (ICT) sector
On 7 August 2020, the Cabinet Secretary, Information, Communication, Technology, Innovation and Youth Affairs gazetted the National information Communication and Technology Policy Guidelines, 2020 (the Policy).
A key legal requirement introduced by the Policy, is the requirement that at least 30% of the substantive ownership of ICT companies is to be held by Kenyans.This provision constituted a revision from the previous 20% substantive Kenyan equity ownership requirement for the issuance of telecommunication licences. All companies licensed by the Communications Authority were allowed a three-year period within which to meet the local equity requirements.
On 25 March 2021, through another gazette notice, the Cabinet Secretary published an amendment aimed at clarifying the local ownership requirements as follows:
- An existing licensee with less than 20% local equity ownership that has not exhausted its three-year grace period will be required to meet the 30% local equity ownership at the end of its grace period.
- An existing licensee that met the 20% local equity ownership prior to 7 August 2020 will have two years to meet the 30% local equity ownership threshold with effect from the said date.
- An existing licensee that had a waiver granted under the ICT Sector Policy Guidelines of 2006 will have three years to meet the local equity ownership threshold with effect from the date of this Notice.
- A new applicant for a license will have three years to meet the local equity ownership threshold from the date of issue of the license.
- A company registered to exclusively offer Business Process Outsourcing Services will be exempt from the 30% local ownership requirement.
Competition Tribunal decision on abuse of buyer power
The Competition Tribunal in Majid Al Futtaim Hypermarkets Limited v Competition Authority of Kenya & another [2021] eKLR, issued on 20 April 2021 addressed the issue of abuse of buyer power under the Competition Act, 2010. The matter before the Tribunal was an appeal instituted by the Majid Al Futtaim Hypermarkets Limited (Majid) on the decision of the Competition Authority that required the retailer to amend various clauses of its standard supplier contract which the Authority deemed to have facilitated the abuse of power.
Majid was said to have abused its “buyer power” by: transferring commercial risks to Orchards; refusing to receive Orchards’ goods for reasons which could not be ascribed to Orchards; unilaterally terminating the commercial relationship without notice and applying rebates and listing fees marked as discounts; and requiring Orchards to deploy staff as its own cost.
Section 24(2B) of the Act stipulates that the Authority, in determining buyer power, must take into consideration the nature and determination of contract terms; the payment requested for access to infrastructure; and the price paid to suppliers. Buyer power is defined by the Act as “the influence exerted by an undertaking or group of undertakings in the position of a purchaser of a product or service to obtain from a supplier more favourable terms, or to impose a long-term opportunity cost including harm or withheld benefit which, if carried out, would significantly be disproportionate to any resulting long-term cost to the undertaking or group of undertakings.”
The Tribunal in finding that Majid abused its buyer power stated that “the influence of power of the buyer becomes evident when the buyer engages in the offending conduct” and therefore, “by engaging in conduct which amounts to abuse of buyer power, there’s buyer power.”
This case is expected to set precedence in the enforcement of “buyer power” abuse not only in Kenya but also in other African countries where the issue has not been determined judicially.
For additional information with respect to this Alert, please contact the following:
Ernst & Young (Kenya), Nairobi
- Francis Kamau
- Christopher Kirathe
- Hadijah Nannyomo
- Grace Mulinge
- David King’ori
- Robert Maina
- Jessica Maina
- Vione Nyachieo
Ernst & Young Société d’Avocats, Pan African Tax – Transfer Pricing Desk, Paris
- Bruno Messerschmitt
- Alexis Popov
Ernst & Young LLP (United Kingdom), Pan African Tax Desk, London
- Kwasi Owiredu
- Byron Thomas
Ernst & Young LLP (United States), Pan African Tax Desk, New York
- Brigitte Keirby-Smith
- Dele Olagun-Samuel
For a full listing of contacts and email addresses, please click on the Tax News Update: Global Edition (GTNU) version of this Alert.
