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Kenya: Deregistration of a company

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published on 9 March 2021 | reading time approx. 2 minutes

 

Given the tough economic times, the need to keep costs at the bare minimum, change in strategies and also the recent enactment of the Companies (Beneficial Ownership Information) Regulations, 2020; it is not surprising that there is now an increased need to deregister inactive businesses. Both corporations and individual persons are increasingly making enquiries on the available modes of 'closing up shop' with a view of deregistering companies including subsidiaries or special purpose vehicles that are no longer active.

   

   

A company that remains on the Register of companies after ceasing business operations continues to attract compliance obligations that have cost implications. Our Article therefore sheds light on how to deregister companies that are already inactive. Here we focus on companies that have not within a period of 3 months preceding an application to deregister:

 

(a) changed the name;

(b) carried on business; or

(c) engaged in any other steps that may be considered as a business activity under Section 898 (1) of the Companies Act, 2015.

 

It is noteworthy that deregistration of a company does not release its directors, members and officers of existing liabilities at the time of deregistration. Such liabilities continue and may be enforced as if the company had not been dissolved. It therefore follows that a deregistered company can still be the subject of liquidation by the Court.

 

There are two modes of deregistration, these include:

 

i. Deregistration of a company by the Registrar  

Under Section 894 of the Companies Act, if the Registrar reasonably believes that a company is not carrying on business or is not in operation, the Registrar may send to the company by post a letter inquiring whether the company is carrying on business or is in operation. If the Registrar does not receive a reply within one month, he shall, within 14 days after the end of that month send a letter to the company again. If the Registrar does not receive a reply to the second letter within one month, the company will be struck off the Register upon issuance of a 3-month notice on the Gazette. As soon as possible, after striking the name of the company off the Register, the Registrar shall publish in the Gazette a notice that the name of the company has been struck off the register.

 

Under this mode, the Registrar acts on his own motion and is therefore not prompted by the company or its officers.

   

ii. A company's application for deregistration

An application for deregistration is lodged with the Registrar through an online platform and it can be made by all the company's directors or by a majority of the directors.  For such an application to be successful, the directors must be able to show that a special meeting of the board of directors was held prior, leading to a resolution to dissolve the company. A company is required to submit the applicable forms while ensuring that all accruing obligations including filing of annual returns are settled.

 

Within 7 days after the day of application, a copy of the application should be issued to all the existing members, employees, creditors, directors or trustees of any pension fund established for the benefit of employees of the company.  It is appreciated that in some cases, it will not be possible to serve some or all of the afore-said persons with a copy of the application for deregistration. Section 900 (5) of the Act provides that it is enough to establish that on a balance of probabilities reasonable steps have been taken to effect service.

 

Failure to issue such persons with a copy of the application is an offence which on conviction attracts a fine not exceeding Kshs. 50,000.00. Where it is found that failure to comply was due to an intention to conceal the making of the said application, a person becomes liable to a fine of not more than Kshs. 500,000.00 or imprisonment for a term not exceeding 2 years or to both.

 

Finally, upon the successful deregistration of the company, it is important to ensure that all tax claims by the Kenya Revenue Authority (KRA) have been settled and that the KRA has cancelled the tax obligations of the deregistered company.

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