The Business Laws (Amendment) Act, 2020: Easing Doing Business in Kenya

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published on 13 May 2020 | reading time approx. 4 minutes

 

The enactment and subsequent coming into force of the Business Laws (Amendment) Act in March this year is in tandem with Kenya’s efforts to increase the ease of doing business in the country. Against a backdrop of many Kenyan businesses going through financially challenging times occasioned by a global health crisis, legislative measures to reduce ‘red tape’, increase transparency and give effect to valid business transactions are welcome.

 

We summarise below the impact of some of the amendments that the Business Laws (Amendment) Act has introduced.

 

Recognition Of Electronic Signatures, Documents and Registries

Contracts in Kenya can now be validly entered into by using electronic signatures. The Law of Contract Act has been amended to include insertion on a document of an ‘advanced electronic signature’. An advanced electronic signature is one which is: uniquely linked to the signatory; capable of identifying the signatory; created using means that the signatory can maintain under his sole control; and linked to the data to which it relates in such a manner that any subsequent change to the data is detectable.
 
An amendment to the Kenya Information and Communication Act (KICA) is to the effect that, subject to meeting other requirements of KICA, the use of advanced electronic signatures in executing title documents is now permitted in law.
 
The Land Registration Act has been amended to allow for the recognition of electronic documents and instruments as well as the use of advanced electronic signatures in their execution.
 
The Survey Act has similarly been amended to allow for use of advanced electronic signatures and processing of documents under the Act to be done electronically. Surveyors, for example, will now be able to submit plans to the Survey Office by electronic means.
 
Lastly, the Registration of Documents Act now recognizes documents bearing advanced electronic signatures as valid and capable of being registered under this Act. Further, the Registrar of Documents may maintain the Nairobi and Mombasa documents registries as electronic registries.
 
The above measures to recognise electronic signatures in addition to traditional handwritten signatures is welcome, progressive and couldn’t be more timely when people are generally mandated to stay and work from their homes. Additionally, it will increase the speed with which businesses can transaction in a legally enforceable manner in Kenya.
 
Notably however, Kenya currently does not have any licensed (by the regulator, the Communications Authority) electronic certification service providers (e-CSPs). e-CSPs authenticate the signatory as well as ensure the integrity of document that has been signed electronically is maintained, giving all parties confidence that the final document could as well been hand-signed by the signatory. Advanced electronic signatures, once assigned by e-CSPs will operate much like a bank’s token or dongle; once assigned to a user, it enables secure and authenticated online bank transactions and gives confidence to all parties about the identity of all transacting parties.
 
Under KICA, e-CSPs are mandated to issue certificates which are a record which is issued by a certification service provider for the purpose of supporting a digital signature which purports to confirm the identity or other significant characteristics of the person who holds a particular key pair; identifies the certification service provider issuing it; names or identifies the person to whom it is issued; contains the public key of the person to whom it is issued; and is signed by a responsible officer of the certification service provider issuing it.
We surmise that this legal recognition of advanced electronic signatures was the missing link for software companies to invest in obtaining licensing as e-CSPs.
 

Reducing Formalities, Increasing Transparency And Protecting Businesses

The Occupational Safety and Health Act (OSHA) requirement to register workplaces no longer applies to employer companies and organisations with less than SMEs in their first year of operation. OSHA has been amended to do away with registration requirements for up to one year after registration for organisations with less than 100 employees.
 
The Land Registration Act has additionally been amended to increase efficiency in land transactions. The requirements to present land rates and rent clearance certificates, and to obtain consent from the national or county government on the use of particular land prior to the registration of land transfers have been abolished. The effect of this will likely be to reduce delays in land transactions as well as reduce opportunities for unscrupulous persons to take advantage of formality requirements to delay processes and create opportunities to benefit from such delays.
 
The Business Laws (Amendment) Act has also done away with share warrants, the effect of which appears to mirror the intention of the also recent Companies (Beneficial Ownership Information) Regulations. A Share Warrant is a document issued by the company under its common seal, stating that its bearer is entitled to the shares or stock specified therein. Share warrants are negotiable instruments, transferable by mere delivery without registration of transfer. The law now requires that a company converts its issued bearer shares into registered shares, increasing transparency in company’s ownership.
 
The Insolvency Act has also been amended to henceforth require insolvency practitioners to be more transparent and accountable to creditors for their actions, as they are obligated to provide creditors with information requested in a timely and generally keep them informed.
 
The Insolvency Act has also been amended to increase the considerations a court should have in determining an application to upend a moratorium on legal proceedings (under section 560 of the Insolvency Act) for a company that is under administration. These include: purpose of the administration, whether the applicant (in favor of lifting the moratorium) is likely to suffer significant loss, conduct of the parties and legitimate interest of the applicant and company creditors, whether the value of a secured creditors debt exceeds the value of encumbered assets, whether a secured creditor is receiving protection for diminution of encumbered asset, whether the protection is feasible or burdensome to the company, whether the secured asset is required for the reorganization of the company, whether relief is required to protect value of assets or perishable goods and whether a reorganization plan is approved within six months. In addition, a court’s approval to lift a moratorium shall only be valid for 28 days. These changes to the Insolvency Act will likely give companies in distress some breathing room when legitimately trying to come out of debt, and is particularly welcome at this time of a global health pandemic and its resultant financial crisis that will hit some sectors and businesses particularly hard. 

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