The Companies Act, 2015 and the Insolvency Act, 2015 govern dissolution of companies in Kenya, including the dissolution of dormant companies. Where a registered company no longer wishes to carry on business or has been dormant for a while, it may apply to the Registrar of Companies to strike it off from the companies register in accordance with the Companies Act 2015, or voluntarily liquidate its affairs in accordance with the Insolvency Act, 2015.
We will discuss the two options available to dormant companies in two separate parts of this series. This article is Part I and it sets out in summary the legal requirements and the procedure for striking off a dormant company from the Companies Register.
PART I: Strike Off of Company from the Companies Register
Strike off is the process where a company that has been inactive for a long time and has few or no obligations is removed from the register of companies. Once removed from the companies register, the company ceases to exist and it can no longer trade in its name.
- General Legal Requirements
A company may apply to the Registrar to be struck off the companies register and be dissolved only if:
- it is a dormant company or is no longer trading and has no assets and liabilities; or
- the shareholders decide that they no longer wish to continue with the company and would like it struck off the register.
A company will not be considered dormant if, in the preceding 3 months before its application to be struck off:
- it has changed its name;
- it has carried on business;
- it has sold property for profit in the normal course of carrying on business – however, any property sold to facilitate the strike off will not affect the dormant state of the company;
- it has engaged in any activity except one that is:
- necessary to make an application for strike off or deciding whether to do so;
- necessary or expedient for the purpose of closing down the affairs of the company;
- necessary or expedient for the purpose of complying with any statutory requirement;
- an order specified by the Cabinet Secretary.
Further, a company cannot apply to be struck off if it is the subject of voluntary arrangement, administration or liquidation proceedings.
Other measures a company should take to ensure a successful strike off include:
- Dispose or distribute all its assets before applying for a strike off – any assets that are not disposed of or distributed will vest in the government once the company is dissolved;
- Close all its bank accounts;
- Notify KRA and any regulatory bodies relevant to the company’s business of the intention to dissolve;
- Ensure that employees (if any) are dealt with in accordance with the employment laws;
- Pay creditors and distribute the remainder of the assets to the shareholders in accordance with the company’s articles; and
- Ensure that it is fully compliant and up-to-date with all statutory requirements including annual returns filings and payment of all due taxes.
- Procedure for Striking Off a Company from the Companies Register
For a company to be struck off the register, the following process must be complied with:
- Passing of resolution by Shareholders - The shareholders of a company are required to pass a resolution to dissolve the company and to specifically authorize the directors of the company to make the application to strike off the company on behalf of the company. This resolution will accompany the application to be made to the Registrar.
- Making Application for Strike Off with the Companies Registrar– Once the resolution to strike off a company is passed, the directors should make an application to strike off the company from the companies register.
- Notifying Stakeholders of Application to Strike Off - Within 7 days after making the application to strike off, a copy of the application should be shared with: (a) the shareholders; (b) the employees (if any); (c) creditors of the company (if any); (d) directors of the company; or (e) manager or trustee of any pension fund established for the benefit of the of employees of the company.
- Publication of the Application to Strike Off in the Kenya Gazette – The Companies Registrar will review the submitted application to strike off and the supporting documents. If satisfied, a notice of the application will be published in the Kenya Gazette, stating that the Registrar may exercise the power to strike off the company and inviting any person to show cause why the name of the company should not be struck off the register.
- Actual Striking off of the Company from the Companies Register– If there are no objections to the strike off submitted within 3 months of publication of the notice in the Kenya Gazette, the Registrar may strike off the name of the company from the register.
- Publication of Notice of Strike off on the Kenya Gazette – Upon the striking off of the Company, the Registrar will publish a notice on the Kenya Gazette noting that the company has been struck off. Once this notice is published, the company stands dissolved and it may not do anything whatsoever in its name.
From the foregoing, striking off a company is a great option for companies which are dormant and do not have many debts and other obligations to settle. Strike off is also cost-effective as it eliminates the need for insolvency practitioners whose services are usually costly.
It is therefore advisable for companies that have been inactive for a long time and do not have existing obligations to consider strike off as a method of dissolving the company. However, it should be noted that striking off of a company is solely at the Companies Registrar’s discretion but it is unlikely that the Registrar will refuse to strike off the company unless they believe that the company has obligations that it has not settled fully.
While strike off is a good option for dormant companies, those companies with existing obligations such as debts and claims in court that cannot be easily settled would benefit from the services of an insolvency practitioner and should therefore consider voluntary liquidation.
Watch out for Part II of this series to learn about voluntary liquidation of a company by its shareholders.
Article by Patience Laki and Audrey Seur
Published on June 24, 2021