The PBO Act, which came into force on 14^th May 2024 via Legal Notice No. 60 of 2024, revoked the previous NGO Coordination Act.  The PBO Act was designed to establish a transparent regulatory framework for organizations serving the public good. However, the petitioners argued that key provisions of the Act undermined the autonomy of Public Benefit Organizations (PBOs), entrenched state control, and suppressed civil society participation.

Among the contested provisions were requirements for mandatory re-registration, compulsory membership in a national federation, disclosure of personal data, and the structure of the PBO Authority and Disputes Tribunal. The petitioners contended that these provisions violated constitutional guarantees including the freedom of association, the right to privacy, the right to fair administrative action, and the right to a fair hearing. The key findings of the court were as follows:

     a. Mandatory Registration

Justice Mwamuye, presiding over the matter, found the requirement for fresh registration of NGOs as PBOs unreasonable and unjustified limitation on the freedom of association and administrative justice. The court held that the blanket re-registration requirement imposed unnecessary regulatory hurdles on already compliant entities, without demonstrating a pressing public need or exploring less restrictive alternatives.

     b. Disclosure of personal data

Section 32 of the Act, which required PBOs to disclose personal details of their governing members, was found to infringe the right to privacy under Article 31 of the Constitution. The provision lacked adequate safeguards for the protection of personal data and was overly broad in scope.

     c. Compulsory membership in a National Federation

Sections 21(1) and 21(9) of the Act, which mandated membership in the National Federation of PBOs, were struck down for unjustifiably limiting the freedom of association. The court emphasized that forced affiliation to a single umbrella body was neither necessary nor proportionate in a democratic society.

Similarly, Section 23(2), which restricted recognition of PBO forums to those representing a “significant number” of organizations as prescribed by the Cabinet Secretary, was found to be vague, exclusionary, and unconstitutional.

     d. Right to fair hearing

Sections 18(1)–(3) and 19(1)(b) of the Act, which empowered the PBO Authority to suspend or cancel registration based on subjective criteria, were declared unconstitutional for failing to guarantee fair hearing and administrative justice.

Implications

As a result of the Court’s decision, NGOs previously registered under the repealed NGO Coordination Act are not required to re-register as PBOs. The PBO Authority must automatically transition these organizations into the new framework. PBOs are no longer compelled to join the National Federation, nor are they required to disclose sensitive personal data without proper safeguards. Enforcement actions must now adhere to principles of fair hearing and due process.

Conclusion

This decision marks a significant victory for civil society in Kenya, reaffirming the constitutional protections that safeguard organizational autonomy, privacy, and procedural fairness. It sets a strong precedent for future regulatory reforms and underscores the judiciary’s role in upholding democratic values.

This publication is meant for general information only and does not constitute legal advice, nor does it create an advocate-client relationship between any reader and Mboya Wangong’u & Waiyaki Advocates. For particular expert advice on any matter dealt with above, please contact us on advocate@lexgroupafrica.com for tailored legal support.

Authored:

Fridah Gatwiri and Glory Kang’oria

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The mandatory merger notification requirements introduced through the Regulations shall apply to the 8 EAC partner states, being: Kenya, Burundi, the Democratic Republic of the Congo, Somalia, Rwanda, South Sudan, Uganda, and Tanzania. Accordingly, a merger or acquisition is deemed to have cross-boarder effect where it involves undertakings with operations in 2 or more partner states.

Merger Notification Thresholds

In addition to the Regulations, EAC Competition (Thresholds For Notification of Mergers and Acquisitions to the East African Competition Authority) Notice, 2024 provides for the thresholds that shall trigger a notification requirement to the EACCA. Notification shall be required for cross-border transactions where:

1. The combined turnover or assets of the merging undertakings equals or is above USD 35 million; and
2. At least 2 undertakings to the merger have a combined turnover or assets of USD 20 million in the East African Community, unless each of the parties achieves at least two-thirds of its aggregate turnover or assets within 1 partner state.

Merger Notification Filing Fees

Furthermore, the following fees as shown below shall be payable when submitting the notification to the EACCA for approval:

Merger Assessment

The EAC Competition Authority shall, when approving or rejecting a proposed transaction, consider the transaction’s effect on public interest and its potential to lessen competition. Under the public interest test, the EAC Competition Authority shall consider:

1. The transaction’s effect on a particular partner state, industry sector, or region;
2. The effect on employment within the relevant market, partner state or community;
3. The effect on the ability of small and medium undertakings to gain access to or to be competitive in any market; or
4. The ability of a nascent sector or other industry to compete in international markets; or
5. The transaction’s effect on the ability of partner states to respond quickly to a sector crisis.

Importantly, the EAC Competition Authority may approve a merger or acquisition transaction that leads to the substantial lessening of competition if the proposed transaction will advance or hinder the ability of the partner states to respond quickly to an acute sector crisis within a specified time.  However, the merging parties must provide sufficient reasons and evidence that warrant special conditions.

It is worthy to note that when the notification is made to the EACCA and the intended merger or acquisition does not fall within the scope of the EAC Competition Act, 2006, the EACCA shall notify the parties in writing, retain 30% of the merger and acquisition notification fees for the preliminary assessment undertaken and the return 70% of the merger and acquisition notification fees. Therefore, it is imperative for parties to be certain prior to notification to EAC to avoid loss of time and fees spent.

The EACCA is further empowered by paragraph 13 to request a competent authority of a partner state to conduct the assessment of the merger and acquisition with respect to specific aspects of the intended merger and where the intended merger and acquisition may have a greater impact in a particular partner state. For instance, the Competition Authority of Kenya may be requested to conduct a merger and acquisition assessment where the proposes merger and acquisition may have a significant impact on the manufacturing industry in Kenya than in Uganda.

Conclusion

Conclusively, the Regulations usher in a new regime of Merger and Acquisition transactions in the region. However, the EAC merger control regime presents a potential duplication of enforcement since 6 EAC partner states are member states of the COMESA. To remedy this, the EAC Competition Authority and the COMESA Competition Commission entered into a Memorandum of Understanding (MOU) on 10^th June 2025 to facilitate cooperation and coordination in regard to cross-border transactions.  However, while the MOU does not eliminate the need for dual filings outright, it provides a framework for collaboration, joint enforcement, and reduced regulatory burden. Failure to seek EAC approval prior to merger and acquisition implementation additionally attracts a penalty of up to 10% of the annual turnover.

Accordingly, business entities are advised to engage proactively with both the EACCA and COMESA Competition Commission to navigate the evolving merger control landscape on dual filings.

This publication is meant for general information only and does not constitute legal advice, nor does it create an advocate-client relationship between any reader and Mboya Wangong’u & Waiyaki Advocates. For particular expert advice on any matter dealt with above, please contact us on advocate@lexgroupafrica.com for tailored legal support.

Authored:

CG Mbugua, Partner, Corporate Commercial Practice Group

 Co-Authored:

Jessica Opiyo, Associate

Ian Mwithi, Legal Assistant

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Understanding the term “Estate”

One’s “Estate” is simply everything you own. This includes your home, land, car, bank accounts, shares, business interests, mobile money, household belongings, digital assets like cryptocurrency, livestock, and even sentimental items. If you have dependants, obligations or property, no matter how modest, you already have an Estate. Where there is an Estate, there is need for planning.

What does Estate Planning involve?

Estate Planning is the process of arranging how your affairs will be managed both during your lifetime (in the event of incapacity) and after your death. Estate planning includes but is not limited to the following:

1. Writing a valid will – To specify how one’s assets should be distributed and who should oversee the process of distribution.
2. Appointing guardians – To care for one’s children who are minors or those who live with special needs.
3. Creating trusts – To manage assets on behalf of one’s beneficiaries, whether to protect vulnerable dependants or to manage complex family dynamics.
4. Assigning powers of attorney – To allow someone one trusts to make financial or health related decisions on one’s behalf if they become unable to do so.
5. Business succession planning – This is important for entrepreneurs and family-owned businesses. It involves identifying the right person to carry out one’s wishes for their business.

Why Estate Planning matters

Estate Planning provides clarity, prevents conflict, and safeguards your interests and those of your loved ones. Without proper Estate Planning:

1. Families may face lengthy court processes or legal disputes over property/assets.
2. Minors (below 18 years) or dependants with special needs could be left without designated guardians, thus their standard of care is at the risk of deteriorating.
3. Assets might not go to the people that one would have preferred.
4. Critical decisions could fall into the hands of individuals that one would not have trusted with those decisions.

Who needs Estate Planning?

Estate Planning is not reserved for the elderly, the wealthy or the terminally ill. It is important for everybody to create an estate plan, including the following categories of people:

1. Young professionals with savings or digital assets.
2. Parents and guardians, especially those with minor children or dependants with special needs.
3. Entrepreneurs and business owners who want to protect the continuity of their businesses.
4. Individuals with blended families.
5. Anyone who wishes to have a say in how their affairs are managed, rather than leaving it to chance or the law of succession.

Conclusion: It is not about wealth, health or age. It is about intention and legacy

The misconception that Estate Planning is only for the rich, old and the sick often leads people to postpone or ignore it altogether. However, Estate Planning is less about how much or how long you have and more about ensuring what you do have is well cared for, and that the people who matter most to you are well protected.

Think of Estate Planning as an act of love and care. It gives you control over your legacy, reflects your values, protects those who mean the world to you, and provides certainty in times of great uncertainty.

~By Sheila Mutiga & Fridah Gatwiri

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Licensing Requirements under VASPs Bill 2025

The VASP bill proposes the CMA, the CBK, and any other body appointed by the National Treasury as the key regulatory bodies for VASPs. These regulatory bodies shall be in charge of licensing of VASPs, approval of initial VAs offering, ensuring financial soundness and stability in the financial system, and combating financial terrorism and anti-money laundering be enforcing AML/CFT/CPF including vetting significant shareholders, beneficial owners, directors and senior officers of a virtual asset service provider or issue regulations, amongst other functions.

Prior to the issuance of a licence to undertake the business of virtual asset services, a VASP must satisfy certain requirements which consist of the following:

1. Be a local incorporated company or a foreign company issued with a compliance certificate to operate under the Companies Act, 2015. The VASP Bill prohibits natural persons from carrying out the business of virtual asset services.
2. Undertake the services under the schedule. Some of the services listed include custodial wallet services, virtual assets management, virtual assets investment advisory, brokerage services, virtual assets escrow services, virtual asset exchange services amongst others.
3. Have personnel who possess the necessary skills, knowledge, and experience;
4. comply with data protection and consumer protection requirements;
5. meet the requisite cybersecurity measures under the Computer Misuse and Cybercrimes Act;
6. Appoint a director or a principal who meets the relevant educational and professional qualifications, competence, and soundness of judgment as shall be assessed by the relevant regulatory body;
7. Have a registered office in Kenya; and
8. Have a board of directors consisting of at least 2 directors who shall be natural persons.

It is important to note that the license issued shall be valid from the date it is issued until the 31^st of December of the year it is issued and it is not transferrable to any other person or entity. If you are an entity looking to procure a licence to undertake virtual assets services, reach us on advocate@lexgroupafrica.com for further assistance.

Obligations of VASPs under the Bill

In addition to the licensing requirements discussed above, a VASP must fulfil the following obligations upon issuance of the licence to operate and during its operation:

1. Maintain its business in a financially sound condition, complying with any such capital, solvency, and insurance requirements as may be prescribed;
2. Conduct its business with integrity, due care, skill and diligence and deal with all clients fairly;
3. Have in place policies and procedures satisfactory to avoid and mitigate conflicts of interest between the VASPS with its clients, the VASPs and other third parties as well as between VASPS’ clients;
4. Have its financial statements audited with respect to transactions and balances relating to its businesses;
5. Have in place a mechanism for protecting whistle-blowers; and
6. Notify the relevant regulatory body of any material change into the business. Such material changes include Mergers and Acquisition, change of business activity, sale of a subsidiary, change of domain name, change of directorship, change of principal business amongst others.

It is imperative for a VASP to ensure compliance with post-licensing obligations to ensure that it is not suspended or revoked.

The Schedule to the VASP Bill provides for the roles of the CBK, the CMA and the Communication Authority in regulating the different VASPs dependent on the VA service to be provided. The Bill is currently tabled at the National Assembly following its gazettement on March 17^th 2025.

Transitional provisions of the Bill

On commencement of the Bill as an Act, where a person is providing virtual asset services, the person shall make an application under the Act within 6 months upon commencement, to be issued with a licence under the Act. The person may in transition continue to carry out its business activities until its application for a licence is granted or refused.

Conclusion

While Kenya still remains behind in the VAs and VASPs’ regulations scene, the current attempts through the VASP Bill are commendable steps forward. These proposed regulations not only reflect Kenya’s acknowledgment of the growing importance of VAs but also demonstrate a commitment to ensuring their responsible adoption. If successfully enacted, these policies will offer a clearer legal framework, enhance investor confidence, and pave the way for sustainable growth in the virtual asset sector, while addressing risks such as money laundering, fraud, and consumer protection.

This publication is meant for general information only and does not constitute legal advice, nor does it create an advocate-client relationship between any reader and Mboya Wangong’u & Waiyaki Advocates. For particular expert advice on any matter dealt with above, please contact us on advocate@lexgroupafrica.com for tailored legal support.

Authored:

CG Mbugua, Partner, Corporate Commercial Practice Group

Co-Authored:

Jessica Opiyo, Associate

Shamiah Muchesia, Legal Assistant,

Ian Mwithi, Legal Assistant

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The post An Overview of The Virtual Assets Providers Bill, 2025. appeared first on Mboya Wangongu & Waiyaki.

Following the Kenya’s grey listing by the Financial Action Task Force in February 2024, there has been an increased demand for the regulation of cryptocurrency assets. Consequently, the Virtual Assets Providers Bill, 2025 (the “VASP Bill”) was drafted with the intention of regulating virtual assets and curbing money laundering and cybersecurity threats. This article defines Virtual Assets (VAs), provides a brief history on regulations of VAs in Kenya.

What are Virtual Assets?

Virtual Assets (“VAs”) as defined in the VASP Bill means the digital representations of value that can be exchanged or transferred, and are usable for payments or investment purposes. This includes, cryptocurrency and digital tokens. However, they do not include digital representations of fiat currencies issued by the Central Bank of Kenya or of other jurisdiction such as United States Dollars, in digital form, in the bank or electronic money. Further, Virtual Assets as used does not include non-fungible tokens not used for payment or investment and virtual service tokens used for the benefit of the owners’ sole benefit.

VAs, especially cryptocurrencies, utilize Digital Ledger Technology such as blockchain technology. Blockchain in this case means a digital lender or database of transactions relating to VAs which are recorded chronologically and which are capable of being audited. Digital Ledger Technologies are different from traditional databases since they rely on a network of computers to validate and record transactions instead of a central administrator. As such, the decentralization and anonymity associated with VAs pose significant consumer protection, fraud, terrorist financing, and money laundering concerns.

The history of VA Regulation 

In Kenya, the collapse of FTX Trading Limited in November 2022 highlighted the need for regulatory intervention in the VA space. Kenya’s regulatory journey began in December 2015, when the Central Bank of Kenya (“CBK”) cautioned against virtual currencies such as Bitcoin, citing risks including money laundering, terrorist financing, volatility, and consumer vulnerability. The CBK also cautioned banks against dealing in virtual currencies. Other financial regulators such as Capital Markets Authority (“CMA”), SACCO Societies’ Regulatory Authority (“SASRA”), Retirement Benefits Authority (“RBA”), and Insurance Regulatory Authority (“IRA”) issued similar warnings in 2018 against dealing in unlicensed and unregulated financial products.

Additionally, in Civil Suit No. 08 of 2019 Wiseman Talent Ventures v CMA (2019), the High Court in dealing with the initial offering of ‘Keni Coin’ affirmed the CMA’s authority to regulate VAs while acknowledging the lack of specific crypto regulations. This decision marked a shift towards regulatory acknowledgment. The CBK further warned the public against dealings in unlicensed financial products in 2020 in its anticipatory role as a potential regulator of VAs.

VA regulatory activity heightened in 2023. In June 2023, the CBK’s Technical Paper on Crypto Assets discussed global developments and the need for risk evaluation. Further, the Capital Markets (Amendment) Bill, 2023, sought to include “digital currencies” in securities definitions and assign an oversight role to the CMA. The Crypto Assets Bill, 2023, proposed a regulatory framework with CMA oversight, including taxation and market transparency measures. To date, these bills have not progressed substantively.

The World Coin controversy subsequently sparked data privacy concerns that prompted the National Assembly’s ad-hoc committee to recommend a comprehensive oversight framework in September 2023. The committee’s report evaluated Money Laundering/Financing of Terrorism risks associated with VAs and called for clear policy stand: either to permit or prohibit VA activities. If permitted, the committee report advised on the implementation of licensing and risk-based measures as per FATF Recommendation 15.

Later, in March 2024, the Blockchain Association of Kenya (BAK) presented the VASP Bill, 2024, to the National Assembly, seeking to establish a regulatory office, regulate VASP operations, enhance transparency, protect consumers, tax transactions, and create a regulatory sandbox. The National Treasury and Economic Planning also formed a working group for a regulatory framework, leading to the Virtual Assets Service Providers, (“VASP”) Bill, 2025.

In the following article in this series on VAs, we highlight the key regulatory requirements proposed in the VASP Bill. Read more on our website.

This publication is meant for general information only and does not constitute legal advice, nor does it create an advocate-client relationship between any reader and Mboya Wangong’u & Waiyaki Advocates. For particular expert advice on any matter dealt with above, please contact us on advocate@lexgroupafrica.com for tailored legal support.

Authored:

CG Mbugua, Partner, Corporate Commercial Practice Group

Co-Authored:

Jessica Opiyo, Associate

Shamiah Muchesia, Legal Assistant,

Ian Mwithi, Legal Assistant

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For more than two decades, the old blueprint, the Capital Markets (Securities) (Public Offering, Listing & Disclosure) Regulations of 2002 (“2002 Regulations”), held sway creating a stable and rational framework for the capital markets in Kenya. Various amendments have been made over the years to keep up with the growth in the economy and the global trends but the dynamic nature of the industry required an overhaul rather than piecemeal amendments. Stagnation in growth of the economy in part attributed to macro-economic issues such as interest rates, foreign exchange, GDP, inflation, dwindling capital inflows and trade imbalances have all piled pressure as reflected in the bearish performance of our stock market. Times change, and so does investors’ interest. The Capital Markets Authority (CMA) in keeping with its mandate as the Regulator led the discussions with the industry stakeholders which have now resulted in the Capital Markets (Public Offers, Listing & Disclosure) Regulations 2023 (POLDs) – a brand new approach to the capital markets in Kenya!

Debate has surrounded the POLDs core philosophy.  Does it establish the market as merit-based or disclosure-based? A merit-based approach essentially requires a consideration of an issuer’s suitability to bring a security to the market assessing factors such as capital, management, performance, economy and trends amongst others prior to giving approval while a disclosure-based regime requires disclosure of certain key information disseminated to the investing public in the form provided by the law. The Regulator in the former makes the decision on the merit of an issue whereas in the latter the approval by the Regulator merely confirms that the Issuer has complied with the law in so far as disclosure is required.   For the two decades the 2002 Regulations have been in force, CMA scrutiny of issues proposed for the market was mistaken for merit- based approach. Additionally, the public would often cry for its intervention in instances whether or not these losses were within its province assuming its role as Regulator to be all encompassing.

The overt statement on the face of Prospectus clearly indicates that an approval by the CMA of an issue does not amount to a recommendation for the investment thereby disclaiming any CMA liability for misrepresentations within the prospectus. Furthermore, the prospectus issuers were obligated to solicit advice from various experts, including financial and legal professionals, to ensure the accuracy of their representations. In cases of misrepresentation, the CMA would take strict enforcement action against the issuer. In the early days, the approval process often involved lengthy discussions and reviews due to the need to address multiple comments raised by the CMA.

The POLD Regulations draw inspiration from the International Organization of Securities Commissions (IOSCO). IOSCO is a global champion for investor protection and promotes well-functioning capital markets that are fair, efficient, and transparent. To achieve this, IOSCO generally recommends international best practice for capital markets to promote a risk disclosure based approach, thereby requiring issuers to focus on disclosure rather than imposing duty on Regulators to approve issues based on merit.

The revision in the POLDs clarifies and adds emphasis to the disclosure in keeping with IOSCO recommendations. Similar to the Securities and Exchange Commission (SEC) in the US, the CMA, under POLDs, focuses on ensuring companies discloses certain key information to assist investors in their decision making. This has been one of the most critical rationales in overhauling the POLDS framework.

The POLD Regulations also clarify the distinction between private and public offerings, addressing a grey area in the previous regulations. Previously, the definition of a “private offer” under the 2002 Regulations was often debated. Some argued it used a disjunctive approach (“or”), meaning an offer only needed to meet one of the criteria to be considered private while others interpreted it conjunctively (“and”), requiring all criteria to be met for a private offer exemption. In the abundance of caution issuers in certain cases of private transactions informed the CMA. There is now clarity as the chapeau of Regulation 12(1) takes a disjunctive approach, connoting that for an offer to be deemed private, it ought to meet any of the conditions outlined under Regulation 12(1). Additionally, the exemption for corporative societies has been retained.

The POLD Regulations will potentially have a great impact on the small business. Issuers will be able to raise debt capital through introduction of SME Fixed Income Securities Market Segment (SME FISMS) as well as list and trade under SME Small and Medium Enterprises Market Segment (SMEMS).

Another new concept introduced in the POLD Regulations is the Special Purpose Acquisition Vehicles (SPACs). SPACs are designed to raise capital through initial public offerings and subsequently acquiring other companies that become the resulting issuer. Moreover, acknowledging technological advancements, electronic security offers via the internet or other automated means are now regulated.

So, where does this take the market?  These changes will usher in a more predictable and dynamic market environment. Investors are likely to respond positively to the enhanced regulations, driving increased market activity. To achieve this, the market will demand greater transparency and clarity, facilitated by more comprehensive disclosures. Additionally, the expedited approval timelines by the CMA will help reduce costs, benefiting all market participants. However, it is imperative for issuers to engage experienced and competent advisors, as regulatory vigilance is expected to intensify.

Author: Godwin Wangong’u and Joseph Barasa

This publication is meant for general information only and does not create an advocate-client relationship between  any reader and Mboya Wangong’u & Waiyaki Advocates. For particular expert advice on any matter dealt with  above, please contact us.

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In this article, subsequent to our previous article on the Regulatory Framework in relation to Competing Take-Over, we delve deeper to highlight the obligations appurtenant to both the Offeror and Offeree in Competing Take-Overs in Kenya.

OBLIGATIONS OF THE OFFEROR

What are the obligations of the Offeror in a Take-Over? The obligations of the Offeror are stipulated in the Regulations and highlighted below as follows:

1. Disclosure of Identity (Regulation 21)

Before initiating any discussions or negotiations regarding a Take-Over, the Offeror must fully disclose its identity and that of any related entities or persons acting in concert. As per Regulation 21 of the Regulations, this disclosure ensures transparency and allows all stakeholders to make informed decisions.

In 2019, Equity Bank sought to acquire Banque Commerciale du Congo (BCDC). As part of compliance, Equity was required, by the Regulatory Authority in Congo, Kenya and COMESA, to disclose its identity and the involvement of any related parties before engaging in negotiations.

2. Provide Evidence of Financial Capability / Ability to Pay

Additionally, we note that Regulation 22 stipulates that the Offeror must demonstrate its financial capacity to implement the Take-Over Offer. This means ensuring that the Offer will not fail due to insufficient funding and that all shareholders who accept the Offer will be paid in full. Companies are prohibited from making Take-Over Offers if they do not provide reasonable grounds for believing that they are able to perform their obligations if the Offer is accepted.

3. Extension of Favorable deals to all Shareholders

Paragraph 4 (b) of the First Schedule of the Regulations provides that the Offeror must disclose and provide a statement on whether there is any agreement or arrangement made between the Offeror and any of the directors of the Offeree in connection with or conditional upon the outcome of the scheme, and if so the particulars of such agreement or arrangement. This is in addition to the requirements of Paragraph 4 (b) of the First Schedule of the Regulation which stipulates that the Offeror must disclose if there is an agreement or arrangement under which shares acquired by the offeror through the scheme may be transferred to another party, the following must be disclosed:

1. The names of the parties involved and the details (number and type) of the shares to be transferred; and
2. The number, type, and amount of shares in the Offeree entity held by each such person — or a statement confirming if they hold none.

It is worthy to note that the above disclosures of any agreements or arrangements between the Offeror and directors of the Offeree ensures that the transaction process is not being unduly influenced or compromised by private incentives or side deals.

Furthermore, no shareholder should receive preferential treatment from the Offeror in the form of exclusive offers that aren’t accessible to all Offeree shareholders.  The Offeror shall not enter into arrangements with the Offeree to purchase voting shares that are not made available to all shareholders of the Offeree.

Regulation 23 as read with 24 requires the Offeror to make an offer to buy any convertible securities that the Offeree may have issued. Furthermore, the Take-Over Offer document should also be served to the holders of convertible securities at the same time when other shareholders of the Offeree are served.

4.  Share Transaction Restrictions (Regulation 25)

The Offeror and its affiliated entities and parties are prohibited from selling Take-Over-related shares during the Offer Period as per Regulation 25. Accordingly, all persons such as the Offeror, the Chief Executive Officer or the director and any senior officers of the Offeror are required to disclose the total number and price of all voting shares which are dealt in their accounts. Further, any transactions involving voting shares of the Offeror and Offeree must be disclosed to the appropriate securities exchange and the regulatory body within twenty-four hours.

OBLIGATIONS OF THE OFFEREE

What are the obligations of the Offeree in a Take-Over? The obligations of the Offeree are stipulated in the Regulations and highlighted below as follows:

1. Provision of Information

Regulation 26 provides that the Offeree should provide the Offeror with the following information in order to facilitate due diligence before a decision is made:

1. A list of shareholders and their contact details;
2. Financial statements, including audited reports; and
3. Information on any competing offers, if applicable.

2. To not Frustrate the Offer

Additionally, as per Regulation 27, once a notice of intention of Take-Over is issued, the Offeree should not take actions aimed at frustrating the deal. Prohibited actions of the Offeree include:

1. Issuing new shares even if authorized, to dilute ownership;
2. Issuing grants in respect of any un-issued shares;
3. Selling its key assets and those of its subsidiaries;
4. Entering into contracts outside the normal course of business.

3. Disclosure of Transactions

The Offeree, along with its executives and major shareholders, must disclose any transactions involving voting shares and the price of the shares in accordance with Regulation 28. This disclosure ought to be made within 24 hours of notification of the transaction to the Capital Markets Authority.

The Offeree is further required to promptly notify its shareholders, the relevant securities exchange as well as the Capital Markets Authority of receipt of a notice of take-over as provided under Regulation 6. Upon receipt of the Take-Over Offer document, the Offeree should within 14 days issue a circular to its shareholders indicating whether or not the board of directors recommends the acceptance of the Take-Over Offer.

4. Transfer of Shares

As per Regulation 29, once the Take-Over is completed, the Offeree is mandated to facilitate the smooth transfer of shares to the Offeror as per the rules of the Nairobi Securities Exchange (NSE) and the Central Depository and Settlement Corporation (CDSC).

It is imperative to note that both Offeror and Offeree must always ensure adherence to the applicable timelines in accordance with the Regulations.

Conclusion

Conclusively, understanding the obligations set out in the Capital Markets (Take-Overs and Mergers) Regulations is crucial for any entity involved in mergers and acquisitions. Any business considering a Take-Over or merger must adhere to these guidelines to protect shareholder interests and maintain market integrity. The Offeror must disclose its identity, demonstrate financial capability, treat shareholders equitably, comply with transaction restrictions and comply with the timelines and processes outlined in the Regulations. Meanwhile, the Offeree must provide due diligence information, avoid frustrating the Offer, disclose transactions, facilitate share transfers and comply with the timelines and processes as outlined in the Regulations. Compliance with these obligations fosters market integrity, protects shareholder interests, and ensures a smooth Take-Over process.

Author: Godwin Wangong’u

Co-Authored by: Patience Laki, Jessica Opiyo and Peris Njonjo

This publication is meant for general information only and does not create an advocate-client relationship between  any reader and Mboya Wangong’u & Waiyaki Advocates. For particular expert advice on any matter dealt with  above, please contact us.

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Definitions and Overview

A merger or take-over is defined in section 41 of the Competition Act, 2010, as when one or more undertakings directly or indirectly acquire direct or indirect control over the whole or part of the business of another undertaking. This merger may be achieved through the purchase of shares or assets in an undertaking.

A competing take-over is defined as an offer made for an offeree’s voting shares, in response to an offer that has already been made by another person who is deemed to be the competing offeror. It occurs where 2 or more bidders make offers to acquire the same target company that is listed and is subject to an initial a take-over offer.

The take-over procedures provided in the Regulations apply to competing take-over offers however accounting for the situational differences between a Competing Take-Over offer and an Initial Take-Over offer. In view of the foregoing, below is a brief analysis of the take-over procedure as provided in the Regulations.

Procedures for Competing Take-overs.

i. Notice of Intention

The first step is the issuance of a notice of intention to acquire an undertaking. Regulation 4 provides that a company which intends to acquire effective control in a listed company (the offeror) shall not later than 24 hours from the resolution of its board to acquire effective control in the company announce the proposed offer by press notice and serve a Notice of Intention in writing of the take-over scheme. This Notice of Intention shall be to the proposed offeree, the securities exchange on which the offeree’s shares are listed, the Capital Markets Authority and the Competition Authority of Kenya.

Additionally, the Notice of Intention should contain the following information;

a. the identity of the proposed offeror;

b. the identity of the proposed offeree and the exchange at which its shares are listed;

c. the type and total number of voting shares of the offeree which are held directly by the offeror;

d. details of any existing or proposed agreement relating to the voting shares; and

e. the conditions of the take-over.

ii. Offeror’ Statement

Upon issuance of the Notice of Intention to the various parties. the offeror is additionally required to serve the offeree with an offeror’s statement of the take-over scheme within 10 days from the date of the Notice of Intention. The statement should be pre-approved by the Capital Markets Authority. Thereafter, the offeree ought to inform the relevant securities exchange, the CMA and make an announcement by a press notice of the proposed take-over offer within 24 hours of receipt of the offeror’s statement.

It is worthy to note that an offeror is allowed to amend or withdraw the offeror’s statement subject to the prior written consent of CMA.

iii. Take-Over Offer

The offeror is thereafter required to submit to the CMA the take-over offer document in relation to the take-over offer for approval. The take-over document should be issued within 14 days from the date of serving the offeror’s statement and contain information such as the identity of the ultimate offeror and offeror’s stated intentions regarding major changes to be introduced in the business.

The CMA is mandated to approve the take-over document within 30 days where it satisfies the requirements of the regulation.

iv. Service of the approved take-over document and circulars

According to Regulation 7(4) the offeror should serve the take-over document on the offeree within 5 days from the date of approval. Thereafter, the offeree is required to circulate this take-over offer document to its shareholders to whom the offer relates within 14 days from the date of receipt of the approved take-over document.

The documents should be accompanied by a circular indicating whether the Board of directors recommends the acceptance of the take-over offer and an independent adviser’s circular which should disclose all information that would be reasonably required to make an informed decision.

v. Closing of the Take-over offer

The offeror must keep an offer open for acceptance for a period of 30 days from the date the take-over document is first served. The take-over offer is deemed closed on the last day of the offer period. However, a shareholder may voluntarily withdraw acceptance any time before the closing of the offer.

vi. Announcement of Acceptance

Thereafter, the offeror is required to notify the CMA and the securities exchange within 10 days of closure of the offer. This is in addition to an announcement by way of press notice in at least 2 English dailies of national circulation particularizing the total number of voting shares to which the take-over relates and for which acceptance has been received.

vii. Transfer of Accepted shares

The offeree is mandated to ensure prompt transfer of the accepted voting shares to the offeror in the register of members maintained as required by the applicable laws.

VISUALIZATION OF THE PROCEDURE FOR A COMPETING TAKE-OVER

Conclusion

In conclusion, the regulatory framework governing competing take-overs in Kenya, as outlined in the Capital Markets (Take-overs and Mergers) Regulations, 2002 provide a structured process aimed at ensuring fairness, transparency, and market integrity in Kenya. The step-by-step procedures, from issuing the notice of intention to the final transfer of accepted shares, underscore the emphasis on protecting shareholder interests and maintaining orderly transactions in cases of competing bids. This framework in the Regulations fosters a fair marketplace where investors can make well-informed decisions and strengthens investor confidence in Kenya’s capital markets.

Authored by Godwin Wangong’u and Co-Authored by: Jessica Opiyo and Peris Njonjo

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We note that the health insurance sector has overseen the replacement of the National Hospital Insurance Fund (NHIF), a State Parastatal that was established in 1966 as a department under the Ministry of Health, with the Social Health Authority (SHA) and the Social Health Insurance Fund (SHIF). The Act creates three funds: the Primary Health Fund, designed to cater for primary healthcare services from levels 1 to 3 health facilities; Social Health Insurance Fund designed to purchase healthcare services from levels 4 to 6 health facilities and; Emergency, Chronic and Critical Illness Fund designed to cater for emergency and chronic illness treatment. The purpose of the newly introduced funds is for healthcare to be affordable and accessible to Kenyans all over the country. The Funds, officially took effect on 1st October, 2024, and will be responsible for the management of all public health insurance contributions.

We delve into some of the key outlines of SHIF, and how it affects various stakeholders below.

SHIF Registration

To gain access to SHIF, the following individuals are required by the Act to register:

1) Every Kenyan;

2) A non-Kenyan who is ordinarily a resident of Kenya; and

3) A child born after the Commencement of the Act, that is, 19th October 2023.

Foreigners who intend to be in the country for a period of less than twelve months are required to have a health insurance to cater for any medical expenses that may arise during their visit. Failure to register with the authority attracts penalties such as exclusion from access to public services offered by both the National and County Governments and their respective entities. The Act does not provide for a timeline within which individuals should register after the commencement of the Act. However, employers are required to meet compliance requirements including registration of their employees. As per the SHIF guidelines, the first contribution date is 9th October 2024.

Who is a Beneficiary?

A beneficiary has been defined by the Act as any person who makes contributions to the fund; is below the age of (21) years, has no income but lives with a contributor; is below the age of (25) years and undergoing a full-time course of education at a higher learning institution; is living with disability and wholly depends on a contributor; and is a spouse of a contributor. The persons listed as beneficiaries are then exempted from registration.

Applicability of Insurance Relief to contributions made to SHIF

Previously, contributions made to the National Health Insurance Fund attracted an insurance relief of (15%) of the insurance premiums. The applicability of the relief to the SHIF contributions was not clear as the Income Tax Act only makes provision for contributions made to NHIF.

Furthermore, the Kenya Revenue Authority through a Notice dated 8th November 2024, clarified that the insurance relief does not apply to contributions made towards SHIF. This means that employers who had before remitting the deductions had offered the relief will have to deduct the same and remit to KRA.

How SHIF affects Employers

Per SHIA, it is mandatory for the employer to deduct the contribution of a salaried contributor and submit it to SHA on behalf of the employee, by the 9th day of every month. As such, employers are expected to register with SHA, for ease of documentation.

Additionally, employers are expected to inform SHA of changes in employee statuses. Specifically in cases of termination of employment, the employer is expected to notify the Authority within 30 days of such termination, and submit the SHA deduction from the employee’s contribution.

How SHIF affects Employees

The SHA shuffle introduces a more progressive contribution system compared to the fixed rates under NHIF. Employees now contribute 2.75% of their monthly salary, making the system more equitable, as contributions are aligned with income levels.

For example, someone earning Kshs. 20,000 will contribute around Kshs. 550 monthly, while higher earners—such as those earning Kshs. 1 million or more—will be required to contribute up to Kshs. 27,500. For self-employed individuals, their contribution will be determined by a means test, and the minimum contribution has been reduced from Kshs. 500 to Kshs. 300. Furthermore, the government will account for the contributions for vulnerable populations through a combination of national and county funding, easing the financial burden on low-income households.

The One-third Principle & SHIF

Section 19(3) of the Employment, 2007 brings to life the one-third principle limiting deductions to a third of an individual’s income.

19(3): “…..the total amount of all deductions which under the provisions of subsection (1), may be made by an employer from the wages of his employee at any one time shall not exceed two-thirds of such wages……”

This principle is meant to protect individuals from excessive financial burdens and deductions that would leave employees financially strained or unable to meet basic living expenses. Although SHIF deductions do not exceed one-third of a person’s salary, they bring many individuals closer to that limit. This is because, when combined with mandatory deductions such as Pay as You Earn (PAYE) and National Social Security Fund (NSSF), the total deductions become quite substantial. This could lead to a significant reduction in the citizens’ disposable income thus less money left for saving, investment and personal needs.

The implementation of SHIF could lead to more difficulty for citizens in accessing credit. This is because, the rise in deductions means that those with existing loans or other essential deductions may need to repay at a lower rate to avoid exceeding the deduction limit, which in turn limits their ability to access future credit. Similarly, many financial institutions often evaluate individuals’ ability to repay loans based on the income they have after deductions. Anyone planning to take out a loan must be cautious not to exceed the permissible deductions.

The overall impact could be devastating as a reduction in overall disposable income, and a strain in accessing credit could mean hindered economic activity and mobility all over the country. This is because, less people possess the ability to maintain a good life, while fewer individuals have the ability to access tangible credit to sustain businesses. Even worse for low income earners is that they could fall deeper into poverty, as many Kenyans live paycheck to paycheck. Inherently, this could widen the gap between the rich and the poor.

How SHIF affects vulnerable individuals

The new Act provides a breather to unsalaried employment households. Under the Act, such a household is to pay an annual contribution at a rate of 2.75% of the household income, as determined by the means test prescribed in the Regulations. While this may be a good thing for such households, it may mean immense difficulty for the tax regulator to determine the income streaming from such households.

For households in need of financial assistance, they are to be paid by the National Government or County Government as prescribed by the Regulations. Similarly, for persons under lawful custody, the Ministry responsible for correctional services is liable as the contributor under SHIA.

Conclusion

The move to SHIF has placed obligations on every Kenyan to contribute towards the fund with the object of meeting the government’s vision of providing sustainable and affordable healthcare to all. On paper, these developments seem to be favorable to vulnerable individuals. However, it remains unclear as to whether the government will, practically, cater for them. While SHIA makes the commendable attempt at reducing the financial burden on lower-income households, this approach still leaves low and middle-income earners, who may not qualify for government assistance, exposed to the full impact of SHA deductions, potentially increasing their risk of exceeding the one third threshold when combined with other deductions.

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New proposals in the Business Laws (Amendment) Bill, 2024 published on 1st November, 2024 seek to regulate non-deposit taking institutions under both the Microfinance Act and the Central Bank of Kenya Act (“CBK Act”). The proposed amendments to the CBK Act aim to expand the definition of digital credit providers (“DCPs”) to include non-deposit taking microfinance banks. If enacted, non-deposit taking microfinance banks currently regulated under the Microfinance Act could be considered DCPs and therefore fall under the purview of the CBK. The CBK has been advocating for an expanded regulatory mandate to oversee all credit providers, aiming to tackle issues such as excessive interest rates, unfair debt recovery practices, and misuse of the data of borrowers. However, the proposed changes have triggered debate as non-deposit taking microfinance banks risk being subject to dual licensing under two separate legal frameworks creating potential duplication in licensing and compliance requirements.

For substantive legal advice on this and other legal matters, please contact us through advocate@lexgroupafrica.com

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