Share buyback refers to the repurchasing of shares by the company that issued them. The repurchase is often made from the company’s existing shareholders, usually at a price near to or higher than the prevailing market price. Upon the conclusion of the buyback transaction, the repurchased shares are either classified as treasury shares or are cancelled. Where the company’s shares are classified as treasury, that portion of shares of a company are kept in the Company’s own treasury and are not available to the public. As a result, the number of outstanding shares in the market are reduced.
Share buy backs are known to be more prevalent in the US than in other markets, although recent trends show that the concept has been embraced in Europe as well as in Asia, with Japan experiencing a number of share buy-back transactions in recent years. Following a ravaging pandemic that affected the world’s major economies, in the US as in other markets, several companies have announced share buy backs in 2021 and more are projected to follow. A number of multinationals including AMD, Apple and American business magnate Warren Buffett’s Berkshire Hathaway, have recently embarked on large stock buyback transactions.
Companies buy back their own shares for various reasons. Alongside dividend pay-outs, share buybacks are one of the common ways for companies to share their wealth with investors since they not only cause price appreciation, but also increase investors’ ownership stake due to the reduction in the number of outstanding shares. Once bought back, the shares no longer get dividends, voting rights and are not included in calculating earnings per share (EPS). Buybacks are also used to distribute excess cash conveniently to shareholders. In addition, they are used to avoid threats of possible hostile takeovers. Furthermore, share buy backs are resorted to, in order to absorb increases in shares outstanding that has arisen from previous employee stock options or and/or to utilize extra cash by using the repurchases in lieu of special dividends.
Share Buy Back in Kenya
Share buy backs have not been a common phenomenon in Kenya. The first one since the enactment of the Companies Act, 2015 is the ongoing share buyback by Nation Media Group (NMG). In late May, NMG Board of Directors recommended that the firm’s shareholders effect the Share Buyback plan by way of open market purchases through on the Nairobi Securities Exchange. The Company is proposing to buy back up to 10% of the issued shares (about 20,739,652 shares). The transaction is awaiting shareholder approval at the Company’s AGM slated for later this month.
It is anticipated that more companies will be considering share buy backs in the coming future, for various reasons highlighted above. For these companies, one of the questions they may have to deal with is what the legal framework on share buy backs is in Kenya. We address this below.
The law on Share Buy backs in Kenya
The primary law on share buy backs in Kenya is the Companies Act, 2015. Part XVI of the Act contains provisions on acquisition by limited company of its own shares. Salient requirements under that part include the following:
i. General Restrictions for buy backs by limited companies.
As a general rule, section 424 of the Act provides that a limited company shall not acquire its own shares, whether by purchase or otherwise except as otherwise permitted. Section 447 of the Act permits a limited company having a share capital to purchase its own shares, subject to the law and any restriction or prohibition in the company's articles. Instructively, a limited company may not purchase its own shares if as a result of the purchase, there would no longer be any issued shares of the company other than redeemable shares or shares held as treasury shares. This means that the company cannot buy all its shares back. In addition, a limited company may only purchase its own shares if they are fully paid.
ii. Financing of the Buybacks.
There are restrictions as to the financing of the share buybacks. Under section 449 of the Act, a listed company may only buy back its shares out of the distributable profits of the company or the proceeds of a fresh issue of shares made for the purpose of financing the purchase. Companies are however permitted to pay for the buy backs from capital but upon compliance with very stringent requirements under the Act. Notably, these restrictions as to the financing of the buy-back do not apply to private companies unless their articles of association adopt them.
iii. Mode of executing the Buy Back.
Under Kenyan law, the company may only purchase its shares through two ways. Firstly, it may purchase through an off-market purchase. This may be effected under a contract approved in advance through a prescribed special resolution of the company. In the alternative, the company may purchase the shares through a market purchase subject to approval of the shareholders through a prescribed resolution. If the buyback is by way of a market purchase, the purchased shares are required to be held and dealt with as treasury shares under part XXI of the Companies Act. In any other case, the Act requires that the shares are cancelled and the amount of the company's issued share capital is diminished by the nominal value of the shares cancelled.
iv. What Happens if the Company fails to purchase its shares?
Like the case in many other jurisdictions, companies that announce proposals for share buy backs are not tied down to follow through. Under section 484 of the Act, a company that agrees to purchase its own shares is not liable in damages for failing to redeem or purchase any of the shares.
v. Filing of returns upon acquisition.
Section 464 of the Act requires that within 14 days after a company purchases shares, it shall lodge with the Registrar for registration a prescribed return. In the case of a public company, the return must specify the aggregate amount paid by the company for the shares and the maximum and minimum prices paid in respect of shares of each class purchased among other details.
CMA Regulation and Approval.
For listed companies, the approval of CMA is required in accordance with the Listing and Disclosure Regulations. CMA has formulated draft guidelines on share buybacks for listed companies but these are yet to come into force. The draft Guidelines require that prior to the making of the proposal for the buyback to shareholders, the company is required to circulate a CMA- approved circular detailing all terms and conditions of the proposed share buyback. In the event of an intended off-market purchase, the draft share buyback contract shall be submitted to CMA accompanying the shareholders’ circular for CMA approval, in line with the requirements of private transactions. Though in draft form, the Guidelines outline CMA’s understanding of the requirements in the Act and they seem to have informed the processes that NMG followed in the buyback proposal.
In this article, we have provided an overview of the concept of share buy backs. We have also outlined, in brief, the applicable law on share buy-backs in Kenya. It is anticipated that more listed companies will consider share buy backs in the coming months and years, given the positive projections of growth of the economy following the resurgence of the markets after the covid-19 pandemic.
Article by Enock Mulongo
This publication is for information purposes only. For substantive legal advice, do not hesitate to contact us on our official contacts.
The Ministry of Transport, Infrastructure, Housing, Urban Development and Public Works on 20th April 2020 published the National Construction Authority (Defects Liability) Regulations, 2020. The Regulations, which have received opposition from contractors and lobby groups in the construction industry, aim at conferring protection to developers of commercial properties by regulating the industry limitations on period within which a contractor may be liable for flaws during construction. Prior to the Regulations, model construction contracts used in the construction industry provided for a patent defect liability period in six months from the practical completion date while providing none for latent defects. The Regulations have introduced a latent defect liability period which is geared towards protecting commercial building owners from concealed structural flaws that may not be detectable during the ordinary patent defects liability period, which has itself been extended.
Patent Defects Liability Period
The interpretation section of the Regulations defines a patent defect to mean a defect which is detectable upon reasonable inspection during the construction period and can be notified to the contractor either before practical completion or during the defect liability period. Notably, unlike the current industry practice where practical completion is defined to mean the date when the architect issues their certificate of completion, the Regulations define practical completion date to mean the date when the certificate of occupation is issued by the County Government.
The regulations provide that every contract for the construction of a commercial building shall prescribe a patent defects liability period and this period shall be a minimum of twelve months after practical completion. During this period, a contractor, a relevant professional and a sub-contractor shall be liable for the rectification of the patent defects. During this patent defect liability period, the owner and the contractor, relevant professional or sub-contractor, shall jointly prepare a schedule specifying the patent defects identified. Then the contractor, relevant professional or sub-contractor, shall rectify the respective defects specified in the schedule. Upon doing this, the owner shall certify that the defects identified have been rectified.
Latent Defects Liability Period
A latent defect has been defined in the interpretation section to mean a concealed structural flaw in a commercial building or fixed installation that exists but is not apparent or readily detectable during the latent defects liability period. The Regulations provide that every contract for the construction of a commercial building shall prescribe a latent defects liability period and the period shall be a minimum of six years from completion of the patent defects liability period. The Regulations impose liability on a contractor for the rectification of patent defects that become apparent during the latent defects liability period. The relevant professional shall also be liable for the rectification of such patent defects. This has received a lot of criticism from professionals in the construction sector as well as the contractors’ lobby group who argue that the period is unreasonable as it extends this liability beyond the globally agreed timeframes. The regulations prescribe that a sub-contractor shall be liable for the rectification of patent defects that become apparent during the latent defects liability period.
Insurance Cover for Latent Defects
The Regulations obligate a contractor to obtain insurance cover for latent defects that may become apparent during the latent defects liability period. A relevant professional is also obligated to obtain a professional indemnity cover for latent defects that may become apparent during the latent defects liability period. A sub-contractor shall obtain insurance cover for latent defects that may become apparent during the latent defects liability period.
In addition, every owner of a commercial building is required to insure the commercial building at all times against structural damage attributable to him/her.
The Regulations have come into place to regulate defect liability in commercial buildings and to ensure that these buildings meet the required standard quality. On the other hand, developers have raised their concerns about the new law saying that prolonging the defect liability period would increase the cost of construction as contractors’ payments valued at five percent on a project’s cost would be withheld further thus hurting cash flows. It is also not clear the regulations are limited to commercial buildings only, without extending to residential buildings that have received most public scrutiny due to occasional building collapses especially in the middle and informal settlements in Nairobi.
It is important to note that the Regulations seem to have been passed without a comprehensive stakeholder participation. They are also silent on whether they apply to existing contracts. There is need for a review of the agreements to take into account the concerns raised by the stakeholders in the construction industry as is required under the law. While that happens, practitioners preparing and reviewing construction contracts relating to commercial buildings will need to consider these regulations when reviewing or drafting the standard building contracts to ensure compliance.
The Finance Bill, 2021 (“the Bill”) was published on 5th May 2021. It aims to amend various laws relating to taxes and duties including the Income Tax Act, Value Added Tax Act, Excise Duty Act, Tax Procedures Act, Miscellaneous Fees and Levies Act, Capital Markets Act, Central Depositories Act, Kenya Revenue Act, Insurance Act and the Retirement Benefits Act.
We have highlighted below the major amendments proposed by the Bill:
1. Income Tax Act, Cap. 470
Some of the amendments proposed to the Income Tax Act include:
a. Expansion of the application of Digital Service Tax
The Bill proposes to expand the application of income tax to all income accrued from business carried out over the internet or electronic network. The current provision, in comparison, only imposes income tax on income accrued through a digital marketplace.
The Bill also proposes a new definition of digital marketplace to mean an online platform that enables users to sell or provide services or goods to other users. The current definition states that it is a platform that enables buyers and sellers to interact through electronic means, which is ambiguous in interpretation.
If the Bill is passed, the implication of this broadened definition would be to widen the tax base that will be subject to Digital Service Tax.
b. Digital Service Tax (“DST”) charged on non-resident persons only
Another proposal is for DST to be charged on non-resident persons only. However, DST will not apply to income that is subject to withholding tax or income from non-residents in telecommunication or broadcasting business.
The rationale behind this proposal is that resident persons earning income through online platforms are already subject to income tax and should therefore not be charged DST.
Though the current provision allows residents to offset the DST payable against their income tax, the new proposal simplifies the process of preventing double taxation and will therefore be a welcome relief to many residents running businesses in the digital marketplace.
c. Removal of time-limit on carry forward of losses
The Bill also proposes to remove the 10-year limit provided for the carry forward of taxable losses. The proposed change would enable taxpayers to offset taxable losses against future profits until they are fully exhausted which will be a great opportunity for many businesses to recover from their losses especially following the negative impact of the COVID-19 pandemic.
d. Tax Relief on NHIF Contributions
The other major proposal in the Bill is the introduction of tax relief to persons who contribute to the NHIF. The proposed tax relief will be equivalent to 15% of the premium paid with a monthly limit of Kshs. 5,000/=.
This change will benefit all employees in Kenya since NHIF is mandatory. It will also encourage those who are self-employed to make contributions to NHIF.
e. Expansion of tax relief for apprenticeships
Employers who engage students from technical and vocational education centres for apprenticeship also stand to benefit from the Bill. It proposes that such employers enjoy tax rebates equal to 50% of salaries paid if they hire at least 10 apprentices for a period of 6-12 months Currently, only employers who engage university students enjoy this tax rebate.
f. Additional Reporting for Multinational Companies
An Ultimate Parent Entity of a Multinational Enterprise Group will be required to submit to KRA the group’s financial returns of its activities in Kenya and in other jurisdictions where the group has a tax presence. The return should be made within 12 months after the last day of the group’s financial year. An Ultimate Parent Entity is defined as an entity that is resident in Kenya for tax purposes, is not controlled by another entity, and owns and controls a multinational enterprise group. If passed, this proposal would enhance transparency and disclosure by companies.
Other amendments proposed by the Bill include new definitions of the words ‘control’, ‘permanent establishment’ and ‘infrastructure bond’.
2. Value Added Tax Act, 2013 (“VAT Act”)
The proposed amendments to this VAT Act include:
a. Expansion of the definition of digital services
Similar to the amendment proposed to the Income Tax Act, the Bill proposes to expand the definition of digital services to include supplies made over the internet or electronic network. This will increase the tax base upon which VAT will be charged including supplies made on social media platforms. Currently, only supplies made through a digital marketplace are subject to VAT.
b. Taxation of Bread
Currently, bread is a zero-rated commodity, meaning that it is not subject to VAT. If this proposal is passed, VAT will be imposed on bread which will result in an increase in the price of bread since the tax will likely be passed on to the consumers.
c. Further restriction on claiming input VAT
The Bill proposes to create an additional restriction on claiming of input VAT. A registered person will not be allowed to deduct input VAT if it relates to the leasing or hiring of passenger cars or mini buses and the repair and maintenance thereof including spare parts. The current provision only prohibits deduction if it relates to the acquisition of the passenger cars and mini buses.
d. Acquisition of medical equipment exempt from VAT
The Bill proposes some medical equipment to be exempt from VAT which is likely to reduce the cost of medical care and also improve the provision of healthcare services in the country.
e. Zero-rated to Exempt Services
The Bill seeks to change the VAT status of exported services and transfer of assets into REITs and Asset-Backed Securities from zero-rated to exempt supplies. This proposal is aimed at reducing the claims for VAT refunds that arise from the zero-rated status of these services.
3. Excise Duty Act, 2015
The Bill seeks to introduce a provision that allows licenced internet data providers to offset the excise duty paid on the purchase of data in bulk for resale against the excise duty that would be payable on the supply of the internet data services to the final consumer.
Further, the Bill seeks to reintroduce excise duty on betting at a rate of 20% of the amount wagered or staked. This provision had been removed by the Finance Act 2020.
The Bill also proposes to impose excise duty on fees and commissions earned on loans.
4. Tax Procedures Act, 2015
The following amendments are proposed to the Tax Procedures Act, among others:
a. Increase in period of record keeping and assessment – The Bill proposes to increase the period of record retention from 5 years to 7 years. This proposal is in line with the provisions of the Companies Act on record keeping. It also proposes to extend the period within which KRA or a person can amend their filed tax return from 5 years to 7 years.
b. Introduction of Common Reporting Standards (CRS) – The Bill proposes a mandatory requirement for financial institutions, resident in Kenya or with foreign branches in Kenya, to report to KRA reportable accounts specified by the CRS Regulations that will be developed and published by the Cabinet Secretary, National Treasury. The aim of this proposal is to enhance disclosure and compliance.
c. Non-resident’s reporting currency – Non-residents carrying out business in a digital marketplace are exempt from maintaining financial records in Kenya Shillings and are allowed to maintain them in convertible foreign currency(ies).
d. Removal of Withholding VAT exemption – It is proposed that all provisions of the Act that allow KRA to exempt suppliers with VAT credits for at least 2 years from Withholding VAT be deleted.
e. Digital Service Providers to have KRA PIN - The Bill proposes to impose a requirement for digital service providers to have a KRA PIN. This implies that all digital service providers who have income accrued in Kenya, including non-residents will have to be registered for tax in Kenya.
5. Capital Markets Act, Cap. 485A
The Bill seeks to introduce a 90-day period within which appeals before the Capital Markets Tribunal should be heard and determined. If passed, this will expediate the resolution of matters before the Tribunal.
6. Insurance Act, Cap. 487
The Bill proposes a new definition of broker to include foreign reinsurance broker despite the fact that they do not undertake direct insurance business or do not have a place of business in Kenya. This amendment would grant the Insurance Regulatory Authority (“IRA”) power to supervise and regulate foreign reinsurers brokers who are currently not regulated.
The Bill also proposes to introduce a prescribed annual fee for all insurers licenced under the Act. The aim of this amendment is to enable the IRA increase its source of revenue given that insurers are no longer required to renew their registration annually and therefore the IRA no longer receives annual renewal of registration fees.
7. Retirement Benefits Act, 1997
The main amendment proposed to this Act is the registration and regulation of corporate trustees that provide services to pension schemes by the Retirement Benefits Authority (“RBA”). The proposed amendment is aimed at promoting proper supervision of corporate trustees by the RBA.
8. Central Depositories Act, 2000
The Bill proposes the following amendments to this Act:
a. Definition of beneficial owner and legal owner – These definitions are in line with the Companies Act 2015 and the new Regulations on Beneficial Ownership Registers and they will promote the regulation of investors;
b. Definition of authorized nominee and omnibus account – An authorized nominee is a person appointed by a legal or beneficial owner of securities to open a Central Depository Systems account (“CDS account”) and transact on their behalf. Such authorized nominee can open a CDS account on behalf of two or more legal or beneficial owners in which case the account will be referred to as an omnibus account;
c. Provisions on the appointment and duties of an authorized nominee.
The Bill went through the First Reading in the National Assembly on 11th May 2021 and has 3 more stages of review in the National Assembly before it is submitted to the President for his assent.
Article by Ivyn Makena and George Ngatiah
Published on June 11, 2021
The Finance Act 2019 introduced VAT at the rate of fourteen percent of the taxable value of the taxable supply. Subsequently, the Cabinet Secretary for National Treasury and Planning has proposed the Draft Value Added Tax (Digital Marketplace Supply) Regulations, 2020 (“Draft Regulations”). The Draft Regulations are intended to provide for the mechanisms for implementing VAT on supplies made through a digital marketplace (which is defined as any supply of a service made over a platform that enables the direct interaction between buyers and sellers of services through electronic means).
While the Draft Regulations are yet to be passed, we note that Kenya Revenue Authority (“KRA”), through a press release dated 23rd April 2020, directed business owners trading on digital platforms to charge VAT on their transactions and remit the taxes to KRA. The Commissioner for Domestic Taxes further stated that all non-compliant traders will be penalized for failure to charge VAT as required by law.
Overview of the Draft Regulations
Scope of Taxable Supplies
The digital supplies that are to be subject to VAT include among others, electronic services, downloadable digital content such as mobile applications, e-books and movies, Subscription-based media such as news, magazines, podcasts, TV shows and music streaming, online gaming, Software programs such as downloading software, drivers, website fillers and firewalls, Electronic data management such as website hosting, file sharing, cloud storage, Supply of music, films and games, Supply of search-engine and automated helpdesk services, Supply of digital content for listening, viewing or playing on any audio, visual or digital media, Supply of services on online marketplaces that links the supplier to the recipient such as Uber, Jumia and tickets purchased through the internet for live events.
Registration of Suppliers of Digital Services
Suppliers of digital services are required to register for VAT in Kenya if the supplier is from a foreign country but supplies services to a customer in Kenya. The registration requirement also applies to a supplier whose place of business is not in Kenya but the recipient of the supply in Kenya, the payment for the supply emanated from a bank registered in Kenya, or the recipient has a business, residential or postal address in Kenya.
Simplified VAT Registration Framework
The Draft Regulations provide for an online simplified VAT Registration framework to be used by digital marketplace suppliers from foreign countries (“foreign suppliers”). Registration is mandatory and should be done within thirty days from the publication of the Regulations. Any such supplier who experiences difficulties with the system is required to appoint a tax representative to account for the VAT on their supplies. In case a foreign supplier makes an over declaration or an under declaration through this system, amendments to the return can be made. If it is an over declaration, the amount overpaid will be retained as a credit to be offset against VAT payable in subsequent tax periods.
Time of Supply for purposes of Payment of Tax
The Draft Regulation specify the time of supply as being the earlier of the date of payment, in whole or in part or the date on which the invoice or receipt for the supply is issued. The supplier is required to submit a return and remit the tax due on or before the 20th day of the month succeeding that in which the tax became due
The liability of remitting the VAT lies on the supplier including foreign suppliers. However, if the latter has a tax representative, the tax representative will be liable. A supplier may also work with an intermediary who facilitates the supply of services through the digital marketplace and who is responsible for issuing invoices and collecting payments for the supply on whom the liability of remitting tax and returns will lie.
Suppliers are required to generate an ETR Receipt. However, foreign suppliers are exempt from this requirement provided they issue an invoice or receipt showing the value of the supply and tax deducted.
Further, a foreign supplier is required to submit a record of all the supplies made in Kenya indicating the value of the supplies and VAT deducted, for every tax period.
Claim for Input Tax
Deduction of input tax will not be allowed under the simplified VAT registration framework.
Offences and Penalties
A supplier who fails to comply with these regulations will be restricted from accessing the digital marketplace until such obligations are fulfilled in addition to the penalties prescribed under the Act.
While the obligation to charge VAT for supplies made through a digital marketplace has existed since 2019, the appropriate mechanisms are yet to be put in place to facilitate the charging and collection of the tax. The Draft Regulations are therefore geared towards providing the mechanisms for implementing said taxation particularly for foreign suppliers. It is likely that foreign suppliers will be discouraged from providing digital services to the Kenyan market because of the restrictive mechanisms intended to be imposed on them, for example, their inability to claim input tax or get VAT refunds. However, the Draft Regulations are necessary to enable the government facilitate the collection of VAT from business owners trading through a digital marketplace.
Ivyn Makena and Pauline Njau
DATA PROTECTION IN ACTION: HOW THE DRAFT DATA PROTECTION (GENERAL) REGULATIONS 2021 AIM TO PROTECT YOUR PERSONAL DATA
The Draft Data Protection (General) Regulations, 2021 (“the Draft Regulations”) were recently published for public consultation by the Communications Authority of Kenya. They elaborate the rights and duties of the data subjects, data controllers and data processors, and also provide the procedures for enforcement of the said rights and duties.
Data subjects are individuals whose personal information is collected while data controllers are the individuals or entities that determine the use and mode of processing the personal information collected from data subjects. Data processors, on the other hand, are individuals or entities that process the personal information collected, on behalf of data controllers.
We highlight the salient provisions of the Draft Regulations below.
- B. REVIEW OF THE DRAFT REGULATIONS
- Enabling the Rights of Data Subjects
The Draft Regulations require that data subjects are informed by data controllers/processors through notice of the following:
- nature and scope of the personal data to be processed;
- the reasons for the said processing;
- confirmation on whether the data will be shared with third parties.
Data processors and controllers are also required to ensure that:
- the data subject has capacity to understand and communicate their consent - consent cannot be presumed on the basis that the data subject did not object and cannot be implied where the intention of the data subject is ambiguous or doubtful;
- the nature of processing is explained in an understandable language to the data subject;
- Data is voluntarily given by the data subject;
- Data is specific to the data subject.
Further, data subjects have the right to request for data portability, access, restriction and objection to their data processing as well as deletion/rectification of their personal data held by data processors or controllers. If any request by a data subject is rejected, data processors are required to notify them promptly and give sufficient reasons for the refusal.
Data processors are also required to act in the best interests of data subjects despite receiving consent to use and process their personal data.
- Restrictions on the Commercial Use of Personal Data
The Draft Regulations classify the sending of electronic messages, catalogues and display of adverts on online media sites of data subjects as a form of direct marketing. They, therefore, require data subjects to be given prior notice of the intended use of their personal data for commercial purposes. On receipt of the notice, data subjects can object to the use of their personal data for marketing by third parties. Sensitive personal data and personal data belonging to minors is excluded from direct marketing by the Draft Regulations.
Additionally, data processors are required to have an op-out system, and to make it simple, easily understandable and place it in a conspicuous place that is easily visible for use by data subjects. Direct messages should contain a single sentence notifying data subjects that they can opt out of future messages by responding to the direct messages by using one word, and the unsubscribe link in an email should be prominently located. With respect to phone calls, data subjects should be informed that they can verbally opt-out of future calls.
- Obligations of Data Processors and Controllers
The Draft Regulations require data processors to have a personal data retention schedule that sets out the purpose for retention of data, the retention period and a provision for periodic audit(s) of personal data. Where a data subject requests for their personal data to be anonymised or pseudomised, the data processor is under obligation to consider the request.
Where the sharing of personal data by data processors or controllers is on a regular basis, they should enter into a written agreement with data subjects prior to the sharing. Further, where data processors are involved in automated data processing (i.e., processing without human involvement), data subjects should be informed of the same and of their right to object to any profiling for marketing purposes. The system used for automated processing should be sound, accurate and non-discriminative.
Additionally, the Draft Regulations provide that any server used for processing personal data for actualising public goods or services, such as education or elections, must be located in Kenya. Data processors that do not perform such activity may also be required by the Data Commissioner to move their servers to Kenya where there is a breach that violates the Data Protection Act (“Act)) or if they fail to co-operate with the Data Commissioner during an investigation.
- Notification of Data Breaches
The Draft Regulations set out the types of breaches that amount to notifiable breaches, including instances where a data subject’s identification details that are not publicly available are unduly revealed, and disclosure of personal credentials such as passwords used to access electronic or online systems or accounts. Such notification to the Data Commissioner should include the scope and extent of the breach and steps taken to mitigate the same.
- Cross-border Data Transfer
The Draft Regulations provide that transfer of data outside Kenya should only be done under written agreements with data subjects that set out the obligations therein. Moreover, data processors should ensure that the legal regimes for data protection binding the transferee are at least the same as under the Act and its attendant Regulations. For this purpose, countries that have ratified the African Union Convention on Cyber Security and Personal Data Protection, or have a reciprocal data protection agreement with Kenya or an adequate data protection law are presumed to have sufficient safeguards.
- Data Protection Impact Assessment
Under the Draft Regulations, when data processors engage in activities that constitute high risk in relation to personal data, they are required to undertake a detailed Data Protection Impact Assessment as set out in the guidelines. These high-risk activities include automated decision making with legal or similar significant effects, processing of biometric or genetic data, and processing of sensitive personal data or data relating to children or vulnerable groups.
From the foregoing, it is apparent that efforts have been made to substantively implement the provisions of the Data Protection Act. Public participation is ongoing and it is expected that this will result in changes being introduced in the Draft Regulations.
Article by Pauline Njau & James Karuga
The world is going digital. The advances in technology have revolutionized how things are done around the world. Nowadays, most communications between parties, such as exchange of documents, are done electronically. This is especially very convenient in cross-border transactions.
Recently, the President of the Republic of Kenya assented to the Business Laws (Amendment) Act, 2020 (the “Act”). The Act amended several statutes with the aim of facilitating the ease of doing business in Kenya. A number of amendments introduced by the Act have now reinforced the use of digital and electronic signatures in legal transactions. The amendments are timely in the wake of the surging COVID-19 pandemic. We comprehensively discussed the key amendments introduced by the Act in our previous article.
This article delves deeper into the law on electronic and digital signatures in Kenya.
- Electronic vs. Advanced Electronic (digital) signatures
It is worth noting that while electronic and digital signatures are often used to mean the same thing, the two are different. The Kenya Information and Communications Act (KICA) defines an electronic signature as data in electronic form affixed to or logically associated with other electronic data which may be used to identify a signatory in relation to the data message and to indicate the signatory’s approval of the information contained in the data message.
Advance electronic signature (digital signature) on the other hand is defined by KICA as a type of electronic signature which meets the following requirements:
- must be uniquely linked to the signatory;
- is capable of identifying the signatory;
- is created using means that the signatory can maintain under his sole control; and
- is linked to the data to which it relates in such a manner that any subsequent change to the data is detectable.
Therefore, electronic signatures can range from a simple electronic signature represented in a form of a scanned signature of a person as an indication of a name of a sender (not encrypted) to a digital signature that is based on cryptographic authentication of a sender by technological means in a form of a coded message or an encrypted data. This means that while digital signatures are a form of electronic signature, not all electronic signatures are digital signatures.
Legal recognition of electronic signatures
In Kenya, the law recognizes the use and validity of advance electronic signatures. Section 83P of KICA provides that where any law provides that information or any other matter shall be authenticated by affixing a signature or that any document shall be signed or bear the signature of any person, then such requirement shall be deemed to have been satisfied if such information is authenticated by means of advanced electronic signature affixed.
The Act further provides that Understanding the Use of Electronic Signatures in Kenyafor an advance electronic signature to be reliable, the following conditions must be met in addition to the ones discussed above:
- it must be generated through a signature creation device;
- the signature creation data must be linked to the signatory and to no other person;
- the signature creation data were under the control of the signatory at the time of signing;
- any alteration to the electronic signature made after the time of signing is detectable; and
- where the purpose of the legal requirement for a signature is to provide assurance as to the integrity of the information to which it relates, any alteration made to that information after the time of signing, is detectable.
Further, in order to reinforce the validity of an electronic signature, parties to a contract may agree to its use by including a provision on the same in the contract.
In Kenya, advanced electronic signatures/certificates are issued by certification service providers licensed by the Communications Authority of Kenya
Proving validity of electronic signatures
The Evidence Act provides that except in the case of a secure signature, if the electronic signature of any subscriber is alleged to have been affixed, then the fact that such an electronic signature is the electronic signature of the subscriber must be proved.
Further, in order to ascertain whether an electronic signature is that of a person by whom it purports to have been affixed, the court may direct that the person or a certification provider to produce the electronic signature or any other person to apply the procedure listed on the electronic signature certificate and verify the electronic signature purported to have been affixed by that person.
Parties should embrace the use of electronic signatures as it enhances speed and efficacy of legal and commercial transactions. However, to avoid risks associated with electronic signatures such as forgery, it is important for parties to create measures to properly secure their electronic signatures to avoid misuse.
By Audrey Seur
On nearly a daily basis, you often are required to provide information about yourself that is personal. You walk into an office of a service provider,
The Landlord and Tenant Bill 2021 dated 12th February 2021 (“the Bill”) is sponsored by Majority Leader Amos Kimunya and is currently undergoing review in Parliament. The Bill seeks to consolidate all the laws on residential and commercial tenancies and to ensure regulation of the rental sector in Kenya.
The main objectives of the Bill are:
- To repeal the Distress for Rent Act, the Rent Restriction Act, and the Landlord and Tenant (Shops, Hotels, and Catering Establishments) Act;
- to consolidate the laws relating to renting of business and residential premises; and
- to introduce a legal framework which balances the interests of landlords and tenants aimed at promoting the sustainable growth of the rental sector in Kenya.
We have discussed the salient features of the Bill below.
- B. OVERVIEW OF THE BILL
- Scope of Application of the Bill
If passed, the Bill will apply to:
- tenancies of all residential premises except the following:
- excepted residential premises;
- residential premises let on service tenancies, that is, premises let by a landlord to an employer who provides the same premises to an employee in connection with their employment; and
- residential premises whose monthly rent does not exceed the amount prescribed by the Cabinet Secretary.
tenancies of business premises that meet the following conditions:
- Not in writing;
- In writing but have an express provision allowing for the tenancies to be terminated before the end of 5 years for reasons other than breach of covenants in the tenancies.
- Establishment of Regulatory Tribunals
The Bill gives the Chief Justice power to establish related tribunals with mandates and jurisdiction over prescribed areas including:
- resolution of disputes amongst landlords and tenants;
- authority to determine, assess, and apportion rent and service charge payable;
- making orders that are incidental to the rights and obligations of landlords and tenants such as ordering a landlord to repair premises, reinstate a wrongfully evicted tenant, etc;
- power to investigate complaints from landlords or tenants or in the tribunals’ own motion.
The decisions of the tribunals are binding on the parties and failure to act on their orders amounts to an offence punishable by a fine not more than Kshs. 100,000/= or to imprisonment for a term not more than 12 months, or both.
3. General Provisions
The following crucial provisions in the Bill are worth highlighting:
- a. Rent Increase and Decrease
The Bill recognizes that rent payable in tenancies is a matter determined by mutual agreement by the parties. However, where parties fail to agree on the rent payable, the tribunals established under the Bill can determine the fair rent payable.
The Bill also seeks to regulate any increase or decrease of the rent payable in tenancies. Rent can only be increased after 12 months for residential premises and 24 months for business premises. This is from the commencement of tenancy or from the date of the last increase in rent under the same tenancy.
The increase has to be justified and should be based only on capital expenditure incurred, increase in land rates of the property or the inflation rates in the country’s economy.
Further, for an increase of rent to be valid, the landlord has to serve a 90-day notice to the tenant of the intention to increase rent. Failure to serve the notice will render the increase ineffective. The tenant has a right to object to the notice given by the landlord within 30 days or it will be deemed an acceptance of the increase in the rent payable.
The Bill also mandates landlords to decrease rent payable proportionally if they cease to provide a given service with respect to the tenancy.
- b. Termination of Tenancies
The Bill provides that either party may terminate the tenancy. A valid notice of termination of tenancy issued by either party must comply with the requirements set out in the Bill. Landlords are required to give tenants at least 24-months’ notice of termination for business premises and 12-months’ notice for residential premises where they intend to terminate the leases, before expiry of the lease term, for reasons other than breach of covenant by the tenants. Where the tenants are in breach of a covenant, and that forms the ground for termination by the landlords, the landlords are required to serve notice in the prescribed form. These notices of termination have to be filed with the Tribunal.
Despite this, a landlord may terminate a tenancy in the following ways:
- in good faith, by giving a 60-day notice to the tenant if the premises are needed for possession by the landlord, their spouse, their children or their parents;
- by giving a 120-day notice to the tenant if the landlord needs to demolish the premises, convert them to other use other than change of user, or carry out extensive renovations on the premises.
A notice of termination of tenancy may be challenged by referring the matter to the Tribunal for determination. If the tenant does not vacate the premises pursuant to the landlord’s notice to terminate, the landlord may apply to the tribunal for an order to terminate the tenancy and to evict the tenant.
c. Other Terms
The Bill also has provisions governing the following:
- variation of terms and conditions of a tenancy;
- subletting of premises;
- the landlord’s responsibility to keep records of tenancy and rent payment and share the same with the tenant;
- eviction and reliefs from unlawful eviction;
- protection of tenant’s property from illegal distress for rent and illegal evictions;
- landlord’s remedies upon abandonment of the premises by tenant or death of a tenant; and
- penalties for breach of the provisions of the Bill.
As seen above, the Bill proposes to regulate the relationship between Landlords and Tenants in various ways including rent increases and termination of tenancy which would effectively reduce the power of landlords over tenants.
Article by Sheila Mutiga and Judy Marindany
The Tax Laws (Amendment) Act, 2020 was assented to on 25th April 2020. The Act was enacted to shield Kenyans from the economic and financial effects arising from the Covid-19 pandemic and makes changes to various tax laws in Kenya. In this write-up we set out specific amendments made to the Income Tax Act (“ITA”).
Reduced Corporate Income Tax Rate: Corporate income tax rate for resident companies was reduced from 30% to 25%. This will apply from the 2020 year of income. Instructive to note, the reduced rate does not apply to Non-resident companies which rate remains at 37.5%.
Preferential Tax Rates for Newly Listed Companies: The preferential tax rates which applied to newly listed companies on the Nairobi Securities Exchange (NSE) for a defined period of time have been repealed. The rates ranged from 20% to 27%. This could be as a result of the reduced corporate income tax rate as discussed above.
Companies Operating as Plastics Recycling Plant: These companies were subject to a lower corporation tax rate of 15% for the first five years from the date of operation. The rate has now been increased to 25%.
Turnover tax: Turn over tax as initially introduced was simply a tax payable by small businesses whose gross sales does not exceed or is not expected to exceed Kshs. 5 million per year. The changes introduced in respect to turnover tax include:
- Alteration of the annual income threshold for turnover tax to between Kshs.1 million and Kshs.50 million;
- Application of turnover tax to incorporated companies (previously, it was only payable by unincorporated persons); and
- Reduction of turnover tax rate from 3% to 1% with an attendant reduction of the penalties for late payment.
The amendments are aimed at addressing cash flow challenges experienced by small and medium enterprises during the period of the pandemic. The inclusion of incorporated entities is a positive development as most small and medium enterprises are now trading in various registered entities for their legal and financial purposes.
Presumptive Tax: Presumptive tax is a simplified tax regime for small and micro enterprises based on the value of single business permit or a trade license issued/renewed by County Government. The tax which was previously payable at the rate of 15% has been repealed.
Withholding Tax. Among other changes, the Act has extended the application of WHT to payments made to a non-resident person on account of sales, promotion, advertising and marketing services (at 20%); transportation of goods excluding air and shipping transportation services (at 20%) and reinsurance premiums except for reinsurance premiums in respect of aircraft (at 5%). In addition, the WHT for dividends paid to a non-resident person has been increased from 10% to 15%. These changes seek to tax income that was previously untaxed hence increasing government revenue. Notably, this is a short-term measure which can help the government raise revenues especially in this period. However, the government may need to review it in future as it may discourage non-resident investors which could result in reduced revenue for the government.
Deductibility of Expenses: The 30% electricity rebate that was introduced by Finance Act, 2018 effective January 2019 has been repealed. This was an incentive to manufacturing companies which have had to contend with high cost of power over the years. It is a blow that this has been repealed at a time when the government is seeking to improve the contribution of the manufacturing sector to the overall Gross Domestic Product.
Exemptions from Payment of Income Taxes: The Act has removed a number of exemptions previously granted under the ITA for incomes of several Government parastatals, certain diplomats, as well as on other sources. The exemptions include on compensating tax accruing to a power producer under a power purchase agreement, interest earned on contributions paid into the deposit protection fund established under the Banking Act, dividends paid by a Special Economic Zone (SEZ) enterprise, developer or operator to a nonresident person, gains arising from trade in shares of a venture company earned by a registered venture capital company among others.
Pay as You Earn (PAYE)
Individual tax rates- The individual tax rates bands have been expanded with a 100% relief for persons earning gross monthly income of up to Ksh. 28,000 and the amendment of the individual income tax rates with the highest rate of tax rate being reduced from 30% to 25%. In addition, the Act increased the individual tax relief from Kshs 16,896 pa. (Kshs 1,408 pm.) to Kshs 28,800 pa (Kshs 2,400 pm.). The amendments are aimed at translating into increased disposable income at this period of the pandemic.
Pension withdrawal tax rates: The Act has reduced the highest tax band on pension withdrawals from registered retirement funds to 25%, for amounts exceeding Kshs.1, 200,000 per annum. The Act has also widened the tax bands on income withdrawals from retirement funds before the expiration of 15 years in line with the individual tax rates for PAYE as discussed above. These amendments will help in increasing the disposable income available to retirees in an effort to alleviate financial hardships occasioned by the pandemic.
Although the National Assembly approved the reduction of income tax, it rejected some revenue-raising proposals earlier included in the bill. The reduced tax rates like PAYE and the corporation tax means reduced revenue to the government and the government may be forced to find other ways to recover the lost revenue and the Finance Bill, 2020 seems to contain some of these ways. A separate write up on the Bill will follow.
Article by Hillary Kariuki
New Changes to the Kenyan Business Laws: Here’s what you need to know
The Business Laws (Amendment) (No. 2) Act, 2021 (the “New Act”) was passed on 30th March, 2021. Its main purpose is to facilitate the ease of doing business in Kenya by reducing the costs and time spent on various transactions.
We have set out below a detailed review of major amendments to the various laws:
Law of Contract Act (Cap 23)
The New Act has amended the meaning of the term “sign” in Section 3 to include execution of Company documents in the manner outlined in the Companies Act 2015. According to the Companies Act 2015, a company can sign documents as follows:
- by the affixing of its common seal and witnessed by a director; or
- by two authorised signatories or by a director of the company in the presence of a witness who attests the signature.
Therefore, all contracts by a company which have to be in writing under this Act, must be executed as stated or they will not be valid.
Industrial Training Act (Cap 237)
Payment of training levies by employers will now be remitted at the end of the financial year of a business. Businesses are therefore not required to follow the government’s financial year or the calendar year.
Further, the payment should be made by the ninth day of the month following the end of the business’ financial year.
Stamp Duty Act (Cap 480)
Contracts which are considered to be conveyances on sale under Section 49 of the Stamp Duty Act will be exempt from the fixed duty of one hundred shillings, that was previously charged under the said Section of the Act.
National Social Security Fund Act, No. 45 of 2013
Section 27 has been amended to require employers to pay contribution to NSSF on the ninth day of the month to harmonize payroll deductions through the Unified Payroll Return.
Previously, they were collected on the first day of the month.
Companies Act, No. 17 of 2015
The definition of a general meeting has been expanded and the same can now be a physical, virtual or hybrid meeting which are defined as follows:
- Hybrid meeting - where some participants are in the same physical location while other participants join the meeting through electronic means;
- Virtual meeting - where all members join and participate in the meeting through electronic means.
For hybrid and virtual meetings, the notice of the meeting must specify the means of joining and participating in the meeting.
Paragraph 11 of Sixth Schedule of the Companies Act has been deleted. This section previously allowed the use of the official seal of an existing Company that had been obtained prior to the repeal of section 37 of the DDC.
Insolvency Act, No. 18 of 2015
The New Act has made the following amendments to the Insolvency Act, among others:
- Under Section 643, on obtaining a moratorium, company directors have to 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 set out why a moratorium is desirable 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.
- Additionally, Directors are now required to submit the financial statements to the Monitor for consideration and comment.
- A moratorium ends after thirty (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 giving 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.
Small Claim Courts Act, No. 2 of2016
Section 34 has been amended to provide a sixty-day (60) timeline for adjudication of small claims.
Article by Mary Ndung’u
 Section 37
In our previous article Ten Notable Changes to the Income Tax Act, we highlighted the salient amendments introduced by the Tax Laws (Amendment) Act, 2020 to the Income Tax Act, Cap 470. In this article, we have put together a comprehensive overview of some key amendments to the Value Added Tax Act, No. 35 of 2013, the Excise Duty Act, 2015, the Tax Procedures Act, 2015, the Miscellaneous Fees and Levies Act, 2016, and the Retirement Benefits Act, 1997.Value Added
Tax Act, No. 35 of 2013. The following changes are notable.
- Rate of VAT - The VAT rate was reduced from 16% to 14% with effect from 1st April 2020 through Legal Notice No. 35 of 26 March 2020 and was subsequently approved by Parliament on 14th April 2020.
- VAT on petroleum products under Section B, Part I of the 1st Schedule. Previously, the taxable value of the said petroleum products did not include excise duty fees and other charges. With the amendment, these charges shall be included in determining the taxable value of these products. It is expected that the increase in the taxable value of petroleum products will result in an increase to the final price charged to consumers.
- Issuance of credit notes - Prior to the amendment, the law required credit notes to be issued within 6 months after the issue of the relevant tax invoice. With the amendment, credit notes may now be issued either within 6 months after the issue of the tax invoice or within 30 days after the determination of the matter where there is a commercial dispute in court with regard to the price payable.
- Application for refund of tax on bad debts. The period for application of refund of tax for bad debts has been reduced to 4 years from the date of the supply.
- Keeping of records. Prior to the passage of the Act, the law required every registered person to keep a full and true written record of every transaction for a period of 5 years from the date of the last entry made. This requirement now applies to every person whether registered or not.
- Changes in VAT treatment. Several amendments have been to the Value Added Tax Act including standard rating a number of goods and services that were previously either zero-rated or exempt and also exempting a number of items that were previously zero - rated. Some of the goods that are now exempt from VAT include personal protective equipment used by medical personnel or the members of the public in case of a pandemic or a notifiable infection disease and vaccines for human and veterinary medicine and medicaments. The exemption of medicaments and vaccines may lead to increase in prices of these products as the pharmaceutical manufacturers will be unable claim input VAT incurred on their operations. Services such as insurance agency, insurance brokerage, securities brokerage services and asset transfers and other transactions related to the transfer of assets into real estate investment trusts and asset backed securities that were previously exempt from VAT are now subject VAT at the standard rate.
- Excise Duty Act, 2015
The Excise Duty Act has been amended by applying excise duty on some excisable supplies. These include goods imported or purchased locally for direct and exclusive use in the implementation of projects under special operating framework arrangements with the government, one personal motor vehicle (excluding buses and minibuses of seating capacity of more than eight seats) imported by a public officer returning from a posting in a Kenyan mission abroad and another motor vehicle by his or her spouse and which is not otherwise exempted from excise duty under item 6 of Part A of the Second Schedule. These were previously exempt from excise duty.
The Miscellaneous Fees and Levies Act, 2016. Two amendments to this Act are noteworthy. First, the Act introduces a processing fee of Kshs. 10,000/= on all motor vehicles excluding motorcycles imported or purchased duty free prior to clearance through customs under the relevant provisions of the East African Community Customs Management Act, 2004. It also imposes an Import Declaration Fee on gifts or donations (excluding motor vehicles) sent by foreign residents to their relatives in Kenya for their personal use, raw materials for direct and exclusive use in construction by developers or investors in industrial parks of 100 acres or more located outside Nairobi and Mombasa and goods imported for the construction of LP gas storage facilities.
Retirement Benefits Act, 1997
The Act generally prohibited the use of scheme funds to make loans to any person but allowed the use of a proportion of the benefits accruing to a member for securing a mortgage loan. In the new amendment, members of retirement schemes have now been allowed to access a portion of their benefits for purchase of residential houses. The draft Retirement Benefits (Mortgage Loans) (Amendment) Regulations, 2020 have now been formulated to specify the requirements and procedures that one would need to follow in order to access the benefits for house purchase. The amendment seeks to provide an avenue for financing the purchase of homes by using savings in retirement benefit schemes.
It is anticipated that the amendments will have a significant impact on doing business in the country. For instance, amendments to the Value Added Tax Act such as removal of exemptions may affect ongoing projects (such as power generation plants and oil exploration companies) that had already been granted VAT exemption. As explained above, other amendments may lead to an increase in cost to consumers. Further, the imposition of VAT on transfer of business as going concern may discourage commercial transactions and internal reorganizations due to the anticipated increased cost of acquisition and restructuring.
By Audrey Seur
Unclaimed assets are those assets which have been presumed abandoned or in respect of which there are conditions raising a presumption of abandonment.
John C. Maxwell wisely cautions that “Change is Inevitable and Growth is Optional”. This is evident in Estate Planning where one of the most frequent questions is “what happens to my Will if things change, or if I change my mind?”.
It is important to understand that Wills take effect only after the demise of the maker of the will (“testator”). This is captured in the definition of a Will found in Section 3 of the Law of Succession Act which states that:
“(A) ‘will’ means the legal declaration by a person of his wishes or intentions regarding the disposition of his property after his death, duly made and executed”.
Therefore, even after one has made a Will, they are free to deal with their property as they wish prior to their death. This means that property included in a Will may be sold or leased for the benefit of the maker of the Will up until their demise. The maker of a Will is also free to acquire additional property or change their mind and redistribute their property by changing the provisions of their Will. This is supported by Section 17 of the Law of Succession Act which provides that, “A will may be revoked or altered by the maker of it at any time when he is competent to dispose of his free property by will.”
Any of the above-mentioned changes (transfer of assets, acquisition of property or change of intended beneficiary) should prompt a Will review.
Changes in Wills are effected through codicils or revocation. A codicil is a “testamentary instrument made in relation to a will, explaining, altering or adding to its dispositions or appointments”. It can be described as a document which is supplementary to a will. It does not stand alone as it is attached to an existing Will which it alters or amends by subtracting or adding to it.
Revocation, on the other hand, refers to the official cancellation of the Will by its maker.
The extent of the changes will determine whether the changes to the Will shall be made by the preparation of a codicil or revocation of the existing will and making a new one.
The case of re Estate of Ephantus Munyutu Waigi (Deceased)  eKLR is illustrative of how the courts recognize both revocation and codicils as a means to effect changes to one’s estate plan. In this matter, the deceased had made a Will on 12th January 2000, another on 24th November 2004 and a codicil signed on 12th July 2007. In his 2004 will, the deceased had expressly revoked all other wills and testamentary dispositions made by him prior thereto and declared the 2004 will to be his last will. This was upheld by the court and the 2000 will was deemed invalid for the purposes of succession. The court held that distribution of the estate of the deceased should accord with the will dated 24th November 2004 and the codicil dated 12th July 2007. In giving its decision the court reiterated that a “codicil may be described as a document which is supplementary to a will. It does not stand alone like a will. It is attached to some will. It does not have a life of its own, for it rides on a back of a will. It serves to revoke, alter, amend, subtracts to form, add to or connect a will...a codicil never stands alone, but with the will it seeks to supplement or add to, and when admitted to probate, the codicil becomes part of the will it seeks to supplement or add to.”
While this article mainly deals with intentional changes to a Will, it is worth noting that the revocation of a Will shall be automatic in the following instances:
- by the making of another Will;
- by the burning, tearing or otherwise destroying of the Will with the intention of revoking it by the testator; or
- by the marriage of the maker, except where a Will is expressed to be made in contemplation of marriage.
Thus, Kenyan law anticipates that one’s circumstances may change even after making a Will. One can therefore have a Will in place and ensure that any changes in circumstances are adequately addressed through periodic reviews. We therefore advice all testators to update their wills regularly to ensure that it captures any changes in property and intentions and to ensure that the will remains valid.
As part of the Government’s efforts to enhance the ease of doing business, the Ministry of Lands and Physical Planning formulated the Land Registration (Electronic Transactions) Regulations, 2020 (“the Regulations”) early this year to provide an enabling framework for the roll out of a system for carrying out of electronic land transactions. The Regulations were gazetted on 14th July 2020 and apply to the Nairobi Land Registry.
The electronic land registry
The Regulations require the Chief Land Registrar to maintain an electronic land register which will enable land transactions to be carried out through the system. The Registrar may through the system:
- issue a notice, certificate or any document which is required to be issued by the Registrar under the Act;
- certify a form, document or extract of a document required to be certified by the Registrar under the Act; or
- send any document issued or certified by the Registrar to the electronic addresses provided by a user for that purpose.
To access any service on the Land Information Management System (LIMS), one must register, whether as a natural or legal person or community. The registration requirements differ for various categories of users. A user can access the system in their individual capacity or through an authorized representative or user, who must be a qualified advocate. An advocate may be an authorized user upon providing additional information including their advocates Number on the system. What is not clear is whether other persons such as guardians, persons holding powers of attorneys may be deemed as authorized users under the system.
Upon registration, a One Time Password (OTP) in the form of a text message shall be sent to the user’s telephone number to authenticate every log-in. Registration also makes one subject to various obligations of the users, meant to ensure safety and accuracy of the information provided or submitted when using the system.
Conduct of Searches and Valuation
A registered user may conduct official searches on the system after paying the requisite fees. He or she may also conduct a historical search over the property which will provide a list of all transactions in a chronological order together with the status and date of each entry. Valuation of documents for payment of stamp duty may also be done electronically. Once valuation is concluded, the amount of stamp duty payable shall be communicated via text message or email notification or other electronic means. The rules in the Land Registration Act as regards indemnity that apply to the physical Land Registry also apply to the Electronic Land Registry.
Users seeking to register interests in land will be required to submit the application, instruments or documents for registration in the system and pay the prescribed fee, where applicable. The regulations provide that the usual forms prescribed under the Land Registration Regulations will be used subject to such modifications as the Chief Land Registrar may make, to enable their use electronically.
Notably, the instrument presented for registration may be executed by use of advanced electronic signature of parties. Advanced electronic signatures range from a simple electronic signature represented in the form of a scanned signature of the person as an indication of a name of a sender (not encrypted), to a digital signature that is based on cryptographic authentication of a sender by technological means in the form of a coded message or an encrypted data.
Where it is not possible to execute the instruments or documents by way of an advanced electronic signature, the user may enter the required information in the applicable electronic form, print the duly filled form for execution and attestation, scan and upload the duly executed and attested form onto the system and attach the relevant supporting documents as may be required. Where it is an Advocate undertaking the registration process, they must first submit the client’s instructions through the relevant form which requires each client to sign the said form, personally.
- Tracking Numbers in the Registration process
The Regulations prescribe use of tracking numbers similar to booking numbers in manual registrations. The tracking number determines the priority of registration of the instrument. An instrument or document shall be deemed to be received for registration when the system generates a notice of electronic filing with a tracking number for the electronically filed application, instrument or document.
The Registrar may reject applications if they are substantially defective, or submitted without the relevant supporting documents. One can lodge afresh after making the necessary corrections or appeal the rejection as provided in the Regulations. The Registrar shall, for the purposes of processing the applications, rely on the documentation and data available within the system and may, where necessary, refer to the backup of manual records. The authorized user may also be called upon to present a document manually where production of an original is required.
Registration is completed upon the approval of the transaction and the making of corresponding entries into the register by the Registrar. Upon registration, there shall be an electronically generated notice to the effect that the document has been registered. The Registrar shall then issue an electronic certificate of title or lease in accordance with which shall contain unique serial numbers and security features which can be used to verify the authenticity of the certificate. The registered instruments and documents shall be made available for download by the authorized user or any person conducting a search electronically.
The publication of the enabling Regulations is just a step towards the welcome rolling up out of an electronic land registration system. It is hoped that with the enabling legal framework in place, steps towards the complete operationalization of the electronic system will be hastened to enhance the ease of doing business. It is also commendable that the Regulations have recognized the teething problems associated with transition to online platforms. In this regard, they have given room for transactions to be conducted manually where the electronic registration system cannot be used or through such other means as the Chief Land Registrar may determine. This would go a long way in easing the transition from the manual system to the electronic system.
By June Njoroge and Pauline Njau
For a long time, Kenya Power and Lighting Company (“KPLC”), has monopolized the distribution and retailing of electricity in Kenya.
Currently, the Competition Act of Kenya 2010 (‘the Act”) and the Consolidated Guidelines on the Substantive Assessment of Mergers under the Act (“Consolidated Guidelines”) only require notification of joint ventures if they are full - function and if they meet the required thresholds. Until recently, there were no guidelines and/or rules that specifically addressed joint ventures.
It is in this regard that the Competition Authority of Kenya (“the Authority”) has now developed Draft Joint Venture Guidelines (“draft Guidelines”) which are currently undergoing public participation. The purpose of the draft Guidelines is to provide clarity on transactions that qualify as full-function joint ventures, give guidance on notification requirements and give an overview on the review and analysis of full-function joint venture transactions by the Authority. Notably, the draft Guidelines do not substitute the existing provisions of the Act or the Competition (General) Rules 2019 (“the Rules”). They only supplement them.
Below is an overview of the draft Guidelines.
- 1. Types of Joint Ventures
a) Full-Function Joint Ventures
This is a joint venture that will perform, for a long duration (usually at least 10 years), all the functions of an autonomous economic entity including: operating on a market and performing the functions normally carried on by undertakings operating in the same market; having management dedicated to its day-to-day operations and access to sufficient resources including finance, staff and assets for its business. Such joint ventures are considered mergers under the Consolidated Guidelines
b) Greenfield Joint Ventures
These are joint venture arrangements aimed at engaging in a new business venture separate from and unilateral from activities of the parties to the joint venture. They usually apply where local or foreign entities collaborate with other local domiciled entities to develop new products and services separate from the products and services offered by the parent entities. In some instances, such arrangements may result in full-function joint ventures depending on the prevailing circumstances and as such parties are advised to utilize advisory opinions before implementation of Greenfield Joint Venture transactions.
2. Filing Notifications for Joint Venture Transactions
Unlike in mergers and acquisitions where the target and the acquirer are easily identifiable, the target and acquirer in joint venture transactions are not easily identifiable. For this reason, the Authority will require the parent entities to separately submit documents relating to the transaction by filing the merger notification forms, in the prescribed form, as joint venture parents. The joint venture vehicle will also be required to fill the merger notification form as a joint venture vehicle.
3. Basis for Determination of Assets and Turnover Thresholds
To determine the impact of the proposed transaction in the market, parties to a joint venture will be required to provide complete financial information during filing. This requirement also applies for entities who may not be deriving their turnover in Kenya prior to the joint venture. The parents of the joint venture and their subsidiaries/related companies will also be required to submit the turnover and asset figures, whether or not attributable to parties in Kenya.
The Authority will also use the financial information of the parent entities and the joint venture entity to compute merger filing fees.
4. Elements of Joint Ventures and Analysis by the Authority
a) Impact on Competition Analysis
The competition review of full function joint venture transactions will be guided by the Act, Rules and the Consolidated Guidelines. In order to determine the anti-competitive effects of a joint venture, the Authority will consider the terms of the joint venture agreement(s) including: the activities of the joint venture and its parent undertakings; the governance structure adopted; the duration of the joint venture; the nature and extent of assets transferred to the joint venture versus those retained by the participants; and the freedom parents retain to compete with each other and with the joint venture. Any exclusivity clauses that tend to raise barriers to entry or expansion facing third parties will also trigger review.
b) Public Interest Analysis
Public interest analysis will be based on the Consolidated Guidelines. In particular, the review of public interest issues will seek to identify the positive synergies likely to arise from the transaction. The Authority will also consider the likely technological benefit, real resource savings, compatibility with competition and economies of scale accompanying the transaction.
5. Guidance on New Trends in the Digital Economy
In reviewing the impact of joint venture transactions, the Authority may also consider the aspects of big data and digital economy dynamics of entry and access to data. This will apply to transactions likely to involve big data even where data is not the main component of the transaction. Where likely negative competition and public interest impacts of a joint venture transaction are identified, parties to the joint venture will be required to come up with remedies to mitigate against the harm.
In conclusion, the draft Guidelines, if passed, will offer a clear framework to stakeholders in joint venture transactions on the notification requirements and procedures of the Authority besides those provided under the Act, Consolidated Guidelines and Rules. They are therefore a welcome addition to the competition laws of Kenya.
Article by Audrey Seur and Grace Andati
This article is intended for general knowledge only. It 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 through:
The outbreak of coronavirus (COVID-19) has been declared a global pandemic by the World Health Organization (WHO) and its impacts are being felt in many sectors, including the transport, manufacturing, sports, tourism and gaming industries.
It is not in doubt that technology has changed the way we live, the way we purchase products, the way we communicate, the way we travel, the way we learn and the way we do business in general.
In the unfortunate demise of an individual, there are various rights that accrue to different persons depending on the relationship between that person and the deceased. For example, wives and children of the deceased will be considered ‘automatic’ beneficiaries/heirs of the deceased and they will not need to prove their dependency on the deceased. This is contrasted to persons like parents of the deceased whose beneficiary status is not automatic, that is, they have to prove their dependency on the deceased immediately before his/her demise. Because of the ‘automatic’ status of the wife/wives and children of the deceased, it is usually assumed that their rights over the property of the deceased are superior to the rights of any other potential beneficiary.
However, this is not always the case. There are instances where the rights of other individuals, who are not necessarily wives or children of the deceased, may override the rights of the deceased’s heirs. These include persons such as: joint land owners and nominees, among others.
This article focuses on the rights of nominees and it explains why their rights over the estate of a deceased override those of heirs.
Nominees are third parties who are selected by the deceased during their lifetime to receive their benefits in various entities upon their death. These include benefits held in insurance policies, SACCOs, retirement benefit schemes, bank accounts, company shares, chamas, among other entities. Such entities usually require a member to nominate persons who would receive the benefits held by them upon their demise. Once the nomination is done by the deceased, the benefits held no longer form part of the ‘free property’ that is the subject of probate and administration proceedings, neither can they be bequeathed by the deceased under a will.
The nominated benefits will be subject to the laws that govern the various entities such as the Insurance Act, the Retirement Benefits Act, the Co-operative Society Act and the Sacco Societies Act. These laws recognize nominations and they provide that property which has been duly nominated should go to the nominee. For example, Section 36A of the Retirement Benefits Act provides that, “Upon the death of a member of a scheme, the benefit payable from the scheme shall not form part of the estate of the member for the purpose of administration and shall be paid out by the trustees in accordance with the scheme rules.” Its Regulations require the Scheme Rules to provide for the benefits of a deceased member to be paid to a nominated beneficiary.
This is a position that has been affirmed by the Kenyan courts on various occasions. An example is the case of In re Estate of Carolyne Achieng’ Wagah (Deceased)  eKLR which was decided by Hon. Justice Musyoka. In this case, the administrator of the estate of the deceased sought to have the benefits of the deceased, such as terminal benefits upon death, pension, group life insurance and shares in a co-operative society be considered as part of the deceased’s estate and distributed among the beneficiaries according to the laws of succession. The deceased had made a will which only included assets that were subject to statutory nomination. The court dismissed the administrator’s application and held that funds which were subject to nomination did not form part of the deceased’s estate and could not pass under a will. The court also held that despite the fact that there was a will, all the deceased’s assets under the will had been nominated by the deceased and could only be given to the nominees and not to any other beneficiaries. Thus, the grant issued to the administrator was worthless since it sought to distribute property that the probate court had no jurisdiction to distribute in the first place.
In view of the foregoing, it is clear that the right of a nominee will override the right of an heir in instances where nomination is allowed by law. It is therefore important for one to understand the impact of nominating the funds they hold in various schemes to their preferred kin. When making a will, a person needs to be aware of the assets they have already nominated which will usually be funds held in the entities discussed above. The will should not include these funds otherwise it will be in vain because the funds will be paid to the nominee.
Since it is usually a requirement for one to make a nomination in the entities mentioned above, it is crucial for a person to keenly consider who their preferred nominees will be and the allocation of the share of the funds that they will give each of their nominees. Any person qualifies to be a nominee including one’s husband, wife, children, siblings, parents, friend, and so on. Consequently, one’s heirs can also be their nominees.
Thus, nomination is another way in which a person can bequeath their assets. In fact, one of the main advantages of nomination is that a nominee will directly receive the nominated funds upon the demise of the nominator and will not need to go through any court processes for the nomination to take effect. The other major advantage is that a nomination is not likely to be contested and will therefore pass as indicated by the nominator without objection from other parties. Therefore, it is advisable for one to take advantage of the option of nomination if available.
Article by Ivyn Makena
This article is intended for general knowledge only. It 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 through
Through a Legal Notice dated 18th February, 2020, the Attorney General has published the Companies (Beneficial Ownership Information) Regulations, 2020 (the “Regulations”). The Regulations seek to operationalize the provisions of the Companies Act on keeping of records regarding a company’s beneficial ownership. The enactment of the Regulations is geared towards aligning Kenya’s laws with international standards which recommend minimum levels of transparency concerning the beneficial owners of companies, trusts and other legal arrangements in order to promote implementation of legal, regulatory and operational measures for combating money laundering, and terrorism financing.
As Kenya is not immune to these vices, the country first introduced a law requiring companies to keep a register of beneficial owners in 2017. The regulations contemplated under the said law are what forms the subject of this article, which highlights the salient provisions by answering a few questions.
Who is A beneficial owner?
The Regulations define a beneficial owner to be a natural person who holds at least 10% of the issued shares in the company either directly or indirectly, exercises at least 10% of the voting rights in the company either directly or indirectly, holds a right, directly or indirectly, to appoint or remove a director of the company exercises significant influence or control, directly or indirectly, over the company.
Is the Company required to keep the beneficial owner’s details in the Register of Members?
Yes. The regulations provide that a company shall, where applicable, enter in its register of members details in respect of its beneficial owner including full name, national identity card number/passport number, KRA PIN, nationality, date of birth, postal, residential, telephone and email address, occupation, date on which any person became a beneficial owner, date on which any person ceased to be a beneficial owner and nature of ownership or control. The register of beneficial owners’ particulars is required to be lodged with the companies’ registry. The Regulations also require companies to notify the registry of changes in the particulars of the beneficial owner or of the cessation of the person from beneficial ownership.
Who is Responsible for finding out the Beneficial Owners’ details?
The company has a duty to take reasonable steps to find out and identify its beneficial owners. Where the necessary particulars are not within the company’s knowledge, the company is required to give notice to anyone whom it knows or has reasonable cause to believe to be a beneficial owner. The notice will require the addressee to state whether or not the addressee is a beneficial owner of the company and if so, to confirm or correct any particulars of the addressee that are included in the notice.
What if the Suspected Beneficial Owner fails to comply with the Notice?
The addressee is required to comply with the notice within 21 days from the date of the notice failing which the company may issue a warning notice informing that person that it is proposing to issue the person with a restriction notice with respect to any interest they hold in the company. A copy of the warning notice is also to be kept in its register of beneficial owners. Upon the lapse of 14 days from the warning notice, the company may note a restriction with respect to the particular interest and lodge a copy of the restriction with the registrar and notify that person. Under the Regulations, a restriction notice renders void any transfer of the interest in respect of which the notices were given. It also has the effect of stopping the exercise of any rights in respect of the particular interest. The company may also withdraw the restriction once the person complies with a request for information.
Are there restrictions on sharing of the Disclosed Information?
The company is barred from disclosing the beneficial owner’s particulars except when communicating with the beneficial owner concerned or when complying with any requirement of the Regulations or with a court order. In a rather controversial provision, the Registrar may, upon a written request, disclose protected information to a competent authority which includes the A.G, DCI, law enforcement agencies and authorities that supervise and monitor the financial sector. The Regulations outlaw the disclosure of beneficial ownership information the in any manner other than for the purpose for which such information is obtained.
These regulations are aimed at requiring companies to obtain and hold adequate, accurate and current information on their beneficial ownership. It is also noteworthy that provisions allowing a search to be carried out on the beneficial ownership of the company were dropped in the final draft. It is hoped that with the blanket access given to the authorities, the Regulations will help the government to fight money laundering and tax evasion.
Article By : CG Mbugua and Enock Mulongo
This article is intended for general knowledge only. It 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 through
Since its declaration by the World Health Organization as a global pandemic, Covid-19 has had devastating effects on businesses all over the world. Courts in many jurisdictions including the USA have recognized the pandemic as a natural disaster with far reaching effects. Parties to contracts have had to establish whether the Covid-19 pandemic falls within the scope of the force majeure clause; as well as whether the doctrine of frustration can be relied on for one to be relieved of their contractual obligations. We discussed these two doctrines in our earlier article available here.
Locally, the Government of Kenya has put in place various legislative and policy measures to cushion both citizens and businesses from the ensuing economic hardships. Such measures include reduction of the Central Bank Rate to 7%to enable commercial banks lend to consumers at affordable interest rates, reduction of VAT rate from 16% to 14% leading to reduction on the price of vatable goods and services and reduction of Cash Revenue Ratio to 4.25%. The reduction of the Cash Revenue Ratio by the Central Bank is intended to increase liquidity among commercial banks. This will in turn avail more cash to the banks to continue advancing credit facilities to businesses and other consumers during the pandemic.
Despite the various measures put in place by the government to cushion businesses and consumers from the economic effects of the pandemic, many businesses have experienced and continue to experience reduced turnover. This development has hampered many businesses’ ability to service their credit facilities timeously. This may in turn result in drastic measures by creditors such as commencement of insolvency proceedings which would negatively impact the ability of businesses to operate as going concerns in the long term. Conscious of this, many businesses are struggling to keep their doors open and lights on. In this publication, we explore the various options available to both businesses and creditors for purposes of increasing capital flow so that the businesses can remain afloat while at the same time meeting their financial obligations towards their creditors.
Insolvency: When does it happen?
Insolvency is a financial position where a company is unable to meet its financial obligations as and when they become due. More likely than not, an insolvent company’s liabilities are more than its assets. Under the Insolvency Act, 2015, a business is insolvent if a demand to pay its debts has been issued and the notice period has lapsed without the company honouring the same. At this point, a creditor has the statutory right to lodge an insolvency petition in court for the assets of the company to be liquidated as a way of recovering its money.
It is important to note that Kenyan courts have ruled that insolvency is not a measure of last resort in debt recovery. On the same note, Kenyan courts have also ruled that where the debtor has made proposals to liquidate the debt, such proposals should not be taken as inability to pay the debt and therefore an insolvency petition presented where such proposals exist will be declined. Similarly, courts frown upon creditors who present insolvency petitions for the sole purpose of coercing debtors to pay debts. Consequently, it is important for both creditors and debtors to consider arrangements that provide for adequate capital to run the business while at the same time servicing the debts. That notwithstanding, many companies may find themselves dealing with insolvency petitions during this pandemic. However, as discussed below, there are various options in law which both the debtor and the creditor may explore to achieve a win-win situation in the long term instead of liquidation. A snippet of each of these options is outlined below.
Legal options for both creditors and borrowers to raise capital during insolvency.
There are several options that ought to be considered where businesses are in dire need of capital and deteriorating performance. Each case is unique and we present some of the options available in law that companies in financial distress and their creditors should consider during prevalence of the Covid-19 pandemic, alongside the various Covid-19 reliefs the Government of Kenya has implemented.
- Company voluntary arrangements
- Schemes of arrangement and compromise
- Balance sheet reorganization