Since the presidential assent of the new Companies Act 2015, the corporate world has waited with great anticipation the commencement of the laws which would catalyse business activities to greater economic growth in the country.
Last month, the Attorney General commenced the onerous task of bringing the law into operation. By so doing he has undertaken by law to bring into operation the remaining provisions within six months. Presently, he has kick started a process where only about half of the Act has become operational.
For the next six months the Company law will have two parallel regimes based on the new law and the existing and old 1948 law, a confusing fact that is likely to be a nightmare for practitioners of law and even courts with various transitional provisions coming into play.
The Imperial Bank saga perhaps gives a graphic and stark example of real life situation: which law is the receiver, the depositors and creditors likely to apply to yesterday's situation, today's existing positions and tomorrow's happenings?
The Act has forty-two parts and six schedules out of which understandably only twenty parts and three schedules are now law. It is fair to say that only half of the new legislation is now operational.
The exercise of full implementation of new laws is intricate and laborious and likely to raise many weighty issues of law and constitution. New laws are now in place relating to formation and the constitution, capacity, name, membership and exercise of rights of members of a company.
There is a complete overhaul of provisions relating to Company Directors and Secretaries and a new concept of derivative actions has now come into play as much as laws relating to resolutions and meetings and share capital of the company. Similarly provisions relating to debentures, company charges and legal proceedings have now been amended.
Generalising the climate of change brought about by the new law, it can be stated that the overarching theme seems to be accountability, transparency and integrity, like everything else we as Kenyans crave but can never quite seem to achieve. The question, as always, can we use the new mechanisms to the best of our ability? Can we create a system of trust in our corporate governance?
One of the major changes is the strengthening of shareholders rights and keeping the board of directors in check. Directors' duties have also been enshrined into law protecting and emphasising the fiduciary duty that directors in a company owe to their shareholders.
The second major change, timely in nature is the disclosure of the salaries, stock options, bonuses and all directors' benefits, a move that will herald an era of accountability and help in trimming excesses in public-listed firms.
The law does not apply to small companies, which are defined as having a maximum of 50 employees, net assets of not more than Sh20 million and or annual turnover of less than Sh50 million.
The penalty for directors flaunting these disclosure requirements is an offence punishable by a fine not exceeding Sh500, 000. What is a meagre Sh500, 000 to CEO's who earn way over that in a month?
The Act has also introduced many criminal offences. There is an interesting section which in the body of the Act is titled " Offences and Legal Proceedings" but in the preamble only as 'Legal Proceedings' which should send shivers among many since some offences provide for imprisonment for up to ten years and fines of up to ten million or both.
Criminality under the company law if diligently enforced by the Director of Public Prosecution is likely to bring about some sanity amongst those who run public and multinational companies.
An extremely contentious and possibly constitutionally averse provision in section 975(6) which states that a foreign company desiring to operate in Kenya must demonstrate at least 30 per cent of the company's shareholding is held by a Kenyan citizen by birth.
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This provision is one of those that has been put on hold and will be contentious and possibly undermining to foreign investment.
It must however be effective within six months. The period leading to this six-month deadline will inevitably create havoc in the running of foreign companies with various shareholders consolidating their company structures. Another revolutionising provision that has been put on hold is that of share buy backs.
It is a provision that will allow companies to boost their share price when they are undervalued in the market consequently enhancing the value for continuing shareholders. The use of these provisions and their impact is yet to be seen.
The sections relating to the role of auditors in company audits too have not been made operative.
Until full commencement of the Act businesses all over Kenya will need to re-think, readjust and adapt. The six-month period may result not only in the jostling of interests, but in structural manipulation.