Salient Changes Under the Business Laws (Amendment) Act, 2020

Posted on March 30th, 2020

On 18th March, 2020 the President assented to the Business Laws (Amendment) Act, 2020 (the Act). The Act, which came into force on its date of assent, seeks to facilitate the ease of doing business in Kenya by amending various statutes. Below is a summary of the salient changes brought about by the Act, that affect specific sectors:

CONVEYANCING AND REAL ESTATE
Electronic Execution of Documents
The Act recognises the use of advanced electronic signatures and electronic signatures as a valid mode of execution of documents in Kenya. The recognition of electronic signatures is poised to improve the ease at which land transactions are carried out, especially in transactions where the parties are not in Kenya at the time of execution.

The Stamp Duty Act has equally been amended to provide that documents can be electronically stamped, extending the scope of the initial provision which only recognized stamping by a franking machine or an adhesive stamp.

Electronic Registries
The Registration of Documents Act (the RDA) has been amended to recognise electronic filing of documents. The Registrar of Documents is empowered to establish both the Principal Registry in Nairobi and the Coast Registry in electronic form. This is intended to ease the process of applying for registration of documents under the RDA, as one may not require to physically present a document for registration at either of the two Registries.

Abolishment of Land Rate and Land Rent Clearance Certificates
Previously, a person seeking to register an interest in land was required to provide proof of payment of land rates and land rent before registration is effected. An application for registration therefore had to be accompanied with Rates and Rent Clearance Certificates where rent and rates were payable.

The Act has deleted these provisions in entirety implying that it shall no longer be mandatory to produce Land Rent and Rates Clearance Certificates when applying for registration of an interest in land. Transferees therefore have to individually carry out their own due diligence and satisfy themselves that rent and rates have been paid in order to avoid assuming these liabilities.

It is however important to note that although Section 38 and 39 have been deleted from the Land Registration Act, Sections 55 (b) and 56 (4) which require production of a Rent Clearance Certificate and Consent to Lease or Charge prior to registration remain in force. It will, therefore, be necessary to address this disparity going forward, in order to clarify the applicable completion documents in property dealings.

EMPLOYMENT AND LABOUR
Waiver of Registration of Workplaces for new businesses
New businesses with less than one hundred (100) employees can now operate without registration of a workplace for a period of one year from the date of registration of the business. This provision is set to provide small and medium sized enterprises with more time to register their workplaces.

CORPORATE AND COMMERCIAL
Increased threshold for enforcing Squeeze-Out rights in mergers and takeovers
The stake that an acquiring party should purchase before enforcing a squeeze-out has been restored to ninety per cent (90%) from the current stake of fifty per cent (50%). The increase in the squeeze-out threshold seeks to restore the protection of the rights of minority shareholders, especially in listed companies.

Abolishment of the use of common seals in execution
The use of common seals in executing contracts by companies has been abolished. The adoption of this amendment broadens the scope for holding a company accountable for contracts as such contracts may be executed by any person acting under its authority, express or implied authority.

Treatment of bearer shares
Bearers of share warrants can now convert their warrants into registered shares. This provision is poised to recognize and protect the rights of bearers acquired before the coming into force of the Companies Act, 2015.

RESTRUCTURING AND INSOLVENCY
Additional factors to consider when lifting a moratorium in insolvency matters
The Act has included additional factors to consider when the courts seek to lift a moratorium in insolvency. These include, whether the value of the secured creditor’s claim exceeds the value of the encumbered asset, whether the secured creditor is not receiving protection for the diminution in the value of the encumbered asset, whether the encumbered asset is not needed for the reorganisation or sale of the company as a going concern and whether relief is required to protect or preserve the value of the assets such as perishable goods.. The inclusion of these factors is to take into account the different business exigencies of companies under administration.

Information requests by creditors
The Act gives creditors the right to request for information from the insolvency practitioner in respect of the insolvency process. The information rights will provide more transparency in relation to the insolvency process in Kenya.

CONSTRUCTION
Enforcement of the Building Code
The National Construction Authority (NCA) has been authorised to promulgate and enforce the Building Code in the construction industry. Consequently, any matters concerning compliance with the Building Code shall be under the purview of the NCA. The NCA will also have power to promulgate regulations relating to and to conduct mandatory inspections of the construction sites with a view to verify and confirm whether contractors are complying with the construction regulations.

TAX
Investment deductions, exemption of supplies for bulk storage of Standard Gauge Railway raw materials and market protectionism
Companies that incur a capital expenditure of at least Kenya Shillings Five Billion (KES 5,000,000,000) on construction of bulk storage and handling facilities with a minimum capacity of one hundred thousand metric tonnes in relation to the Standard Gauge Railway (SGR), will be entitled to investment deductions equal to one hundred and fifty per cent (150%) of the capital expenditure incurred from the year of first use of the facility.
Additionally, taxable supplies procured locally or imported for the construction of bulk storage in support of the SGR operations are exempted from paying import declaration fees.

Further, a twenty five per cent (25%) tax has been imposed on imported glass bottles under the Excise Duty Act.

The adoption of these amendments is intended to boost businesses for local manufacturers and ultimately grow Kenyan brands.


This alert is for informational purposes only and should not be taken to be or construed as a legal opinion. If you have any queries or need clarifications, please do not hesitate to contact Pamella Ager (pamella@oraro.co.ke), Nelly GitauJacob Ochieng (jacob@oraro.co.ke), Lena OnchwariNaeem Hirani or your usual contact at our firm, for legal advice relating to the Business Laws (Amendment) Act, 2020 and how the same might affect your business.

‘Phoney War’: Tackling the Counterfeits’ Problem In Kenya 

Posted on February 3rd, 2020

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A consumer purchasing goods and services in the market, is often concerned about whether the goods that he is placing in his basket are genuine. One is oft en left in shock upon learning that the establishment where one purchased his supplies from, appeared in the local dailies accused of dealing in counterfeit goods. Th is fear is not restricted to goods alone, but also covers the services market.

The infiltration of counterfeit products in the market infringes on the intellectual property rights of the rightful owners of the products, since counterfeiters pass off phoney goods as the products of legitimate manufacturers, when in actual fact, they are not. This passing off denies the genuine manufacturers revenue, as they find it diffi cult for their products to compete with the invariably cheaper non-genuine products. Inability to compete with counterfeiters often comes with a dip in profi tability which, in turn, leads to loss of employment due to downsizing or worse still, closing down of the business altogether. The government also loses out on taxes as counterfeiters are prone to evade tax while the genuine manufacturer simultaneously experiences a slump in sales and therefore decrease taxable income.

According to the Kenya Association of Manufacturers, local manufacturers lose an estimated sum of KES 30 billion (USD 300 million) in revenue while the national government is deprived of KES 6 billion (USD 60 million) in taxes, due to counterfeit products, annually.

Counterfeit products also pose a health risk to consumers, as such products may at times contain excessive amounts of hazardous substances as compared to genuine products. Similarly, counterfeit farm inputs such as seeds or fertilizers, pose a serious threat to a nation’s food security as their use may result in poor yields or crop failures.

All in all, counterfeit goods seem to have pervaded all sectors of our country’s economy, noting the estimation by the Anti-Counterfeit Authority (the Authority) that one in every fi ve (5) products sold in the Kenyan market is counterfeit. It is therefore very much in the public interest that the war against counterfeit is swiftly and decisively won.

Legal Framework

To address the concerns posed by counterfeit goods, the Anti-Counterfeit Act, 2008 (the Act) was enacted to provide the legal and institutional framework for tackling the vice. The Authority (formerly known as the Anti-Counterfeit Agency) is established under section 3 of the Act. The Authority’s responsibilities are centred on curbing counterfeit products in the market through enlightening and informing the public on matters relating to counterfeiting, combating counterfeiting trade and other dealings in counterfeit goods through devising and promoting training programmes on fi ghting counterfeiting and advising the government on policies and measures concerning the protection of intellectual property rights as well as the extent of counterfeiting. The Authority’s Board (the Board) is established under section 6 of the Act and draws representation from other stakeholders, including the Att orney General’s offi ce, the Kenya Revenue Authority, the Kenya Bureau of Standards and the Kenya Association of Manufacturers amongst others.

The Board is authorised under section 22 of the Act to appoint inspectors who are tasked with enforcing the provisions of the Act. Board members, police offi cers, customs offi cials, trade mark and patent examiners, seed and plant inspectors and public health inspectors are also designated as inspectors under the Act. The idea is to ensure as much representation or coverage as possible from other public institutions, so that the Act can be widely enforced. However, the Authority’s powers appear to have been somewhat clipped as section 30 (1) of the Act empowers the Director of Public Prosecutions (DPP) to appoint prosecutors for counterfeiting cases.

Under section 23 of the Act, an inspector has the power to enter suspected premises and to search and ascertain whether the goods are genuine and to take steps reasonably necessary to terminate the manufacturing, production or making of counterfeit goods. Section 23 (3) of the Act specifically empowers an inspector to arrest with or without a warrant, any person whom he suspects on reasonable grounds of having committed any offence under the Act and an inspector may search and detain such a person. The discharge of an inspector’s functions is not to be taken lightly, as the obstruction of an Inspector from undertaking his duties amounts to a criminal offence under section 24 of the Act and shall be liable, upon conviction, to imprisonment for a term not exceeding three (3) years or a fine not exceeding KES 2 million (USD 20,000) or both. Section 25 of the Act provides details on what the inspector is to do upon seizing the suspected counterfeit goods. The inspector is required to seal, sort and take an inventory of the seized goods, furnish the complainant and the owner of the goods with the inventory, secure the goods by relocating them to a safe place and notify the concerned parties of the new location of goods. An aggrieved party may petition Court for a declaration that the goods are not counterfeit and an order for the return of the seized goods to him or her.

Section 32 of the Act lists the general offences pertaining to counterfeiting such as possession, sale, distribution or importation of counterfeit goods. Equally, the possession of any labels, patches, wrapping, containers or documentation bearing a counterfeit mark is also an offence. The aiding or abetting of any of the foregoing is also outlawed. The penalty for contravention of this section of the Act is stiff, in the case of a first conviction, being imprisonment for a term not exceeding five (5) years, or to a fine, in respect of each article or item involved in the particular act of dealing in counterfeit goods to which the offence relates, not less than three (3) times the value of the prevailing retail price of the goods, or both. In the case of a second or any subsequent conviction, to imprisonment for a term not exceeding fifteen (15) years, or to a fine, not less than five (5) times the value of the prevailing retail price of the goods, or both.

A complaints mechanism is laid out in section 33 of the Act. It allows the holder of an intellectual property right to lodge a complaint under the Act with the Executive Director of the Agency. The complainant is also required, together with lodging the complaint, to furnish such information or particulars to demonstrate that on the face of it, the goods in question are counterfeit. If the Executive Director is duly satisfied with the information, he may order such necessary steps be taken under section 23 of the Act. However, an inspector is not precluded from taking the appropriate steps on his own motion in relation to any dealing in counterfeit goods.

The holders of trademarks, copyrights and other trade names of goods or works to be imported into Kenya, can record such interests with the Agency for protection as per section 25 of the Act. The application is in the prescribed form and the protection comes into force from the date on which such interests are recorded. The duration of protection is one (1) year from the date the interest was recorded by the Agency or the period of protection of the intellectual property right, whichever is shorter.

A person who has suffered damage following wrongful seizure of goods is entitled to claim for compensation under section 34 (7) of the Act.

Judicial Pronouncements

The Kenyan Courts have made various pronouncements and developed jurisprudence on counterfeiting matters. In Wilson Muriithi Kariuki t/a Wiskam Agencies v Surgipharm Limited (2012) eKLR, the Applicant was seeking an interlocutory injunctive order restraining the Respondent from distributing the alleged counterfeit products in the market. The High Court held that the party seeking an interlocutory injunction must demonstrate, as it the normin injunction cases, that it has a prima facie case with probability of success; that if the order sought is not granted, he risks suffering irreparable damage that cannot be compensated by way of damages; and if the Court is in doubt, then it is to determine the matter on a balance of convenience. Importantly, the Applicant must be a right holder.

In Republic v Anti Counterfeit Agency & 3 others Ex-parte Omega Chalk Industries (1993) Limited & another (2015) eKLR, the High Court emphasised that there is no need for the Authority to notify an individual of an impending seizure exercise as follows: “I agree with the interested party that a reading of the above provisions and taking into account the mischief that these provisions were meant to cure, it would defeat the purpose of the Act to require that the person in whose possession suspected counterfeit goods are to be heard before the power of seizure is exercised. Any wrongful seizure of the goods is to be dealt with under section 25 of the Act.

In Platinum Distillers Limited v Attorney General & 4 Others (2017) eKLR, the Court held that the power to commence and prosecute counterfeit cases falls within the purview of the DPP, and that the power should be exercised independently and there should also be no perception that the DPP is acting under the direction or instigation of anyone else. However, the Court has the inherent power to discontinue the prosecution if it is opined that allowing the prosecution to continue would be an abuse of the Court process or result in a breach of the accused’s fundamental rights. The Court further noted that the lack of a proper factual basis for the prosecution can be another ground for termination of proceedings.

In Anti-Counterfeit Agency v Barloworld Limited & another (2018) eKLR, the Court of Appeal held that public interest should be taken into account when issuing injunctive reliefs pending hearing and determination of the main appeal. In this matter, the Agency had applied for a stay of execution with the intention that counterfeit products should not be released to the market.

Executive Forum and Working Group

A point of concern has been a perceived lack of coordination or cooperation between complimentary government agencies in the war on counterfeits. However, this issue has been addressed by the formation of the Inter-Agency Anti-Illicit Trade Executive Forum (Executive Forum) and the Inter-Agency Anti-Illicit Trade TechnicalWorking Group (Working Group) established under Gazette Notice No. 7270 of 2018.

The Executive Forum is chaired by the Principal Secretary, State Department for Trade with the Head of the Authority being the secretary. Its functions include advising the Cabinet Secretary for Trade on all matters concerning illicit trade as well as the appropriate policies, laws and regulations required to strengthen the war on illicit trade. One the other hand, the functions of the Working Group include developing a national strategy to combat illicit trade, coordination of surveillance and investigations on the source of illicit merchandise, coordination of the enforcement of laws, regulations and policies dealing with illicit trade and conducting public education on illicit trade.

The establishment of the Executive Forum and the Working Group is a step in the right direction, as the idea behind their formation is to infuse the much needed synchrony and coordination in the war on counterfeits.

East African Property Investment Summit

Posted on July 16th, 2019

Our Partners Pamella Ager and Nelly Gitau participated in the 6th annual East African Property Investment Summit, that took place on 10-11 April, 2019 at the Radisson Blu Hotel - Nairobi. Themed “Driving Affordability & Opportunity Through the Property Value Chain”, the conference offered a platform for the regions’ leading developers, investors and public sector stakeholders to exchange insights, debate, network and close deals through an intensive and collaborative two-day agenda.

Pamella and Nelly practice in the conveyancing and real estate practice group of the firm and have significant experience working on  some of the country’s most notable real estate projects. For more information about the event, click here

Kosgei Kipkirui

Head of Business Development

T: +254 709 250 000/735

E: gkosgei@oraro.co.ke

Viewpoint: A Look at The New Land Conversion and Compensation Rules

Posted on May 31st, 2019

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The Constitution of Kenya 2010 (the Constitution), recognises the need to regulate the manner in which land may be converted from one regime to another. In this regard, Article 68 (c) (ii) of the Constitution provides that Parliament may enact legislation to regulate the manner in which land may be converted from one category to another. This stems from the need to govern the said process, noting the irreversibility of the exercise, once conducted.

Likewise, compensation for compulsory acquisition of land is a very pertinent issue, especially in this dispensation in which the government has sought to stimulate economic growth by, amongst other things, launching mega infrastructural projects such as the construction of the standard gauge railway. Here, Article 40 (3) of the Constitution protects the citizenry from deprivation of property unless the deprivation is for a public purpose or in the public interest and in such a case, the Constitution requires that the affected proprietor is promptly compensated in full and his or her right to seek legal redress is unfettered.

The Government has therefore taken cognisance of the need to address these vital issues by promulgating the following sets of regulations.

The Land (Conversion of Land) Rules, 2017
In exercise of the powers conferred under section 9 (5) of the Land Act, 2012 (the Act), the National Land Commission (the Commission) gazetted the Land (Conversion of Land) Rules, 2017 (the Land Conversion Rules) vide Legal Notice No. 282 of 2017. The Land Conversion Rules focus on the procedural aspects of the conversion of land from public land to either private or community land and seek to ensure the process is clear, efficient and conducted procedurally.

The National or County Government may on its own motion or upon request, identify land and notify the Commission of its intention to convert land under section 9 of the Act. The procedure is meant to be transparent.

Conversion of Public Land to Private Land
Upon receipt of the notification, the Commission should satisfy itself that:

  • The land is, at the time of the intended conversion, public land
  • The purpose of its intended use is compatible with land use planning for the respective area
  • The land is not part of an ecologically sensitive area
  • The conversion complies with provisions of the Act or any other law
  • The land is not controlled land i.e. land within a zone of twentyfive kilometres from Kenya’s inland boundary, within the first and second row from the high-water mark of the Indian Ocean and any other land declared controlled land by law

Where the Commission is satisfied that the land meets the set out criteria and the matter amounts to a substantial transaction, the Commission will then refer the matter to the National Assembly or County Assembly for approval. Upon approval, the land is allocated by the Commission and its particulars entered in the Land Register.

Where the proposed conversion does not amount to a substantial transaction as defined in the Act, the Commission is required to invite the public for consultation by publishing a notice in at least two (2) dailies of nationwide circulation, affixing the notice in prominent places in a County or Sub-County including the headquarters, announcing the notice in official and vernacular stations of nationwide coverage and announcing in public meetings and places of worship. The notice must contain details of the land, proposed mode of conversion, specify the date, venue and time for the consultations and allow for representations within fifteen (15) days.

Where the Commission approves the intended conversion of land after scrutiny of the public representation, it will then allocate the land and enter the particulars in the Land Register.

Conversion of Public Land to Community Land
Upon receipt of an application for conversion of public land to community land, the Commission is required to satisfy itself that the land is public land and it will be used for the benefit of the community, as provided for under Article 63 of the Constitution.

The Commission is also required to invite comments or objections on the intended conversion of public land to community land by placing a thirty (30) day notice in the same form and mediums, as the notice for conversion from public to private land.

Where there are objections, the Commission is required to notify the National or County Government of the same for determination. In case there are no objections, the Commission will proceed to publish a notice in the Kenya Gazette on the conversion of the public land to community land. The conversion is then entered in the Land Register.

The Land (Assessment of Just Compensation) Rules, 2017
The Land (Assessment of Just Compensation) Rules, 2017 (the Land Compensation Rules) were developed by the Commission in exercise of the powers conferred under section 111 (2) of the Act, and gazetted vide Legal Notice No. 283 of 2017. The Land Compensation Rules focus on the assessment of compensation payable to persons who possess an interest in land, at the time which the Commission takes possession of such land.

The Land Compensation Rules provide that in assessing the appropriate compensation for compulsory acquisition of land, the Commission will consider the following factors:

  • The market value of the land
  • The damage sustained or likely to be sustained by persons interested at the time the Commission takes possession of the land
  • Reasonable expenses incidental to the relocation of any of the persons interested
  • Damage genuinely resulting from the diminution of the land between the date of the publication in the gazette of the notice
    of intention to acquire land and the date the commission takes possession of the land

With regard to market value of the land, the Commission is required to consider the stipulated user of the land and whether there has been any increase in the value of the land, either after publication of the notice of intention to acquire the land; or by reason of use of the land in an illegal manner or a manner detrimental to the user. Conversely, the Commission does not consider the following matters when assessing compensation:

  • The degree of the urgency which has led to the acquisition
  • Any disinclination of the person interested to part with the land
  • Damage sustained by the person interested which, if caused by a private person would not be a good cause of action
  • An increase in the actual value of the land as at the date of the publication in the gazette, of the notice of intention to acquire likely to accrue from the use to which land will be put when acquired
  • An outlay on additions or improvement to the land, incurred after the date of publication in the Gazette of the notice of intention to acquire land, unless the additions or improvements were necessary for the maintenance of any building in proper state of repair

The Commission will determine an award based on the market value of land which is taken as the value of the land at the date of publication in the Gazette of the notice of the intention to acquire the land. It should be noted that additional compensation is payable for disturbance over and above the compensation amount. Additional compensation is calculated at fifteen per cent (15%) of the market value of such land.

Conclusion
The efforts of the Commission to address the challenges affecting the land sector should be commended. It however remains to be seen to what extent the Rules will be implemented in order to determine their impact in addressing these challenges.

Still, strict implementation of the Rules is not enough. Corruption should also be tackled as it is a serious impediment in the Government’s efforts to address land issues. An example is the assessment and compensation of the compulsory acquisition exercise for one of the current flagship projects in the transport sector, which has been marred by allegations of corruption. This has resulted in the arraignment of senior officials in the Commission to answer to graft charges. We hope these efforts at curbing corruption will be sustained so that the contentious issues in the land sector will be addressed where possible, substantively
and with finality.

 

Unresolved: An Assessment of the National Land Commission

Posted on May 31st, 2019

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The land “problem” in Kenya dates back to the colonial times, with the alienation of land to European settlers stoking the fires of the struggle for independence. Subsequent allocation of the same land after independence to well positioned individuals and companies, did not solve the problem. Since independence, the legal and institutional framework relating to land has been fraught with tension, strife and copious litigation.

The Constitution of Kenya, 2010 provides for the formation of the National Land Commission (NLC) under Article 67 (1). Article 67 (2) stipulates the functions of the NLC. Further, Article 68 provides that the Parliament should revise and rationalise existing land laws and enact new ones. Pursuant to these provisions, the Land Act, 2012 (the Land Act), Land Registration Act, 2012 (the Land Registration Act) and the National Land Commission Act, 2012 (the NLC Act), were enacted. The NLC Act makes further provisions on the functions and powers of the NLC, including qualifications and procedures for appointment to the NLC. It also gives effect to the objects and principles of devolved government in land management and administration, and for connected purposes.

The establishment of the NLC was touted as a catalyst to Kenya’s land reforms that would have a domino effect of spurring economic growth. The key functions of the NLC include managing public land on behalf of the national and county governments, recommending a national land policy to the national government, advising the national government on a comprehensive program or the registration of title in land throughout Kenya and conducting research related to land and the use of natural resources, and make recommendations to appropriate authorities. The NLC also has the mandate to initiate investigations, on its own initiative or on a complaint, into present or historical land injustices and recommend appropriate redress, encourage the application of traditional dispute resolution mechanisms in land conflicts, assess tax on land and premiums on immovable property in any area designated by law and monitor and have oversight responsibilities over land use planning throughout the country.

The coming to an end of the tenure of the first commissioners of the NLC on 19th February 2019, invites the opportunity to assess and appraise the work of the NLC and to consider whether the NLC achieved its mandate as stipulated in the Constitution and the NLC Act. The establishment of the NLC brought with it rays of hope that the recurrent land issues in the country would be addressed with finality.

The recognition of the NLC as a constitutional commission exuded a new dawn in the arena of land management and administration policy, having been anchored in the supreme the law of the land. However, the following issues bedeviled the NLC no sooner had it commenced its operations.

Conflict over Roles

The jurisdictional conflict between the Ministry of Lands and Physical Planning (the Ministry) and the NLC erupted right from inception of the NLC. There was a vicious “turf war” between the Ministry and the NLC as to whose responsibility it was to undertake critical functions such as the extension and renewal of leases. This led the NLC to seek an advisory opinion from the Supreme Court concerning its roles vis-à-vis those of the Ministry.

By its advisory opinion In the Matter of the National Land Commission (2015) eKLR, the Supreme Court underscored the interdependence of the two institutions, in the sense that none was intended to work independently from the other. Rather, both were meant to work in consultation, to ensure that a system of checks and balances was enforced.

In analysing the NLC’s role under the Land Act, including functions such as the extension and renewal of leases over private land, conversion of land from public to private or vice versa, compulsory acquisition of land for a public purpose or undertaking land settlement programmes, the Supreme Court observed that “the foregoing provisions entrust the NLC with the responsibility of protecting and overseeing the public’s rights and interest, under the Constitution. However, the NLC’s mandate in that regard is not held exclusively and is not unqualified – provision is made for approval from the National Assembly and the consent of the National Government or relevant County Government. This provides a check-and-balance system, to ensure that the NLC operates within the prescribed limits.”

The Supreme Court noted that the NLC’s mandate entailed the processes leading to the issuance of title, whilst the Ministry’s role was the actual issuance of titles. On this point, the Court observed that “…The NLC has a mandate in respect of various processes leading to the registration of land, but neither the Constitution nor statute law confers upon it the power to register titles in land. The task of registering land title lies with the National Government, and the Ministry has the authority to issue land title on behalf of the said Government.” Notwithstanding the distinction of roles, the Court nevertheless reiterated the aspect of interdependence as follows:
“The Constitution’s mandate falls to the three State organs, in an operational context of check-and-balances: and the various Commissions act as oversight and watchdog mechanisms. Hence, each of the functions of the NLC and the Ministry stands to be checked by the one or the other, in order to avoid abuse of power in matters relating to land. The unchanging theme throughout the Constitution, is that the relationship between these two bodies is inter-dependent and based upon co-operation; it is not an agency relationship. As the Ministry conducts its functions, the NLC acts as a watchdog, to ensure compliance with the Constitution, and with legislation. Likewise, the NLC as an oversight body, maintains its functional, financial and operational independence, while still being overseen and checked by the public, by other independent offices, and by the three arms of Government.”

Revocation of Titles

The NLC had been holding periodic sittings concerning the legality of titles at the end of which, it would revoke titles for properties considered to have been acquired illegally or irregularly. It would then proceed to publish lists of revoked titles in the Kenya Gazette and in newspapers of nationwide circulation. These revocations were challenged in the Environment and Land Court and several cases have thus addressed the point.

In Robert Mutiso Lelli and Cabin Crew Investments Limited v National Land Commission & 3 Others (2017) eKLR, whilst considering whether the NLC had jurisdiction to revoke titles to land even where it finds, after inquiry, that such title was irregularly acquired, the Court noted that there was no legal provision for the NLC to revoke titles even if upon inquiry it establishes that such titles were unlawfully or irregularly acquired. The power to revoke title was vested in the Registrar and not the NLC which could only recommend revocation.

Historical Land Injustices

Article 67 (2) (e) of the Constitution empowers the NLC to investigate historical land injustice and recommend the appropriate redress. The NLC Act replicates the same functions in section 5. Section 15 of the NLC Act defines historical land injustice as a grievance which meets the following criteria:

  • Was occasioned by a violation of right in land on the basis of any law, policy, declaration, administrative practice, treaty or agreement
  • Resulted in the displacement of persons from their habitual place of residence
  • Occurred between 15th June, 1895 when Kenya became a protectorate under the British East African Protectorate and 27th August, 2010 when the Constitution was promulgated
  • Has not been sufficiently resolved and subsists up to the period specified above
  • The act which the claim is based on should be verifiable as having resulted in the displacement of the claimant or another form of historical injustice
  • The claim cannot be addressed through the ordinary court system on the basis that it was illegal at the time the injustice occurred or is time barred
  • The claimant was either the proprietor or occupant of the land upon which the claim is based
  • The claimant did not at any time surrender or renounce his right to the land in question
  • The claim is brought within five (5) years from the commencement of the NLC Act i.e. 2nd May, 2012

Going by the last requirement, it is clear that the window period for lodging claims for historical injustices, expired on 1st May, 2017. This means that the NLC’s role as far as historical injustices are concerned has lapsed and it cannot receive new complaints after 1st May, 2017, but can only dispense with matters that were lodged before then. It is noteworthy that there was an opportune moment for extending the said deadline when the Land laws were revised in 2016. However, this provision was not addressed, meaning the deadline of 1st May, 2017 remains effective.

It is also interesting to note that The National Land Commission (Investigation of Historical Land Injustices) Regulations, which were meant to operationalise section 15 of the NLC Act, were gazetted on 6th October, 2017, some five (5) months after the deadline lapsed. Equally interesting is the fact that time is fast running out for the claims the NLC admitted before the deadline and is currently handling. Section 15 (11) of the NLC Act provides that the provisions of the entire section 15 will be repealed within ten (10) years. The NLC Act as previously noted, came into force on 2nd May, 2012. Therefore, the statutory timeframe on addressing historical land injustices will lapse on 1st May, 2022. This means that all the cases the NLC is handling should be concluded within the next three (3) or so years.

The Way Forward

The importance of the interdependent relationship between the NLC and the Ministry, as advised by the Supreme Court, cannot be overemphasised. If the spirit of the Constitution is to be upheld, the two (2) institutions should work in harmony and consult each other. As their roles and functions are interdependent, none can fully discharge its mandate in isolation of the other. Consultations will also be invaluable as a check and balance mechanism to ensure that the NLC does not exceed its mandate in future, as it did with the revocation of titles.

There is also need to revise the timelines on the investigation of land injustices, as the ten (10) year deadline may not be realistic, especially for sensitive matters that may have been protracted due to the plurality of claims. In the interest of substantive justice, there may be need to extend the NLC’s mandate in this regard, to ensure it has adequate time to determine such important matters. Perhaps it may also be necessary to extend the five (5) year window on the admission of claims, as there may be genuine cases where persons were prevented from lodging their claims before 1st May 2017.

Oraro & Company Advocates Recognised For the Fourth Consecutive Year by IFLR 1000 in the 2019 Rankings

Posted on November 13th, 2018

November 13, 2018

For the fourth consecutive year, leading legal directory – IFLR 1000, recognised Oraro & Company Advocates as a top-tier firm in its recently released 2019 rankings. The firm was commended as “…very professional and diligent in providing its legal services and undertaking the work. They have competent lawyers who proactively respond to their clients. The law firm is also sensitive to clients’ needs and they go out of their way to understand the clients’ needs and provide the advice and service required.”

Solidifying its 2018 ranking as a tier 2 firm in both Project Development (Infrastructure) and Project Development (Mining), Oraro & Company Advocates was yet again recognised as a tier 2 firm in both practice areas. For the very first time the firm was ranked in Project Development (Power) as a tier 3 firm, evidence of notable transactions it has handled in the Energy sector in Kenya. The directory also acknowledged that the firm was active in Mergers & Acquisitions.

Three of the firm’s partners were also recognised for their expertise including George Oraro SC who was ranked as a highly regarded lawyer in Project Development and M&A and lauded as “…a very competent and knowledgeable advocate with a deep understanding and application of the law.” Also coming in as a highly regarded lawyer was Pamella Ager who was identified for her expertise in Banking and M&A.

Nelly Gitau joined the highly regarded lawyer rankings this year in Banking (Real Estate) from a rising star in IFLR 2017 and 2018 respectively. Well-respected for her expertise in Arbitration and Insolvency, Noella Lubano, a Partner in the firm was singled out as having “…extensive [insolvency] experience, is client focused and provides high quality legal services. She is accessible, responsive and sensitive to clients’ needs.”

In response to the rankings, the Managing Partner – Chacha Odera remarked that “These rankings signify our continuous efforts as a firm to go over and above what our clients expect and I am particularly pleased with Nelly Gitau’s recognition as a highly regarded lawyer in Banking (Real Estate) from a rising star.”

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Profile

Established 42 years ago by George Oraro SC (one of Kenya’s top litigators), Oraro & Company Advocates is a top-tier, full-service Kenyan law firm providing specialist legal services both locally and regionally in Arbitration, Banking & Finance, Conveyancing & Real Estate, Corporate & Commercial, Dispute Resolution, Employment & Labour, Infrastructure, Projects & PPP, Restructuring & Insolvency and Tax. The firm has been consistently ranked by leading legal directories such as Chambers Global, IFLR 1000 and Legal 500 and its partnership includes well-recognised advocates who are regarded for their expertise in their respective areas as well as their significant contribution to Kenyan jurisprudence.

Kipkirui Kosgei

Head of Business Development

T: +254 709 250 000/709 250 735

E: gkosgei@oraro.co.ke

Amendments to the Central Bank of Kenya Act, 1966

Posted on October 15th, 2018

The Finance Act, 2018 assented to on 21st September, 2018, amended the Central Bank of Kenya (CBK) Act, 1966 to regulate Mortgage Finance Business (the business). The amendments include having new definitions and introduction of new powers to the CBK

These amendments came into effect on 1st October , 2018.

New Definitions

  • A Mortgage Refinance Business is defined as the business of providing long term financing to primary mortgage lenders for housing finance and any other activity that the bank may prescribe from time to time;
  • Mortgage Refinance Company means a non deposit taking company established under the Companies Act of 2015 and licenced by the CBK to conduct mortgage refinance business;
  • Specified Mortgage Refinance Company means a licensed mortgage refinance company licensed under the CBK Act.

Increased CBK powers

With the introduction of new sections, CBK will now have power to license and supervise the business. This includes:

  • Determining capital adequacy requirements;
  • prescribe minimum liquidity requirements and permissible investments for the business;
  • Supervise the business by conducting both on and off-site supervision;
  • Assess professional capacities of persons managing the business;
  • Approving the board management of the business;
  • Approving the appointment of external auditors;
  • Collecting regular data from the business;
  • Approving the annual audited accounts of the business before publication and presentation at the AGM;
  • Revoke or suspend a license;
  • Receiving reports from the Mortgage Refinance Business.

The Companies Act, 2015

Posted on September 12th, 2018

By Pamella Ager | Geoffrey Muchiri

The Companies Act 2015 (the Act) is amongst a suite of new laws intended to streamline business in Kenya, by making it easier for entities to establish a presence and operate. Although quite voluminous, the Act takes into consideration, developments in technology and procedure, to boost the ease of doing business. In addition, the Act codifies and gives life to the now generally accepted principles of corporate governance.

Below are some of the more salient features of the Act:-

  • The introduction of sole membership of private companies; entrepreneurs will no longer be required to incorporate a company with at least two members(as required under the previous Companies Act (Cap 486). This takes into consideration the Government’s intention to increase and facilitate entrepreneurial activity in Kenya
  • Several provisions that remove previous procedural technicalities for compliance have also been codified. These include:-
  1. No obligation for a private company to have a company secretary, where it its paid-up capital, does not exceed Kshs. 5 million
  2. Private companies are allowed to have only one director, while public companies must have at least two
  3. The minimum age of a director is now 18 years, down from the previous 21 years, with no prescribed maximum age
  4. A company’s objects are now not deemed to restrict its capacity; a company may transact only subject to its own limitations
  5. The members of a private company may pass written resolutions circulated in hard copy or electronic form
  • A company may notify shareholders of notices and announcements through its website
  • Sector-Specific model articles of association shall be prescribed
  • The Act codifies directors’ fiduciary duties, as stipulated under common law. These include: duty to exercise reasonable care, skill and diligence, duty to act within powers and duty to avoid conflicts of interest In respect of accountability and transparency, the following provisions have been introduced:-
  1. Private companies must file financial statements within 9 months of the accounting period with the Registrar of Companies (RoC)
  2. Resolutions, written memorandum and agreements affecting the company’s constitution are to be filed at the Companies Registry within 14 days of their passing
  • Directors’ fixed term service contracts in excess of two(2) years will require shareholders’ approval
  • The requirements for valid execution of a document by a company have been changed to signing by 1 director in the presence of an attesting witness
  • The RoC is to be informed of changes in a company’s directorship or directors’ addresses within 14 days of effecting the change
  • Transfer by the company of a substantial non-cash asset to director shall only be by resolution. A non-cash asset is considered substantial where its value exceeds 10% of the company’s assets and is more than Kshs 5 million, or one that exceeds Kshs 10 million
  • An application may be made to the AG or the Official Receiver for a disqualification order against a director or company secretary, where he/she is unfit to hold office, or where the company becomes insolvent. The duration of such an order is between 2 to 15 years
  • Takeovers and Mergers will now be governed by the Act(once it comes into force), as opposed to the previous position, where takeovers were governed by the Capital Markets Act (Cap.485A) and the regulations made thereunder
  • The introduction of comprehensive Financial Reporting requirements in line with International Accounting Best Practice(developed after Enron and Parmalat) which includes amongst others setting out the functions, remuneration terms and extent of liability of Auditors (exemption of liability is proscribed)
  • Golden parachutes which are common place during the exit and/or ouster from office of any director, are subject to approval by the shareholders.
  • Winding Up (which was previously governed and available under the old Companies Act 1948) is now repealed as a whole and replaced with legal concepts such as administration, liquidation and moratorium which are governed by the Insolvency Act 2015
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Defining Boundaries: A Closer Look at the Code of Corporate Governance Practices for Issuers of Securities to the Public, 2015

Posted on August 13th, 2018

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Section 11(3)(v) of the Capital Markets Act, Cap 485A Laws of Kenya authorizes the Capital Markets Authority (the Authority) to discharge its functions by prescribing notices or guidelines on corporate governance of companies whose securities have been issued to the public or a section of the public. In furtherance of this mandate, the Authority has recently published in the Kenya Gazette (on 4th March, 2016) the Code of Corporate Governance Practices for Issuers of Securities to the Public, 2015. It has also published the Guidelines on the Prevention of Money Laundering and Terrorism Financing in the Capital Markets, 2015.

This review focuses on the Code of Corporate Governance Practices for Issuers of Securities to the Public, 2015 (the Code) which succeeds the Guidelines on Corporate Governance Practices by Public Listed Companies in Kenya, 2002 and highlights the principles and specific recommendations on structures and processes which companies should adopt in making good corporate governance an essential part of their business dealings and corporate culture.

The Code is intended to establish the minimum threshold of standards expected of the various stakeholders such as directors, shareholders, chief executive officers and top tier management of listed or unlisted companies, as long as such companies issue securities to members of the public, or a section of the public. This, in turn, will ensure that the above-mentioned stakeholders exercise their responsibilities with clarity, assurance and effectiveness.

The Code comprises seven chapters titled: Introduction, Board Operations and Control, Rights of Shareholders, Stakeholder Relations, Ethics and Social Responsibility, Accountability, Risk Management and Internal Controls, and lastly, Transparency and Disclosures.

With respect to Board Operations and Control, it is noteworthy that there is a restriction on multiple directorships, especially in listed companies. With the exception of a corporate director, a director of a listed company is precluded from holding such a position in more than three public listed companies, at any one time. This is a shift from the previous position where a director was precluded from holding such a position in more than five (5) listed companies at any one time. The purpose of this is to ensure effective participation by the directors constituting the board of such companies. With respect to alternate directors, the Code provides that the appointment of an alternate director by a corporate director, shall be restricted to two public listed companies at any one time. This has been reduced by one. Similarly, a chairperson of a public listed company is precluded from holding such a position in more than two public listed companies at any one time. Again, the significance of this, is to enable the individual occupants of the aforementioned offices devote sufficient time to the various boards they sit on. It is noteworthy that any executive director of a listed company shall now be restricted to one other directorship of another listed company. This requirement ought to be read in tandem with the provisions of the Companies Act, 2015 on directorships.

Another important highlight is the fact that the Code distinguishes the functions of the Chairperson and the Chief Executive Officer of a Company. The implication of this is that the functions of the Chairperson and those of the Chief Executive Officer, cannot be exercised by the same individual; this is a mandatory requirement.

Additionally, the boards of companies issuing any securities to members of the public will now be required to conduct a performance appraisal of all its board members, including the Chief Executive Officer and the Company Secretary. This is shift from the previous position where the board was only tasked with reporting requirements on the activities of the board in a given financial year.

Whereas listed companies were previously required to have periodic legal and compliance audits, the Code now requires such companies to have annual governance audits in addition to the legal and compliance audits. The purpose of this is to ascertain that the company is operating on sound governance practices.

With respect to the rights of the Shareholders, the Code mandates the boards of companies to recognize, respect, and protect the rights of the shareholders. The code does this by providing an enabling environment for the exercise of the entitlements or rights of the shareholders.

Further , the salaries of the management team is to be pegged on the company’s performance.

One significant highlight in the provisions  touching on Stakeholder Relations, Ethics and Social Responsibility is the fact that the boards of listed or unlisted companies issuing securities to members of the public, are expected to constitute and put into effect a whistle blowing policy for such companies.

Lastly, it is noteworthy that the reporting requirements of listed companies have been enhanced to include an element of independent reporting. This is captured from the chapters of the Code touching on Accountability, Risk Management and Transparency and Disclosure Requirements, which generally require the boards of such companies to rotate independent auditors every six to nine years. No listed company will be in a position to retain the services of an audit firm indefinitely. The significance of this is that it ensures the integrity of any data or audit reports issued. This is also in line with the International Financial Reporting Standards.

In phase two of our analysis we will review the Guidelines on the Prevention of Money Laundering and Terrorism Financing in the Capital Markets, 2015 and their impact on the operations of listed companies. In the meantime, if you have any questions relating to the Code please do not hesitate to contact our lawyers (see contacts below).

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Got Power?: Salient Aspects of Kenya’s New Energy Bill, 2015

Posted on August 13th, 2018

By Pamella Ager

 

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Background

Among other objectives, the Energy Bill, 2015 (the Bill) seeks to end Kenya Power and Lighting Company’s over fifty (50) years near monopoly, over power distribution and retailing of electricity in Kenya, entrenched under the soon to be repealed Energy Act No. 6 of 2006 (the Energy Act). Power distribution in the energy sector plays a crucial role in the government’s efforts to ensure that every Kenyan has access to electricity by the year 2020 so the statute is of great national importance. Below is a brief analysis of the measures introduced in the Bill to meet this objective:-

New defined terms

Currently, the Energy Act only defines “distribution” to mean the ownership, operation, management or control of facilities for the movement or delivery of electrical energy to enable supply to consumers; and “distribution licence”, to mean any document or instrument authorising a person to distribute electrical energy in the manner described in such a document. In addition to the meaning of distribution and a distribution licence, the Bill has now introduced the terms below:-

  • “distributed generation” means a system of small generation plants supplying directly to the distribution system, any one of which does not exceed ten thousand (10,000) KW in capacity
  • “distribution licensee” to mean a licensee authorised to operate and maintain a distribution system for supplying energy to the consumers in its area of supply
  • “distribution of electricity” means the conveyance of electricity by a distribution licensee through its distribution system
  • “distribution system” means a system, works, plant, equipment or service for the delivery, distribution or supply of energy directly to the consumers, but does not include a power plant or transmission line

Licensing

Any person that wants to distribute electricity must apply for a licence to the Energy Regulatory Authority (the Authority) provided that the person will not require authorisation to generate electrical energy for their own use of a capacity not exceeding one MW. If any person carries out any electricity undertaking without a licence, they commit an offence and will be liable upon conviction, to a fine not exceeding KES 1 million or to an imprisonment of not more than one (1) year or to both.

The form and manner of applying for a license will be provided in the Regulations of the Bill; however, the Cabinet Secretary is yet to set them. The Authority can also invite applications for a licence through a fair, open and competitive process in accordance with procedures to be prescribed by the Cabinet Secretary in the regulations.

An applicant must give fifteen (15) days’ notice by public advertisement in at least two newspapers of nationwide circulation, before making an application for distribution that they intend to make the said application. Thereafter, the Authority will notify the applicant whether the application was received. The Bill has provisions that allow members of the public to also make objections to the application.

Factors considered by the Authority

The Authority will consider the following factors in granting or objecting the application

  • The impact of the undertaking on the social, cultural or recreational life of the community
  • The need to protect the environment and to conserve the natural resources in accordance with the Environmental Management and Coordination Act
  • The Land use or the location of the undertaking
  • The economic and financial benefits to the country or area of supply of the undertaking
  • The economic and energy policies in place, from time to time
  • The cost of the undertaking and financing arrangements
  • The ability of the applicant to operate in a manner designed to protect the health and safety of its employees and users of the service for which the licence is required and other members of the public who would be affected by the undertaking
  • The technical and financial capacity of the applicant to render the service for which the licence is required
  • Any representations or objections
  • The applicant’s proposed tariff
  • Any other matter that the Authority may consider likely to have a bearing on the electrical undertaking

Within sixty (60) days of notifying the Applicant the application was complete, the Authority will inform the applicant if they were successful. Conversely, where the application was unsuccessful, the applicant will be notified within seven (7) days of refusal. An aggrieved applicant will have the right to appeal to the tribunal within thirty (30) days of the decision of the Authority.

Duties of a Distribution Licensee

There are expressed obligations and rights given to a distribution licensee; some of which include the power to plan, build, operate and maintain the distribution system necessary for the transfer of electrical energy from generating stations or plants either directly or indirectly for purposes of enabling supply to consumers as stated in the licence.

Despite the rights accrued under the distribution licence, it does not relieve the licensee or anyone else from complying with laws applying to the development, building, operation or maintenance of a distribution network. Some of them include the following;

  • They are expected to build, maintain, and keep in good state of repair suitable and sufficient electric supply lines for purposes of enabling supply to be given in the area of supply specified in that behalf in the licence
  • Operate an efficient, safe, co-ordinated and economical distribution system
  • Where applicable, comply with the directions of the system operator
  • Provide non-discriminatory open access to its distribution system for use by any licensee, retailer or eligible consumer upon payment of use of system charges as will be prescribed in regulations and such other fees and compliance with minimum requirements of the distribution licensee
  • Provide such information as may be prescribed in regulations to enable the Authority to approve the fees, charges and any necessary requirements

Unless the licence states otherwise, the distribution licensee must ensure as far as technically and economically practicable, that the distribution system is operated with enough capacity to provide network services to persons authorised to connect to the network.

In order to ensure there is reliability and quality of supply and quality of service, the licensee will be required to collect, analyse and maintain such data, information and statistics relating to his undertaking to enable him monitor and report to the Authority on the reliability and quality of supply & service, as would be prescribed in regulations.

Revocation of Licence

A licence can be revoked by the Authority where;

  • The undertaking or the execution of the works related has not commenced at the expiry of twenty four (24) months from the date on which  the licence was granted, or at the expiry of any extended period which the Authority may allow;
  • It is satisfied that the licensee is either willfully or negligently not operating in accordance with the terms and conditions of the licence, or
  • The provisions under the Bill or any regulations;
  • The licensee is adjudged bankrupt; or
  • The licensee at any time after commencement of the licence, makes representation to the Authority that the undertaking cannot be carried on with profit, and ought to be abandoned, and, upon inquiry the Authority is satisfied that the representation is true.

The Authority must however give a thirty (30) day notice to the licence-holder to show cause why their licence should not be revoked.

Extension of the network to persons requiring supply of electrical energy

There are also additional duties pertaining to extending the network to persons who wish to be supplied with electrical energy.

A distribution licensee will be required to plan and construct the requisite electric supply lines to enable any person in the licensee’s area of supply, receive a supply of electrical energy either directly from the licensee, or from a duly authorised electricity retailer, as the case may be.

A person in need of the supply of electrical energy must apply to the duly authorised retailer, but where there is no such retailer, to the distribution licensee. If the supply is to be provided at medium or high voltage the retailer can advise the applicant to apply directly to the distribution licensee. Further, the person who needs the supply must specify the premises in respect of which the supply is required and the maximum power required to be supplied and a reasonable date when the supply is required to commence.

Upon receipt of the application to be supplied with electrical energy, the retailer or the distribution licensee, as the case may be, must within the period specified in the licence and any regulations, notify the person by whom the application is made, of the terms and conditions, which may include payments of whatever nature, to be complied with by the applicant before the supply is availed. (Provided that the licensee may in its discretion allow an applicant under this sub-section to pay the cost of the installation in installments over such periods and on such terms and conditions as may be agreed upon between the licensee and such person).

Regardless of any payments made during the application to be supplied with electrical energy, the electric supply lines will remain to be the property of the distribution licensee and could be used to supply other persons, provided that such use does not prejudicially affect the supply of electrical energy to the person who first required such electric supply lines to be laid down.

Rights of Persons who have applied to be supplied with electrical energy

They will be entitled to reimbursement by the licensee of a fair and just proportion of the cost originally paid from payment made by each person subsequently connected to electric supply lines, provided that a claim for reimbursement is made within six (6) years. The licensee will determine the fair and just proportion of the cost to be reimbursed in accordance with regulations of the Bill. If any difference arises as to the amount to be reimbursed by any person, that issue will be determined by the Authority upon an application. A licensee must keep at its office forms of requisition and a copy will, on application, be supplied free of charge to any person within the area of supply and any supplied requisition be deemed valid in point of form.

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About Us

Oraro & Company Advocates is a full-service market-leading African law firm established in 1977 with a strong focus on dispute resolution and corporate & commercial law. With a dedicated team of 10 partners, 4 senior associates, 10 associates, 1 lawyer and 36 support staff, the Firm has been consistently ranked by leading legal directories such as Chambers Global, IFLR 1000 and Legal 500 as a top-tier firm in Kenya.

Oraro & Company Advocates is an affiliate member of AB & David Africa.

Contact Us

Oraro & Company Advocates
ACK Garden Annex, 6th Floor, 1st Ngong Avenue
P. O. Box 51236 - 00200, Nairobi, Kenya.
T: +254 709 250 000
E: legal@oraro.co.ke | W: www.oraro.co.ke

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