12th Parliament 2017 – 2019 – Session 15
The Statute Law (Miscellaneous) Bill, 2019 was published on 29 March 2019. Under the Standing Orders of the National Assembly, the Bill may be introduced in the House 14 days from the date of its publication, in this case 14 May 2019.
Notably, the omnibus Bill is still being used to introduce substantive changes to various laws.
The Prevention of Terrorism Act, 2012 seeks to strengthen the National Counter Terrorism Centre (NCTC) by adding the following members: the Ministry of Foreign Affairs; the Office of the Director of Public Prosecutions (ODPP); the Kenya Wildlife Services; Probation and Aftercare Services Department; the Kenya Prisons Service; and the Kenya Civil Aviation Authority. This will increase NCTC’s capacity in respect of diplomatic issues, criminal prosecutions, wildlife crime, social services, correction services and civil aviation risks.
Further, the Bill seeks to increase the mandate of NCTC to include being an approving and reporting institution for all civil society organizations and international non-governmental organizations engaged in preventing and countering violent extremism and radicalization through counter-messaging or public outreach and disengagement and reintegration of radicalized individuals. This is in addition to the existing mandate which lies with the Non-Governmental Organization Coordination Board. In practice, any application for registration of an NGO (whether local or international) requires NSIS approval. This proposal will add an additional NCTC approval requirement for registration.
The Value Added Tax Act, 2013 to allow a taxpayer to apply any withheld tax to his credit to offset any other tax liability due from the taxpayer; and to entitle a taxpayer to be paid the excess input tax where the excess arises from tax withheld by appointed tax withholding agents.
This proposal will be a big win for both KRA and taxpayers.
For KRA, this provision would remove from it the pressure to apply to the National Treasury for funds to pay the refund claims. The proposal is in line with KRA’s 7th Corporate Plan under which KRA plans to restructure its VAT refunds management along best practice lines in order to improve customer services, business climate and Kenya’s competitiveness. One of the key initiatives to be undertaken by KRA is to review and consider the implementation of credit utilization across tax heads in iTax to reduce the number and value of refund claims.
In respect of tax refunds, KRA’s 7th Corporate Plan KRA shall be guided by IMF’s Tax Administration Diagnostic Assessment Tool (TADAT) which generally requires timely payment of VAT refunds. In the Plan, KRA undertakes to effectively and efficiently reduce delays in refunds claim processing, from an average of 133 to 60 days through implementing various initiatives including:
· Integrating iTax with the iCMS for seamless confirmation of exports
· Implementing Tax Invoice Management System (TIMS)
· Reviewing and automating the current manual refunds risk rating framework in iTax to facilitate categorization of claimants into Green, Amber and Red Channels
· Reviewing and considering the implementation of credit utilization across tax heads in iTax to reduce the number and value of refund claims
· Restructuring of the process of export refunds so that low risk claims are automatically paid
· Lobbying the National Treasury to change the VAT refund process such that VAT is paid to the exchequer net of refunds; and
· Enhancing capacity in the division to speed up processing of claims, mainly debt validation and audit processes
Taxpayers would be able to mobilize its refunds and use them to pay off their other tax obligations thereby reducing the tax paid and effectively improving profitability of their businesses.
The Companies Act, 2015
The Bill seeks to establish the requirement for registration of beneficial owners as a comprehensive stand-alone section which would ease implementation. The requirement to register beneficial ownership was introduced by the Companies (Amendment) Act, 2017 which amended the Act to provide a definition of beneficial owner and amended section 93 to require companies to keep a register of its members and lodge it with the Registrar of Companies within 30 days after its preparation. The provisions in the Bill are largely a consolidation of the existing provisions in its own stand-alone section. The requirement for disclosure of beneficial ownership of companies is part of the Financial Action Task Force (FATF) (to which Kenya is a member) recommendation which requires member states to ensure that there is adequate, accurate and timely information on the beneficial ownership and control of legal persons. Following the recommendation, countries like the United Kingdom, Germany, France, Italy, Singapore and South Africa have amended their laws to provide for a beneficial ownership registry including through their companies laws and anti-money laundering legislation. The transparency in ownership would also help KRA to deal with tax evasion as they will have more clarity on who to pursue for tax enforcement.
The Bill also proposes to introduce a new qualification for being a private company that the Articles of Association must require the consent of all members to add a new member. This will give minority shareholders, or any shareholder for that matter, a lot of power in determining the membership of a private company after it is incorporated. The proposal would also affect drag along and tag along rights that are used by investors to ease their exit from companies. If passed, private companies with customized Articles of Association would have to amend their Articles to comply with this requirement.
In addition, the Bill seeks to make it mandatory for every company (with the exception of single member companies) to hold at least 1 general meeting each year. Failure to comply with this provision will attract a fine not exceeding KES 100,000.
Further, the Bill proposes to limit the authority of the directors of a company to grants rights to subscribe for or to convert any security into shares in the company only if they are authorized to do so by a resolution of the company. Currently, the directors may do so where they are authorized by a resolution of the company or by the Articles of Association of the Company.
In relation to takeovers, and regarding the right of an offeror to buy out the minority shareholders and the right of minority shareholders to be bought out by an offeror, the Bill seeks to amend the threshold of shares acquired by the offeror to trigger the rights from 90% to 50%. In one way, this proposal would ease the closing of M&A deals as an acquirer would potentially only need to acquire 1 shareholder’s stake to be able to drag every other shareholder into the deal. However, the provision of equivalent tag along rights for minority shareholders also means that a potential sale may be unattractive if the acquirer is forced to acquire all the shares in a company as the minority shareholders decide to exercise their right to sell their shares together with the seller.
The Insolvency Act, 2015 to specify the matters that a court may take into consideration in granting approval for the lifting of a moratorium to enable specific enforcement against a company’s property while a company is in administration. The Court should consider:
· The statutory purpose of the administration;
· The impact of the approval on the applicant particularly whether the applicant is likely to suffer loss;
· The legitimate interests of the applicant and the legitimate interest of the creditors of the company in giving the right of priority to the proprietary interest of the applicant; and
· The conduct of the parties.
Examples of companies in administration include: Nakumatt Holdings Limited, Deacons East Africa Limited and ARM Group Limited. Applying the proposal, if say one of the creditors of these companies filed an application in court requesting to enforce a security during the administration, the court would have to consider the above issues especially given that administration is intended to maintain the company as a going concern and achieve a better outcome for all creditors.