October 23, 2020

Legal Update: Mandatory Disclosure of Beneficial Ownership Information By All Companies

Filed under: Insight — job @ 9:47 am

Introduction 

The Registrar of Companies operationalized the Beneficial Ownership (BO) E-register on 13th October 2020. The effect of this is that all registered companies are now expected to prepare a form/register setting out all the information relating to their beneficial ownership and lodge the same with the Registrar within thirty (30) days of its preparation.

Prior to the enactment of the Companies Act, 2015, companies did not have any duty whatsoever to disclose information regarding their beneficial ownership. However, pursuant to the Companies (Amendment) Act, 2017 and subsequently the Statute Law (Miscellaneous Amendments) Act No. 12 of 2019 which introduced Section 93A, all companies incorporated or registered in Kenya are mandatorily required keep a register of beneficial owners with the relevant information relating to the said beneficial owners as prescribed by the Companies (Beneficial Ownership Regulations) 2020 (hereinafter referred to as the ‘BO Regulations’).

Who is a beneficial owner?

The BO Regulations describe a beneficial owner as the natural owner who ultimately owns or controls a legal person or arrangement. or the natural person on whose behalf a transaction is conducted and includes those persons who exercise ultimate effective control over a legal person or arrangement.

Pursuant to the BO Regulations, a person qualifies as a beneficial owner if the person:

  1. holds at least ten percent (10%) of the issued shares in a company either directly or indirectly;
  2. exercises at least ten percent (10%) of the voting rights in a company either directly or indirectly;
  3. holds a right, directly or indirectly, to appoint or remove a director of the company; and
  4. exercises significant influence or control; directly or indirectly, over the company. In this case significant influence means participation in the finances and financial policies of the company without necessarily having full control over them.

Steps of Filing Beneficial Ownership Information of a Company with the Registrar of Companies

  1. The company should take reasonable steps to identify any person it knows or has reason to know is a beneficial owner of the company.
  2. The company should give notice to the person it has identified as being a beneficial owner of the company requiring the person to provide the following information within twenty-one (21 days) from the date of the notice;
    • copy of his/her National Identification Cards, Passports or Birth Certificate;
    • copy of his/her PIN Certificate;
    • his/her telephone number, email address and occupation;
    • the nature of ownership or control the beneficial owner has in the company;
    • the name of shareholder (if any) holding shares on behalf of the beneficial owner; and
    • the name of the director appointed by the beneficial owner.
  3. The company should prepare Form BOF1 which contains the information set out in (2) above and lodge the same with the Registrar of Companies within thirty (30) days of preparing the said Form.

What happens in the event a Company believes it has beneficial owners but cannot identify or trace them?

The Company should simply notify the Registrar of Companies of the challenge to identify or trace its beneficial owners so that the Registrar can note the same in the register of Beneficial Owners.

What happens in the event a Beneficial Owner fails to provide the Company with Beneficial Owners details to enable to the Company Prepare and Lodge Form BOF1?

 The company should issue a warning notice stating that it is proposing to restrict the relevant interest of the beneficial owner.

The effect of the said restriction is:

Where the Company has issued a warning and imposed a restriction it shall note this in its register and lodge it with the Registrar.

Are there Limitation on the use and disclosure of beneficial owners information by the Company and Registrar?

Yes!

The use and disclosure of the beneficial ownership information is limited by law. The BO Regulations prescribe that as a general rule, beneficial ownership information shall not be made available to the public.

The rationale for this is to safeguard the beneficial owners’ confidentiality and to preserve their right to privacy.

The implication of this however is that a company’s beneficial ownership information shall not be readily available to any member of the public by way of conducting a company search. The Registrar would only issue such information to a competent authority upon written request to the Registrar of Companies.

A Company on its part, is only allowed to use or disclose information about the beneficial owner for purposes of communicating with the beneficial owner concerned, or in order to comply with either a court order or the Company (Beneficiary Ownership Regulations) 2020.

What are the timelines for the preparation and lodging of the Beneficial Ownership Register?

The Regulations do not seem to impose any specific deadlines as to the timelines within which a company is required to prepare its beneficial ownership register.

However, a company should prepare such register as soon as possible as it is obliged to keep a register of beneficial owners in its offices failure to which the company may be liable for committing an offence which attracts a maximum fine of Kenya Shillings Five Hundred Thousand (Kshs.500,000/=).

Once the register is prepared, the company must lodge the register with the Registrar of Companies within thirty (30) days.

What is the Rationale of Disclosing the Beneficial Owners of a Company?

The rationale for disclosure of beneficial ownership information is in the interest of creating an accurate public disclosure regime that provides transparency in the beneficial ownership and control structures of companies. This aids in not only promoting investor confidence and good corporate governance practices but also in uncovering tax evasion schemes, money laundering practices, corruption schemes, terrorist activities and other illegal activity involving either one or more companies.

Are there internal arrangements that stand to be affected by the BO Regulations?

Yes.

Some of the arrangements that are likely to be affected by this new requirement include nominee shareholders who will now be required to disclose the real details of their principal who is the true beneficial owner.

Companies that use chains of corporate vehicles will also now be required to disclose their real owners.

Holders of multiple voting rights shares exercising at least 10% of the voting rights will now be disclosed.

Conclusion

In view of the fact that the Beneficial Ownership E-register has been operationalized, companies need to comply with the BO Regulations by lodging their beneficial ownership information with the registrar the earliest possible to avoid the hefty penalties that come with non-compliance.

For more specific and comprehensive legal advice on this matter kindly contact our offices at the earliest opportunity.

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July 13, 2020

The Law of Succession (Amendment) Bill, 2020: A welcome review of the legislation relating to Succession in Kenya

Filed under: Insight — KRK Advocates LLP @ 5:45 am

By Marion Ogeto, Ann Wangui and Sharon Ndinda (Legal Assistants) with assistance from Joyce Muriithi (Associate)

Introduction

The Law of Succession Act (Cap 160 Laws of Kenya) (“the LSA”) has been operational for decades following its enactment in 1981. Prior to the enactment of the LSA, succession matters were governed by a plethora of laws including the African Wills Act (testate succession – where the deceased has a will) and customary law (intestate succession – where the deceased has no will) for Africans. There was also the Hindu Succession Ordnance (intestate succession) and the Hindu Marriage and Divorce Ordnance (testate succession) governing Hindus and the Mohammedan Marriage, Divorce and Succession Act for Muslims. The LSA was therefore enacted in order to consolidate these laws into one system.

Given that the LSA has been operative for many years, it was imperative to revise the Act to bring it into conformity with fundamental societal developments especially gender equality.  To this end, the Senate has proposed amendments to the LSA which are outlined in the Law of Succession (Amendment) Bill 2020 (“the Bill”). The overall effect of the amendments proposed by the Bill is to ensure gender equity is observed in the law of succession in Kenya.

The Proposed Amendments

Some of the proposed amendments captured in the Bill include amendments to the following provisions of the LSA:

  1. Dependency clause – section 29, which presently provides the definition of dependents, is to be amended to provide that husbands need not prove dependency as is required under the LSA. The provision would therefore allow either spouse to inherit as a matter of right;
  2. Community land clause – section 32, which presently provides for the property excluded from the intestacy provisions in Part V of the LSA, is to be amended to include community land under Article 63 of the Constitution of Kenya thus community land shall be governed by the existing customary law of the respective community;  
  3. Re-marriage clause – section 35, which presently provides the manner of distribution of property where the deceased has left one spouse and children, is to be amended to provide either spouse will lose their interest on inheritance if they re-marry. This is different from the current Act where only the widow loses her inheritance interest upon re-marrying;
  4. Equal distribution rights between parents clause – section 39, which presently provides the manner of distribution where a person dies intestate and has no surviving spouse or children, is to be amended to provide the first recipients as the parents of the deceased in equal share as opposed to the current provision whereby the father was to receive first before the mother.

An analysis of the effects of the Amendments to the Law of Succession Act (LSA) 1981

The amendments seek to address some of the most pertinent issues that contribute to succession law disputes in Kenya, including:

In particular, the following concerns are addressed by the Bill:

a) Dependency and Gender Equality
b) Communal Land Protection
c) Effects of Re-marriage to succession of the Deceased’s Estate
d) Equal distribution rights between parents of the deceased

Conclusion

Overall, the effect of the amendments has been to embrace the principle of gender equality espoused under Article 27(4) of the Constitution of Kenya into the law on succession in Kenya. It is indeed appalling that the LSA as currently enacted still perpetuates gender biases and differential treatment that is prejudicial to women for the most part. The Amendments to the LSA are therefore a very welcome move to the extent that they promote gender equality.

However, further revision of the Act may be needed to consider the questions of dependents raised above and the termination of the right to inheritance upon re-marriage.

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May 27, 2020

Key Highlights of the Pandemic Response and Management Bill 2020

Filed under: Insight — KRK Advocates LLP @ 6:38 am

By Antony Mbugua and Sharon Ndinda

Following the global outbreak and spread of the novel Coronavirus (“COVID-19”) many states have been constrained to deploy measures aimed at mitigating the negative effects occasioned by the pandemic. So far, Kenya has reported 715 Covid -19 cases which number is expected to rise over the next few weeks with the continued mass testing of the population. In a bid to contain the virus, the Government of Kenya has enforced certain measures including a partial lockdown of some businesses, a nation-wide curfew and travel restrictions to and from various counties which have recorded a high number of positive COVID-19 cases. As such, Covid-19 has not only affected the health of Kenyans but has also led to a great disruption of businesses and subsequently the Kenyan economy.

Given the unprecedented nature of Covid-19, Kenya, like so many other counties across the world, was not sufficiently prepared to deal with the devastating effects of the pandemic. As such the government has been forced to adopt a reactive approach to dealing with some of the unique effects of the pandemic.

It is in these circumstances that the Senate created an ad hoc committee chaired by Nairobi County Senator Hon. Johnson Sakaja to look into the pandemic and come up with ways through which the government can deal with the health and economic issues brought about by Covid- 19. The Ad-hoc Committee proposed to legislate the Pandemic Response and Management Bill, 2020 which seeks to ensure that Kenyans are cushioned from the negative financial impact of the pandemic. The Bill was debated by Parliament and has been forwarded to the President for assenting. It is pending assenting.

The objects of the Bill are threefold:

  1. To provide a framework for the coordinated approach in the response and management of activities during a pandemic;
  2. To provide temporary relief from the inability to perform contractual obligations where the inability is caused by a pandemic; and
  3. To provide temporary measures to address various matters during a pandemic.

The Bill has made a good attempt in providing a framework for the effective response and management of a pandemic. The Bill has sought to address some of the pressing concerns owing to the pandemic such as employment, loans and mortgages, tenancy and care for vulnerable groups and created relevant institutions.

However, there are a few sectors that have not been addressed such as remote learning in the education sector which has been a subject for debate in the last few months. Further, even though the Bill has attempted to provide economic safeguards for vulnerable groups, there is no provision for identifying and profiling these vulnerable groups into social safety net programmes. The Bill also takes a suggestive as opposed to a mandatory approach on certain key issues such as loans and mortgages. This, in our view, is a risky affair as the likelihood of compliance is significantly diluted.

Additionally, the Bill is silent on catering for the hospital bills and quarantine facilities for vulnerable groups and even more concerning cases of police brutality which has been on the rise since the pandemic began. However, the Bill gives the Cabinet Secretary the mandate to make regulations and any relevant rules or standards as may be required with regards to the pandemic.

Given the fact that the Bill touches on multiple sectors such as the financial services sector, the legal services sector and others, there is need for thorough consultation with representatives from the stakeholders within those sectors. We also feel that there is a need to get more input from economic experts who have raised criticisms with the Bill.

For further details on the bill, kindly click on the links below which explain salient provisions of the bill.

Declaration of a Pandemic by the President
The National and County Pandemic Response Committees
The Pandemic Response Fund
The Provision of Tax Incentives
Loans and Mortgages
Contractual Obligations
Tenancy Agreements
Labour Relations
Information Technology
Penalties and Offences

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