How company law must adapt in the time of Covid-19

As human beings, we are wired to react with irrational positivity towards calamities; convincing ourselves that they are temporary interruptions to our normal lives. Albert Calmus, in his book La Peste, writes, “Pestilence is so common. There have been as many plagues in the world as there have been wars, yet plagues and wars always find people equally unprepared.”

Covid-19, however, is not to be offhandedly dismissed. It has egregiously affected small, medium and multinational businesses alike and put to the test how we transact and do business domestically and internationally. There has perhaps not been a greater incentive to transform business culture than presented by this pandemic.

In the midst of all this, legislators are playing catch-up by means of effecting legislative intervention to ease the strain of doing business brought about by the pandemic.

Of importance are the legislative interventions required concerning private, public and listed companies and the capital market in Kenya.

CHANGES IN COMPANY LAW

Consider how company law necessitates companies to lodge various resolutions, registers, documents and agreements with the Companies’ Registry within stipulated timelines. For example, where a company amends its articles of association, it is required to lodge the amended articles with the Registrar within 14 days.

With the containment measures rolled out by the government, the scaling back of operations at various registries and remote-working arrangements, it will be difficult for many companies to comply.

In addition, certain documents are required to be stamped with the requisite stamp duty prior to filing them at the companies’ registry. Stamping is normally undertaken at the lands registry which had been closed. There are significant penalties for failure or delays in stamping and registration.

Parliament should therefore intervene to shield companies from the associated sanctions of penalties by waiving the requirement to stamp and register time-bound documents until the end of the pandemic when registries have resumed normal operations without imposing any penalties or other liabilities for non-compliance.

In addition, certain documents are required to be witnessed in person. The effect is that companies may find themselves unable to transact where in person witnessing or attestation of documents is required. The law should be amended to allow for video witnessing and attestation of signatures. In addition, companies should be allowed to file only electronic copies of documents such as financial statements, forms and constitutional documents, without the need for hard copies.

Whilst the Business Registration Services (BRS) department has done well in providing online platforms to facilitate a lot of transactions with the companies’ registry, some of the services remain unavailable online. For instance, in the case of registered foreign companies the BRS system has not been activated for some of the services. The BRS department should endeavour to enable all service on the online platform and in the meantime, mandatory requirements to perform certain obligations such as filing returns should be suspended for the duration of the pandemic where companies are unable to submit the documents electronically.

Until recently, public companies were prohibited from holding general meetings during the pandemic, despite the legal requirement under the Companies Act that they hold annual general meetings within prescribed periods.

In Miscellaneous Application No. E680 of 2020, the High Court has given all listed companies flexibility in convening general meetings provided they obtain a no-objection in writing from the CMA prior to issuing the notice of the relevant meeting. Listed companies may now hold virtual general meetings utilising electronic voting.

However, the High Court order only covers meetings by public companies listed on the NSE. For non-listed public companies, their directors or members would have to apply to court to be allowed flexibility in the convening of general meetings during this period.

The law should therefore be amended to allow all public companies (including non-listed companies) flexibility to convene general meeting through electronic means or to pass resolutions by way of written resolutions signed by members holding at least 50 percent of the issued shares of the companies for the duration of the pandemic.

In addition, directors or public companies should be given interim authority to appoint auditors until they able to convene general meetings in order to avoid a vacancy in the position of the auditor.

CAPITAL MARKET CHANGES

The Capital Markets Act regulates capital markets in Kenya. Information flow is critical to listed companies and is therefore highly regulated in the Act. Take as an example the requirement that issuers of securities are required to keep the Capital Markets Authority (CMA) and the Nairobi Securities Exchange (NSE) informed within 24 hours if they have information that pertains to their securities that might affect their marketability. In addition, such companies may be required to publish public announcements of the fact.

However, companies may be unable to meet these timelines and the same should therefore be reasonably extended to at least 2 working days from the occurrence of the triggering event.

The pandemic has and is likely to cause a significant financial strain on companies listed on the NSE, giving rise to the need to seek further funding from the market for example, through a rights issue. To do so, a listed company will need to meet all the disclosure requirements in the Act, some of which might not be feasible.

To enable such companies to urgently raise the much needed capital the CMA should consider relaxing some of the requirements where a company is able to give a legitimate reason for their inability to meet the requirements during the pandemic.

The economic downturn resulting from the pandemic and the unanticipated financial strain that it rings on companies may make it difficult for companies to pay out dividends. Listed companies should therefore be given leeway to stagger payment of dividends, cancel, or to defer the payment dates if the board considers it prudent to do so as a result of the pandemic, in order to enable them to manage their cash flows.

These are but a few examples of the many instances where company laws and capital markets laws ought to be amended to adapt to the current unprecedented situation. Both Parliament and the CMA would do well to consider and implement the requisite amendments in order promote an environment that facilitates business rather than stifles or hinders it.

The objective is singular. As a nation, we must do everything possible and necessary to legally and innovatively keep the economy’s head above the water where many are at risk of drowning.

Mr Anjarwalla, Ms Kiunuhe and Mr Rebelo are Advocates of the High Court of Kenya and Partners at Anjarwalla & Khanna LLP.