Regulatory Framework

Regulatory Framework

In any corporate reorganization, joint venture, merger, acquisition or company disposal in Kenya, regard should be had to the following regulatory provisions.

The Transfer of Business Act
The Transfer of Business Act (Chapter 500, Laws of Kenya) will apply in the case of a transfer of a business or any portion of a business (with or without goodwill) to another person. The act provides that unless notices are published as prescribed under its provisions and become 'complete' (a notice is deemed to be complete upon the expiration of two months from its publication) the transferee shall, notwithstanding any agreement to the contrary, become liable for all the liabilities incurred in the business by the transferor.

The disadvantage, therefore, of not publishing a notice in the prescribed manner is that the transferee could find itself saddled with undisclosed liabilities which were not taken into account in the decision to purchase the business. That notwithstanding, there could be commercial reasons as to why a transferee may decide that it does not wish to go through the notice procedure under the act.

In any event, the act stipulates a six-month limitation period which would preclude any proceedings being taken against a transferee for a liability imposed by the act more than six months after the transfer. There are also certain limited exceptions to the general rule that a transferee of a business becomes liable for all the liabilities of the business. These exemptions extend to transfers of businesses pursuant to security arrangements, such as a transfer by a receiver under a debenture.

The Restrictive Trade Practices, Monopolies and Price Control Act
The Restrictive Trade Practices, Monopolies and Price Control Act (Chapter 504, Laws of Kenya) was enacted to encourage competition in the Kenyan economy by prohibiting restrictive trade practices and to control monopolies, concentrations of economic power and prices.

The restrictive trade practices provisions are particularly relevant to joint ventures. The act lists various categories of trade agreements which constitute restrictive trade practices. An agreement that falls within a restrictive trade practice category is unenforceable.

Any aggrieved person may request the monopolies and prices commissioner to investigate an alleged restrictive trade practice. The commissioner has powers which it can exercise where competition is threatened, including the power to require a person engaged in a restrictive trade practice to take specific steps to discontinue such practice.

The Restrictive Trade Practices, Monopolies and Price Control Act seeks to control:

"1. a merger between two or more independent enterprises engaged in the manufacture or distribution of substantially similar commodities, or supply of substantially similar services; or

2. a takeover of one or more such enterprise by another such enterprise, or by a person who controls another such enterprise."

It requires that such merger or takeover must be authorized by the minister for finance. In the absence of such authorization the merger or takeover will have no legal effect and will be unenforceable.

The act lists a number of situations which would constitute a merger or takeover transaction for the purposes of the act. These include:

  • the acquisition or disposal of more than 50% of the voting power at any general meeting of a private company;

  • the acquisition or disposal of the whole or part of the assets of a business; and

  • a transaction which would result in the establishment of a new business to acquire a controlling interest in two or more independently owned businesses.

Takeovers and Mergers Code
The first edition of the Takeovers and Mergers Code will shortly be published by the Capital Markets Authority in conjunction with the Nairobi Stock Exchange. The spirit of the code must be observed by persons engaged in all takeover and merger transactions. Where a situation is not explicitly covered by any statutory provision, the general provisions of the code will apply. The general principles include the following: (i) shareholders must be given sufficient evidence, facts and opinions so as to enable them to make a sound decision on the transaction; and (ii) as soon as a good-faith offer has been communicated to the board of the offeree company, or the board believes that such an offer is imminent, it must take no action which could frustrate the offer or which could deny the company's shareholders of an opportunity to decide on its merits, unless this action has been approved in a general meeting.

For the first time the code will introduce a mandatory bid requirement whereby an offer must be made to purchase other shares of the same class where a person acquires more than 30% of the voting rights of any company.


In early 1997 the Kenyan government split the Kenya Power and Lighting Company (KPLC) into two entities: a power generator (Kengen) and a distributor (KPLC). The government established the Electricity Regulatory Board in April 1998 to regulate retail tariffs and approve power purchase contracts between KPLC and producers. The government also licensed two independent power producers to sell electricity to the grid.

The Kenya Communication Act (2/1998) replaced the Kenya Posts and Telecommunications Corporation Act (Chapter 411, Laws of Kenya). The act established the Communications Commission of Kenya (CCK) to act as the regulatory body for the sector and to assume responsibility for licensing, price regulation, radio frequencies and interconnection. Telkom Kenya Limited (TKL) was established in 1994 following the split of Kenya Posts and Telecommunications Corporation (KP&TC) into three legal entities: TKL, Postal Corporation of Kenya and the CCK.

TKL, which took over all the telecommunications functions of KP&TC, is a company registered under the Companies Act. At present the government is the only shareholder, but it is in the process of disposing of 49% of its equity shares to a strategic investor, and other shares to other investors through the Nairobi Stock Exchange.

Under pressure from the World Bank and other donors, the privatization of Kenya Ports Authority and Kenya Railways is underway, but the process has fallen behind schedule.

For further information on this topic please contact Atiq Anjarwalla or Sonal Sejpal at Kapila Anjarwalla & Khanna Advocates by telephone (+254 2 337625) or by fax (+254 2 337620) or by email ([email protected] or [email protected]).