Benefits of Business Law Act 2021 to Small Businesses
The Business amendment law act that was enacted on 31st March 2021 set foot to several benefits that would have a long-term impact on how small businesses operate in the country. The Insolvency Act, 2015 had some particular importance relating to the funds which are safeguarded for unsecured creditors, these secured creditors were entitled to proceeds realized from the sale of charged assets. It also created an exception to this rule by requiring that 20 percent of the net proceeds realized from the sale of assets subject to a floating charge be set aside exclusively for the benefit of unsecured creditors according to the act among major amendments that are key. On other dimensions were the key statutes amended by the Act include the Law of Contract Act, Stamp Duty Act, National Social Security Fund Act (2013), National Hospital Insurance Fund, Industrial Training Act, Companies Act (2015), and the Insolvency Act. With the Kenyan economy slowly phasing the pandemic era and businesses achieving their tractile strength in the market, understanding this would be of greater future wins.
The Business Laws (Amendment) (No.2) Act of 2021 (the Act) came into force on 31st March 2021. The amendments introduced by the Act were mainly intended to support business activities in Kenya. This came at a period when the country was facing an unpredictable wave of Covid-19 that scattered so many fortunes among business owners. The Nairobi, Kiambu, Machakos, Kajiado lockdown destabilized the economy a greater deal. Businesses had to undergo extremes in operational costs, as some had to cut off some of their employees in order to meet the costs of operation.
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The state was chaotic as the trauma felt among many unemployed Kenyans was evidently high and negative. The Business Laws (Amendment) (No.2) Act of 2021 (the Act) come in handy to protect businesses against some of the gaps created with the pandemic and others on the general economic performance. As a small business owner, these act enables you to be safeguarded against any risks in the market, such as unsecured creditors, floating charges, employee official affiliation to the organizations, all these on a long term basis.
Let’s discuss in detail individual amendments for you;
Convenient remittance of employment statutory deductions
The Act has placed in order the remittance dates for the National Hospital Insurance Fund (NHIF) and the National Social Security Fund (NSSF) to the due date for the remittance of Pay As You Earn (PAYE). These statutory deductions are now due by the ninth day of each month. Moreover, employers are now allowed to remit National Industrial Training Authority (NITA) payments at the end of their financial year provided the same is remitted not later than the ninth day of the month following the financial year-end. However, the Act repealed the one-month delay afforded to employers for the remittance of NSSF contributions. Employers are required to remit the contributions on the prescribed date, otherwise, a 5% late payment penalty accrues.
Benefit: Since small businesses are on the basis of the remittance pyramid in the GDP, these would help them prepare earlier in order to meet the deadlines and not like before.
Execution of documents by companies
According to the Act, the provisions of the Law of Contracts Act have now been aligned to the provisions of the Companies Act, 2015. The use of company seals is no longer mandatory in the execution of company documents.
The Companies Act, 2015 provides that documents may be executed by a company by:
- Two authorized signatories.
- A director of a company in the presence of a witness attests to the director’s signature.
- A duly appointed attorney.
Benefit: Breath of regular follow-ups in operations for SMEs
Virtual and hybrid company meetings
According to the Act, to adapt to the new ways of doing business necessitated by the COVID-19 pandemic, the need to allow virtual and hybrid general meetings has been kept as a mandate for any organization. A hybrid meeting in relation to a company’s general meeting is a meeting where some participants are in the same physical location while other participants join the meeting through electronic means including video conference, audio conference, web conference, or such other electronic means. A virtual meeting in relation to a company general meeting is a meeting where all members join and participate in the meeting through electronic means.
Benefit: With digital Migration SMEs have an opportunity to utilize this since the most skillset is at their disposal, making them the alpha leads in giving the Kenyan economy a specific pathway to follow in later days as they plan for growth. Investing in virtual and hybrid meetings saves a lot of time, space and eases workflow in case there is a need for ready engagements.
Being the biggest changed statue, the Act has made the following amendments to the Insolvency Act, among others:
a. For a moratorium, small business owners must prepare a document setting out the terms of the proposal and a statement of the company’s financial position containing such particulars of its creditors and of its debts and other liabilities and of its assets.
b. They are also required to establish why a moratorium is necessary to assist in agreeing to an informal restructuring or other agreement with creditors or entering a formal insolvency procedure which could lead to the rescue or efficient liquidation of the company.
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c. Small business owners will be required to submit the financial statements to the Monitor for consideration and comment.
d. A moratorium ends after 30 days from and including the day on which it takes effect unless the moratorium period is extended under Section 669.
e. During a voluntary arrangement, the business is now required to appoint a Monitor, not a provisional supervisor as previously required. The Monitor has to be an insolvency practitioner who will supervise the voluntary arrangement including issuing an opinion as to whether a moratorium has a reasonable prospect of achieving its aim and if the company is likely to have sufficient funds available to it during the proposed moratorium to enable it to carry on its business.
Benefits: Notably, Small businesses for which a liquidation application has been made in court but a liquidation order has not been issued would qualify for the pre-insolvency moratorium. A moratorium has the advantage of pulling all creditors into restructuring discussions, including small, expensive, or uncooperative secured or unsecured creditors who may otherwise shun the efforts of larger commercial lenders to give the debtor some breathing space.
This will stay for the longest time until any appeals to the Act are done
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