State revises firms’ hostile buyout law

Nairobi Securities Exchange. Minority shareholders may be set for a reprieve after the State made a U-turn on the law that had made it easier for top owners to compulsorily acquire minority investors and delist firms. FILE PHOTO | NMG Minority shareholders may be set for a reprieve after the State made a U-turn on the law that had made it easier for top owners to compulsorily acquire minority investors and delist firms from the Nairobi Securities Exchange (NSE) .

The proposed law, known as Business Laws (Amendment) Bill, 2019, seeks to restore the upper limit of an investors owning at least 90 percent of a firm’s shares to forcibly acquire minority investors.

Last year, the State, through the Statute Law (Miscellaneous Amendments) Act No. 12 of 2019, had cut the threshold to 50 percent stake, making it easier for top owners to compulsorily acquire minority investors. The move sparked protests from stockbrokers and minority shareholders.

The Kenya Association of Stockbrokers and Investment Banks (Kasib) — a brokers’ lobby group — said the revised threshold was “too low” and would make it easier for majority shareholders to forcibly eject minorities. Now, the government — via a Bill tabled by Leader of Majority at the National Assembly Aden Duale — is seeking a reversal.

“Clause 35 of the Bill provides for the amendment of Section 611 of the Companies Act, 2015, to raise the applicable thresholds for “squeezing-in” and “selling-out” of shares in a company to control of at least 90 percent of the shares of the company,” says the Bill.

The 90 percent limit had proved useful for minority shareholders in firms such as Unga Group and logistics firm Express Kenya when top shareholders wanted to squeeze them out and delist the firms from the NSE.

“Company acquisition is a very grave matter that needs utmost caution and cannot therefore be left to a simple majority,” Willie Njoroge, the Kasib chief executive, said in an interview yesterday.

Top law firm Bowmans (Coulson Harney) had described the legal amendments as bizarre, noting that they had diluted the rights of small investors to unprecedented levels.

“There are few, if any, jurisdictions globally with such a low threshold for compulsory acquisition,” Bowmans said in a notice to clients. “We anticipate challenges to the legitimacy of this amendment and, potentially, in respect of any takeover effected in the future that takes advantage of the lower thresholds.”

According to the firm, the amendments […]

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