COMPANY LAW/ QUESTIONS

Question 1

Megan and Wayne are recent graduates of the world renowned Culinary School of Kenya and
having graduated with flying colors, they now wish to venture into the restaurant business.
Armed with preliminary research, they visit your Chambers for counsel on the type of company
structure that would best suit their needs as they incorporate a venture by the name "Kulasasa."
Megan and Wayne explain that they have invited several of their former classmates numbering
almost sixty (60) to join them in Kulasasa as minority shareholders while they retain majority
shareholding. It is also their wish that Kulasasa remain in the hands of the original subscribers
for the foreseeable future. Advise them on the following aspects:

a) Whether they meet the threshold of incorporation as a private company and the
conditions that need to be met for the company to be deemed a private company pursuant
to the Companies Act, 2015. (5 marks)
b) Megan and Wayne further explain that their former instructing Chef, one Mr. Goldberg,
may be interested in sourcing for some investment funds from some of his friends in
Denmark on condition that Kulasasa's registration as a private company is completed and
business has picked up. All this Mr. Goldberg will do in exchange for some shares in the
company. Explain to Megan and Wayne the following:

I. Can they make such an offer to Mr. Goldberg and his friends? (2 marks)
II. Should the offer be found to be in contravention of the law, what actions can
be taken to bring the offer into conformity with the law? (3 marks)

Question 2

Kino Sugar Ltd is a leading private company involved in importation and milling of sugar. It is
located in the Western side of the country and has enjoyed many years of close relationship with
the government of the day. The company has done very well owing to the corruption and
mismanagement of its competitors where the government is the majority shareholder leading to
the closure of some of them. Kino Sugar Ltd is currently the dominant market player and
controls up to 40% of the sugar market share. The fortunes of Kino Sugar Ltd started to dwindle
when the new administration got elected following the 2022 General Elections. The current
government has taken a hostile stance on the company including in particular accusing Kino
Sugar Ltd of being responsible for cartels in the sugar industry and the reason behind the closure
of its competitors. It has vowed to dismantle the cartels and return the sugar factories back to the
sugar farmers in rural areas and provide jobs for their youths as part of its campaign pledges.
Kino Sugar Ltd is concerned that they may soon be staring at insolvency if the present attacks by
the government continues and the revival of its competition is achieved.

a) As the leading insolvency practitioner in Kenya, write a detailed legal brief enumerating
the circumstances under which a company may be liquidated voluntarily to avoid
insolvency. (5 Marks)
b) The Registrar of Companies has recently written to Kino Sugar Ltd in relation to its
beneficial owners following claims that it was responsible for cartelism in the sugar
Industry. The company has come to your office seeking to know who is a beneficial
owner and what conditions should be met for a natural person to qualify as a beneficial
owner of a company under the Companies (Beneficial Ownership Information)
Regulations, 2020. (5 marks)

Question 3

Jenga Nchi Limited is a private real estate company limited by shares which has adopted the
model company MEMARTS. The company's nominal capital is Kenya Shillings One Hundred
Thousand (KShs. 100,000/-) with each share valued at KShs. 1,000/. Incorporated in 2015 by the
late Richard Kumo, Jenga's directors and shareholders are the adult children of the late company
founder and up until recently, they have been able to peacefully co-exist with respect to the
dayto-day running of the business.

The directors/shareholders of the company are: David Kumo (shareholder) 10 shares, Rose
Kumo (director/shareholder) 35 shares and Cynthia Kumo (director/shareholder 35 shares).
A marketing specialist by trade, David is very keen on the company closing on a 50-acre Cam
parcel of land situate on L.R. No. 1/2023. Having recently been adjudged bankrupt much to the
chagrin of his sisters Rose and Cynthia - David believes that the company's next project can be
designed around this parcel of land and of his own volition, he has even started putting up
billboards marked "Mixed used development coming soon, Reserve your plot now and Jenga
Nchi." David is confident that the advertised project will change his fortunes for the better and he
proceeds to call an annual general meeting of the company "within the next seven (7) days for
purposes of electing David Kumo as a director of the company and appointing him as a sole
signatory under seal with the authority to enter into an agreement for the sale and purchase or
L.R. No. 01/2023."

a) As the Company Secretary and with aid of relevant provisions of the law, critique the notice
issued by David. S. (5 marks)

Question 4

Mabáti Steel Limited and Steel Kenya Limited are privately owned companies both engaged in
the business of steel manufacturing and retail. Steel Kenya Limited is a wholly owned subsidiary
of Steel World Limited - a holding company based in the Republic of Rwanda and which
generates 90% of the profits of the conglomerate within Rwanda. In a bid to expand their
industrial base, the parties have agreed to merge their Kenya businesses in order to expand their
industrial base. It has been agreed that Steel Kenya Limited being the much larger and successful
entity with 50% market share will be the acquiring undertaking while Mabati Steel Limited with
a 5% market share will be the target undertaking. The gross combined annual turnover/value of
assets of the parties is in the amount of USD 50 Million ($50,000,000/=)

a) Mr. Kai, a director of Steel Kenya Limited has engaged your services and wishes to know
whether or not the proposed merger is exempt from notification to the Competition
Authority of Kenya (CAK) and whether it meets the COMESA Regional Dimension and
Threshold Tests. Briefly explain by highlighting the relevant provisions in law. (5
marks)
Question 5

A. Alfa Kenya Co. Ltd. (Alfa) a large private non-listed company, incorporated in Kenya,
with two main business operations i.e mining and shipping, and manufacturing of mining
and shipping machinery and equipment. Alfa is in the process of considering whether or
not to undertake a restructuring programme. Alfa's annual turnover is USD $12 million.
Five Alfa members of the Board of Directors (who own 60% of the equity share capital
in total) hold the view that the restructuring programme would not only simplify the
company's structure, but also, and most importantly, become a tool for raising extra funds
for expansion of mining and shipping business. According to these members, few years
after the implementation of the proposed restructuring programme, a reverse takeover
should be undertaken to obtain a listing on the Nairobi stock exchange in order to raise
new finance.
However, the other four members of Alfa's Board of Directors (who own 40% of the
equity share capital in total), have raised doubts about the restructuring programme and
the reverse takeover, and are of the opinion that the company should either join hands or
purchase one of the two foreign corporate entities- Indaba Mining Ltd., a Ugandan
company that is the market leader in manufacturing equipment for mining sector in
Uganda or Ethiopian Shipping Services Ltd, that holds 40% of the local market share in
Ethiopian shipping industry. Both foreign entities seem very attractive for acquisition.
This is because Indaba's Mining Ltd. annual turnover in the Common Market amounts to
USD $10.2 million and the company has its subsidiaries in Rwanda and Egypt with
export revenues of USD $ 5 million from both countries. The Ethiopian company's
annual turnover in the Common Market amounts to USD $10.5 million and the company
also has two subsidiaries one in Mauritius and the other in Seychelles, which accrue sales
revenue in excess of USD 55 million. Such expansion, according to four members of
Alfa Board of Directors, will have a huge positive regional impact.

I. Should Alfa Kenya Co. Ltd., decide to proceed to negotiate a merger with one
of the foreign entities, typically, what documents will the company be
expected to execute during the initial preparatory stage of a merger and
 acquisition (M&A) transaction noting to explain their general content. (5
marks)
II. Advise Alfa Kenya Co Ltd. on the jurisdictional thresholds for notification of
M&A transactions, explaining whether there are any exceptional
circumstances in which Alfa Kenya Co Ltd. may be exempted from
notification requirements. (6 marks)

B. You represent Nawiri PLC, a client of many years. Muhatia, the chief executive officer of
Nawiri recently came to your office and indicated that Nawiri has been in talks with
Tarajia PLC. concerning a possible acquisition of Tarajia by Nawári. Muhatia further
indicated that Nawiri and Tarajia are in agreement that the proposed transaction makes
commercial sense and should be progressed to its conclusion. Tarajia has shared a Letter
of Intent with Nawiri and Muhatia indicating that the content in the Letter of Intent
accurately reflects preliminary discussions between the two firms. Nawiri's Board is very
keen on signing the Letter as a good faith gesture to facilitate further negotiation and due
diligence.
Muhatia has sought your legal advice on the wisdom or otherwise of agreeing on a Letter
of Intent, having heard from various sources that Letters of Intent have both risks and
benefits.
Advise Muhatia on the risks and benefits of the parties agreeing on a Letter of Intent and
whether Nawiri should proceed to sign the draft. (5 marks)

Question 6

a) Uvumbuzi Co Ltd, a public company issued and allotted partly paid shares to its
members to boost its capital in order to cope with the adverse impacts of COVID 19
pandemic on the business. Most members lost hope in the company, whose turnover was
rapidly declining. In October 2021, the directors of the company proposed and exercised
a call to salvage the company's ailing business.
 Some members however, quickly moved to sell their shares in November 2021 to
ursuspecting investors. It also became apparent that this company could not avoid
liquidation or administration at the very least.

The management of the company has approached you and would like you to prepare a
brief on the prospects and options the company may have in recovery of any liability
against its allottees and subsequent purchasers of the allotted shares. (2 Marks)

b) Charlie, a resident within Kenya and a long-time shareholder of Uvumbuzi Co. Ltd, has
been Director with the company for three (3) years effective June 2018 until July 2021.
Around January, 2021 he decided to sell-off his shares in bits and slowly relocated back
to his home country, Norway. However, in January 2022, Charlie received a notice from
an individual who identified himself as the appointed Official Receiver of Uvumbuzi Co
Ltd. Through the notice, the said Official Receiver demanded that Charlie returns with
immediate effect, whatever was paid out to him in relation to being previously a
shareholder and/or director of Uvumbuzi Co Ltd, because the current company's directors
have commenced liquidation proceedings. Charlie quickly reaches out to you, an
insolvency practitioner to advise with sufficient details on

i) Whether the notice may have any effect on him, having left the company way before
it got into problems. (4 marks)
ii) Whether there are any alternatives to liquidation of Uvumbuzi Co Ltd under the
current circumstances and the implication (if any) of the same, to the company (4
marks)

Question 7

Flamingo Co. Ltd is a publicly traded company in Kenya with a total turnover of Ksh 5 billion.
The company is involved in the manufacturing of consumer electronic equipment and medical
diagnostics kits. However, it wants to expand its diagnostic medical devices business by
acquiring a company or companies that is/are already in that line of business. Two potential
targets have been identified.

One of the identified companies is Ndovu Kuu Eld, a company with its main offices in Kisumu
and with a tumover of Ksh 1 billion. The other one is Afya Bora Co Ltd with its headquarters in
Nakuru. About 90% of Ndovu Kuu's Ltd shares are still in the hands of three founders who are
still active in the company (they still sit on the Board) and a venture capitalist which also has a
seat on the board. The remaining 10% of shares is held among other current and past employees
of the company.

Flamingo Ltd now wishes to acquire 100% capital control of both targeted companies by
purchasing their all their shares. Ndovu Kuu Ltd controls 40% of the market share while Afya
Bora Ltd controls 30% of the same. Further, the proposed acquisitions will most likely result in
the loss of jobs as Flamingo Ltd intends to restructure and streamline the operations of the two
target companies. The Managing Director of Flamingo Ltd has now come to you, having heard
that you possess up-to-date legal expertise in commercial transactions of this nature;

a) Advice Flamingo Ltd on the nature of the envisaged commercial transaction under
Kenya’s company law. (2 marks)
b) Based on the above, advice Flamingo Ltd on the process which this transaction will be
subjected to, in order to address risks of the company unduly monopolizing the medical
diagnostics skit market. (6 marks)
c) Advice Flamingo Ltd on the cost implication (if any) of the envisaged transaction. (2
marks)

Question 8

Mafuta, Inc. is the acquiring firm in a proposed merger transaction that deals in the storage,
distribution and sale of petroleum and petroleum gas. Tumaini Inc. the target firm, also deals in
the business of petroleum and petroleum gas. Both companies are domiciled in the Republic of
Kenya and Mafuta wishes to acquire 100% capital control of Tumaini by buying up all its shares.
Mafuta controls 50% of the market while Tumaini controls 40% of the market. The proposed
merger would result in the redundancy of at least 75% of Tumaini's workforce. The combined
turnover of the firms meets the threshold for a full merger analysis under the Competition Act
and all other applicable laws.

a) Analyze the factors to be considered by the Competition Authority on whether or not the
proposed merger would be approved or rejected or even approved with conditions. (4
Marks)
b) Advise Mafuta, Inc. on the documents to accompany the submission of the Merger
Notification Form. (3 Marks)
c) Advise Mafuta, Inc. on the areas to be covered in the litigation component of the due
diligence report. (3 Marks)

Question 9

Focus Group Limited, a private Company incorporated in Kenya under the Companies Act, 2015
with its principal place of business in Nairobi recently placed the following advertisement in the
Mwananchi, a Mombasa based local daily.

Resolution of the Shareholders of Focus Group Limited

Whereas the shareholders of Focus Group Limited (hereinafter called the "Company") are
desirous of winding up the Company, it is resolved

1. That the Company be liquidated and dissolved.

2. That any one or more of the Directors of the Company be and is hereby authorized to file
all necessary documents in support of the voluntary liquidation of the Company with the
Registrar of Companies.

Dated this 31 day of January 2018

Name of shareholder - Steve Rogers

Name of shareholder- Scott Summers

 a) One of the Directors of the Company Mr. Charles Xavier seeks your advice on
challenging the foregoing resolution. He informs you that as at 10th February 2018, the
advertised resolution had not been lodged with the Registrar of Companies. He further
states that the resolution was not sanctioned by the Board of Directors (BOD) and that
only 2 out of a possible 5 shareholders ratified the resolution. Finally, you are also
advised that the resolution was published only once in the Mwananchi Newspaper.

Discuss any legal grounds for challenging the foregoing resolution. (5 marks)
b) Mr. Xavier also informs you that on 29th January 2018, he and the other Directors of the
Company met and made a declaration of solvency over the Company's affairs. Advise
him on the required content of the said declaration along with any penalties or sanctions
that could be imposed on the Directors if the declaration were to lack reasonable grounds.
(9 Marks)
c) Mr. Xavier is hopeful that the Company will weather the threat of insolvency. Should this
be the case, Mr. Xavier would like the Company to go public in a bid to inject liquidity
into the company.
Identify and explain the documentation that would be required to convert the Company
from a private to a public Company. (6 marks)

Question 10

In March 2014, Emma and Brianna incorporated a company which they named Gozzy Shoes Ltd
(GSL). This company specialized in selling ladies' shoes. Emma and Brianna were the only
shareholders and each held 100 shares with a nominal value of Kshs.1/- each. The two were also
GSL's only Directors.

For the past 18 months, GSL has been experiencing financial difficulties, so much that in January
2017, Emma and Brianna were informed by GSL's auditor that liquidation was inevitable. Emma
and Brianna however disagreed with the auditor and held out hope that GSL's financial prospects
would improve. In February 2017, they decided to try and trade their way out of the financial
difficulties by having a mega sale. Unfortunately, the sale failed to increase sales volume.
Consequently, GSL has now had to go into compulsory liquidation. Ben, who has been
appointed liquidator has discovered that in August 2017 Emma and Brianna caused GSL to repay
an unsecured loan of Kshs. 50,000/- which Brianna had extended to GSL some time ago.

What are the legal implications of Emma and Brianna's decisions to:

a) Hold the mega sale in February 2017? (6 Marks)

b) Pay Brianna's unsecured loan of Kshs. 50,000/- in August 2017? (4 marks)

Question 11

Your clients, Amy and Ben, have instructed you to register a company on their behalf. The more
specific instructions are as follows:

i. The company's name will be Ambe Traders Ltd.

ii. Since they are recent college graduates, they are keen to use the form of company which
guarantees them the highest level of protection against potential liability. iii. They would
not want to incur unnecessary legal costs and for this reason, they would rather adopt the
model Articles of Association appropriate for their company.
iv. The company's main "line of business" will be importation of apparel from China for sale
in Kenya. They however would also want to "branch" into other lines of business after
the company is well established.
v. They will each contribute Kshs. 500,000 to finance the company's business. In this
regard, each one of them will subscribe to 500 shares of the company. Each will pay,
upfront, 50% of the Nominal Value of each share subscribed to.

a) With reference to the company registration Form CR1 in the Companies Act, 2015, complete
the following parts on behalf of your clients:

Part 2: kind/type of company (1 Mark)

Part 7: objects (1 Mark)

 Part 8: liability of members (1 Marks)

Part 9: share capital (6 Marks)

Part 10: paid up capital (4 Marks)

b)
i. The legal rules regarding the wording and legal implications of the "Objects Clause"
have changed significantly under the new Companies Act, 2015. Noting to compare and
contrast these rules with the rules pertaining under the old Companies Act, Cap 486,
Laws of Kenya, briefly state the rationale of the specific wording you have used in Part
7, or your decision to leave it blank. (4 marks)
ii. If Amy has duly paid 50% of the Nominal Value of the shares that she has subscribed to,
in the event that the company is wound-up soon after registration, what would be the
extent (state the amount) of Amy's liability vis-à-vis the company debts?
Show your workings and also provide the legal explanation for your answer. (3 marks)

Question 12

Chester Transporters Limited (CTL) has been your client since you assisted its four members
Incorporate it in 2011. Charles the Managing Director, has approached you with the following
information:

• CTL has been going through a rough patch over the last one year and is unable to raise
funds from its usual financiers. Charles and some of the other directors believe that CTL
can trade its way out of the quagmire if funds were sourced by means other than credit.
• Charles believes that he may have found the solution in Nobert, an old friend who runs a
business similar to CTL's and who has shown an interest in equity. Nobert has made a
few demands in relation to his investment in CTL, the key one being appointment to the
Board.
• Ellen, one of the directors is not keen on the proposal to bring Nobert on board and
insists that CTL should explore all other possible options. She and Nobert have had a
long running feud over property in their rural area and do not see eye to eye. The other
directors feel that she is being unreasonable.
Charles seeks your advice on the following matters:
a) How can Elien be removed from her position as director and what steps might she take to
resist the removal or to assert her rights? (14 marks)
b) Ellen and one other director have travelled abroad on a two week business trip leaving
Charles and Timothy as the only two directors in town. Charles is considering the option
of him and Timothy calling a general meeting immediately to pass an ordinary resolution
appointing Nobert.
Advise on the validity of that meeting. (6 marks)

Question 13

Finance is the lifeblood that keeps corporations going. Mwananchi Industries is a large
indigenous manufacturer of alcoholic beverages and spirits. In 2011 the company unveiled its
Strategic Plan under which the company intends to have at least 40% market share in Kenya.
This will require that the company invests at least Kshs.5 billion over the next five years in its
manufacturing plants, bottling plants and distribution facilities. The company has over 200 acres
in Naivasha and an operational manufacturing plant

Discuss the various options that Mwananchi Industries may pursue as it seeks to expand its
operations. (15 marks)

Question 14

Zen World Ltd is a high end spa based in Nairobi's Westlands aresa. Zui is its Manager and has
been appointed an agent by the owners to make payments and cash cheques drawn by the
director at its NIC Accounts in Westlands Branch. His Mandate is only up to Kshs. 50,000.

In July 2015 Zui presented four forged cheques each of Kshs 48,000 to the bank and was paid
over the counter. On realizing the fraud, he was immediately sacked. The directors though did
not immediately inform the bank. The following day, Zui presented another three forged cheques
one of which he altered the figure to Kshs 480,000 while the remaining two remained at Kshs
48,000 All the cheques were paid.
On realizing further forgery, the Directors have sought compensation from the bank and a
reversal of all transactions done by Zul. They have instructed you to pursue legal redress.

Advise them on their options. (15 marks)