More Kenyan businesses facing deregistration as gov't remains firm on labor exportation

In line with Section 897 of the Companies Act, 2015, the Registrar gave notice that the names of the companies specified therein would be struck off from the Register of Companies at the expiry of three (3) months from the date of publication of the notice. 

The only reason any of those firms will continue to exist beyond the specified three (3) months is if it owed a creditor or if they owe the Kenya Revenue Authority tax. In any of these two cases, any relevant person, legally, should show cause why a particular company should not be struck off from the Register of Companies. 

Failure by the registered firms, or any other relevant person, to provide a valid reason to deter a given firm’s dissolution, the Registrar of Companies will publish in a subsequent Gazette notice the companies’ names. 

The law says, "as soon as realistic after striking the name of the company off the Register, the Registrar shall publish in the Gazette a notice that the company's name has been struck off the Register and the date of the striking thereof."

The deregistration of companies 

When a company is slated for deregistration; for winding-up or dissolution, it all comes down to the same thing, it ceases to exist as a legal entity, it is the death of the entity. While on its deathbed, a company follows a formal administrative procedure laid out by its articles of association and the law. 

However, while both de-registration and dissolution have the same effect of terminating the legal existence of a company, tentatively, the consequences are different. When a company has dissolved, the liability of the directors, members, and officers cease to exist as opposed to de-registration where such liability does not cease to exist. The process of dissolving a company in Kenya is harder than the process to register a company in Kenya.

In February 2024, the Registrar of Companies issued a similar notice to specific companies that their businesses would be struck off from the Register of Companies after three months, unless they showed cause to prove otherwise. A majority have since been deregistered.

Why deregister a company?

A good number of businesses that are slated for dissolution would normally not be in a good state of financial health. Some might have been dormant for a period of time and have lost their mojo and request an end to the venture. Whatever reason follows, this ultimately comes to a loss of employment for a good number of Kenyans who overnight become vulnerable and exposed to the vagaries of poverty.

A 2015 change in the businesses registration regulations in Kenya came up with new regulations that specify a number of things that shall be undertaken by registered firms. On one hand the new regulations helped to clarify areas within which firms operated and demanded tax obligation to the exchequer. 

On the other hand, successive Kenya Revenue Authority (KRA) regulations are increasingly very high handed subjecting genuinely struggling companies, especially start-ups, still trying to find a footing during these tough times, left with no option but to through in the towel as soon as they launch out. The regulations also recommended that firms should desist from long periods of dormancy, all these factors, according to research, have made many more companies opt early for dissolution. 

However, a number of firms also register for a specific amount of time and for specific roles within the business sphere after which they fold up their operations. Other significant factors for company dissolutions is their inability to manage debt, especially if it has grown to unsustainably high levels coupled with a lack of profitability over long periods of time. The law requires companies to be put under administration at such times to try turn around the company and if not possible, to least, try to settle debts accruing from its creditors. 

Increased demands and scrutiny by KRA pulling down companies

It does not help that KRA has increased scrutiny on all registered firms requiring, for instance, the use of digital means to conduct business. Businesses are on forcefully boarded onto digital platforms such as the recent e-TIMS invoicing system. It was recently reported that KRA internal documents reported over seventy-five percent of businesses refused to onboard the e-TIMS invoice managing system which the government hoped would drive more compliance and curb tax evasion. For KRA, it is time to retrospect and see if with the latest moves it is picking more revenue from fewer tax payers. Unless reasonable tax is remitted from a broader base each year it might soon a zero sum game!

Kenyans, many of them employed with local firms, could become fearful each time the Registrar of Companies announces companies to be deregistered, it could turn to be a harbinger of bad news.

As the Government of Kenya keeps pushing more and more Kenyans towards menial migratory labor overseas, the real conversation the country should be having is how to keep and turn our best and most capable brains into national assets for the country.

They government should facilitate a thriving atmosphere of local production and services as well as meaningful pay, and equal employment in companies within the country.