DISPUTE

Stock Brokers warn of easy takeover of listed firms in new law

In Summary
  • Protection of minority shareholders remains an integral part of a vibrant capital market hence those changes to the law work against this objective
  • The association argues that there was no public participation before these amendments were enacted into law

Stock Brokers have dismissed an amendment to Companies Act which reduces the threshold for acquisition of shares by majority shareholders from minority shareholders from 90 to 50 per cent.

The amendments to Companies Act 2015 which included nine amendments to Sections 611 and 615 have since been gazetted.

Contained in the Statute Law (Miscellaneous Amendments) Act 2019, the amendments are specifically to “Division 4” titled “Squeeze in” and “Sell out” on the right of an offerer to buy out minority shareholders.

 

According to the Kenya Association of Stockbrokers and Investment Banks (KASIB), a 50 per cent threshold is too low to accord the majority shareholders the right to acquire the shares of the minority shareholders.

This applies to both public and private companies.

''Most jurisdictions globally have set the threshold at 90 per cent - and with good reason. Reduction of this threshold erodes investor confidence in the capital markets,'' KASIB said.

According to the lobby group's chairperson Willy Njoroge, these have opened up floodgates that may make it increasingly easy for majority shareholders in listed companies to acquire the shares of the minority shareholders for purposes of delisting.

''It would be detrimental to the capital markets industry in Kenya if delisting of companies from the stock market were to be made this easy,'' Njoroge said.

He added that protection of minority shareholders remains an integral part of a vibrant capital market hence those changes to the law work against this objective.

The association argues that there was no public participation before these amendments were enacted into law.

 

''KASIB and other capital markets industry stakeholders were unaware of these amendments or any engagements to discuss these amendments,'' the lobby said in a statement.

As a remedial measure, KASIB seeks revocation of the amendments either by applying a suspension to the implementation of the law.

It also wants an urgent miscellaneous amendment bill to reverse what these amendments have stipulated.