Revisiting the Minority Shareholders Protection: Take- over Threshold
The Companies Act (Act No. 17 of 2015) (the Act) sets out provisions on “squeeze in/out” and “sell out” (these terms relate to the rights of majority shareholders to forcefully take over shares of the minority or “drag” the minority into a sale of shares (mostly 100%) in the company to a third party). Specifically, the Act provides for the right of an offeror (defined in the Act as a person making a takeover offer) to buy out a minority shareholder if the offeror attains a certain threshold. When enacted, the Act set out the take-over threshold at 90%, which was a similar threshold of such take-overs in most jurisdictions and also to the statutory “drag along” (power to acquire shares of shareholders dissenting from scheme or contract approved by majority) contained in the repealed Companies Act.
In 2019, the Act was amended through the Statute Law (Miscellaneous Amendments) Act no.12 of 2019, to lower the take-over threshold to 50%. This change was seen as departure from the norm with some analysts arguing that the sudden change of the taker-over threshold by such a huge margin would result in reduced investor confidence especially in our capital markets. The reduced threshold was also seen to undermine the right of minority shareholders to decline the offer. In a surprise move, the Business Laws (Amendment) Bill 2019 has been drafted which seeks, among others, to amend the Act to return the take-over threshold to 90%. The Bill underwent its first reading in the National Assembly on 4th December, 2019. We shall provide a further update when the Bill is enacted into law.
If you have any queries regarding take over regulations and other related matters, please do not hesitate to contact Bernard Musyoka at bmusyoka@mwc.legal.
