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Remove red tape at companies registry to spur business growth

By William Maema

When lawyers staged a demonstration last Friday to protest the deplorable state of service delivery at the Land Office, they might, unwittingly, have given the erroneous impression that all was well at other Government Registries where they practise their trade. Nothing could be farther from the truth.

Despite all the hype about digitalization of Government services, commercial lawyers will readily confirm that the more things have changed the more they have remained the same. The corruption networks which thrive on creating artificial bureaucracy to make government services a precious commodity for sale are alive and well.

Yet, going by the pronouncements, body language and gusto of President William Ruto since taking office, both friend and foe agree that efficiency is the buzzword in his administration.

If rhetoric could be translated into action, Kenya might well resume its stalled journey towards becoming a middle-income economy by 2030 as envisioned by our late beloved humourist, reticent politician and first-class economist, former President Mwai Kibaki and the fabled genius, the late Tom Mboya.

According to popular legend, Malaysia and Singapore which attained independence in 1963 and 1965 respectively, simply made a copy of Kenya’s first economic blueprint contained in Sessional Paper No. 10 of 1965 entitled African Socialism and its Application to Planning in Kenya, the brainchild of Mboya and Kibaki. Unlike us, however, they implemented it to the letter while the original continued to gather dust on a shelf until Kibaki became President nearly four decades later. Today, a comparison between their respective GDPs and Kenya’s looks like fiction.

If the ambitious economic growth targeted by the Ruto administration is to be achieved, the civil service will have to undergo a resolute change of mindset, systems and modus operandi, starting with the registries that regulate business entities. They must shift focus from obfuscation and creation of unnecessary roadblocks to delivery of concrete results within a reasonable timeframe. This will enable businesses to get on with their agenda rather than spend valuable man hours and financial resources chasing services that appear like a mirage.

It is ironic that in most Government registries, the IT system that was installed at a huge taxpayer expense to enhance efficiency and reduce corruption, is currently the most cited excuse for the unavailability or slow delivery of services.  

The Companies Registry, which is the nerve centre of corporate Kenya, has made significant strides in transiting from the manual to the digital system and thereby brought some relief to the business community. That it is now possible to incorporate a company within a day is a commendable milestone considering that the process used to take several months not too long ago.

Unfortunately, this is about where the good news ends. A lot more remains to be done by this important registry to improve Kenya’s ranking in the ease of doing business index from the current position 56 out of 190 economies globally, compared to Rwanda at number 38.

Fortunately, most of the existing challenges at the Companies Registry require fairly easy fixes but promise exponential returns.

The mystery of missing files which was meant to become history after digitalization remains the most indomitable challenge at the registry. While the records of most companies have been uploaded on the Business Registration Service (BRS) portal, a substantial number of files are neither on the online system nor on the shelves. The companies  whose records fall in this miserable category are kept in limbo for an indefinite period, totally paralyzed.

A simple solution to this challenge is for the Registrar to agree to the reconstruction of the files using certified copies of the documents supplied by the company. While this option exists, the registry insists on being supplied with documents which the company does not have or cannot obtain because they were filed many years ago and have since been lost or misplaced. It would help to have a reasonable short list of basic documents which a company should supply to the Registrar for file reconstruction purposes.

The online system was intended to expedite processes such as application for searches (CR 12), transfer of shares, change of directors and generally ensure that companies can easily discharge their statutory compliance obligations. Unfortunately, the BRS portal works in fits and starts to the extent that one can never predict when, if at all, a particular task will be completed. The system is fraught with numerous technical hitches which make it unpredictable yet the option of processing such applications manually is no longer available.

The turnaround times given on the BRS website are honoured more in breach than observance, yet the business entity seeking the service has no recourse but to wait indefinitely. Nothing frustrates a commercial lawyer more than staring at a desperate client and being unable to advise them with any certainty when a seemingly minor official action such as a search or the linking of a company on the BRS portal will be completed.

This gives our neighbours like Rwanda a huge competitive advantage. It is no secret that for some time now Kenya has steadily been losing its ‘hub-status’ to Rwanda purely on account of avoidable inefficiencies of this kind.  

Inadequate manpower is a chronic challenge at the Companies Registry. It is not unusual to find one officer manning several counters at once while at the same time expected to review the hundreds of applications submitted through the BRS portal.

Remote working has also contributed significantly to the slow pace of service delivery at the registry. The working from home model does not lend itself to one-on-one consultation where personalized attention is required, for instance, when seeking an update following a previous discussion held with an official.

Registry officials are yet to fully embrace the use of email communication. They hardly ever respond to enquiries sent by email, thereby forcing the lawyer to physically go to the registry to get a response which could easily have been provided via the touch of a button.

Oftentimes, even physical visits to the registry yield no results since one ends up dealing with different officials who are not conversant with the matter, yet the one dealing with it could easily have addressed it by responding to the email.

Registering a change of directors especially former employees who have since left the company in acrimonious circumstances or can no longer be traced is a waking nightmare for many companies. The registry insists on either a letter of resignation from such persons or an indemnity from the company as a condition for effecting the change. While the rationale for this requirement is understandable, the internal bureaucracy involved in obtaining approval for such documents after they have been filed is not for the faint-hearted.

The BRS service charter unapologetically proclaims that the waiting period for incorporation of a company limited by guarantee is one year. This is attributable to the archaic historical requirement for vetting by National Security Intelligence. Such vetting should not interfere with the incorporation process. The company can always be deregistered if its promotors are subsequently found to be persons of unseemly character. The long waiting time has made the option of doing business through a company limited by guarantee almost non-existent.

Sometimes, due to inexperience or lack of training, especially where the law is unclear on an issue, registry officials give conflicting advice on the same issue, which, having been communicated to the end client, is later countermanded by another official, leaving the lawyer with egg on the face. This can be addressed through proper training and documenting  guidance notes on all registry practices including a list of answers to frequently asked questions.

The administrative hitches highlighted above are by no means unique to the Companies Registry. The Trade Marks Registry, Immigration and others which serve the business community are plagued by the same malaise. They all require a seismic mindset shift if the President’s lofty economic ambitions for the country are to be achieved.

The article was published in the Business Daily on 24 January 2023 and can be accessed here.