Where Moringa School Went Wrong in Director Buyout

Why Moringa School was penalized By CAK

The Competition Authority of Kenya (CAK) slapped Moringa School, best know for coding with Ksh 500,000 after it implemented a merger without notifying and getting the necessary approvals from the regulator. The Authority had engaged the two parties and, upon interrogating the relevant documentation, confirmed that the merger had been implemented without approval.

The said transaction involved the acquisition of an additional 50% shareholding in Moringa School by Ms. Cheng, from Frank Collins Tamre, resulting in a change from joint to sole control qualifying it as a merger within the meaning of Section 41(2) (a) of the Act.

What the law required of the merger.

As per the requirement by the Competition Authority, any entity that intends to merge with another is required to get an Authorizing Order from the CAK before implementing the merger. The undertakings, the target, and the acquirer, are required to notify the Authority about the intended merger through filing a Merger Notification Form.

“All proposed mergers should be notified to the Authority. A merger, as defined under Section 41 of the Act, occurs when one or more undertakings directly or indirectly gain control over the whole or part of the business of another undertaking,” said Mugambi Mutegi CAK Communications Manager.

According to the CAK, the parties to the transaction failed to notify the Authority of the intended merger before implementing it an action which contravenes Section 42 of the Competition Act No. 12 of 2010.

The parties are also required to submit documentation including Board resolutions, audited financial statements, and duly signed sale/purchase agreements, business plans which are pertinent to the transaction.

Upon failure to comply

When the parties fail to notify the Authority of a merger, they get penalized up to 10% of the gross annual turnover in Kenya for the year preceding the implementation of the merger.

“No person, either individually or jointly or in concert with any person, may implement a proposed merger to which this part applies unless this merger is approved by the Authority,” reads Section 42(2) of the Act.

On conviction, directors of the undertakings are liable to imprisonment for a maximum term of five years or to a fine not exceeding Ksh10 million, or both.

While some business entities are ignorant about the role of CAK in their operations, the regulator is tapping more into traditional and new media to publicize our mandate and activities undertaken to fulfill the same. It has been creating awareness by publicizing all its decisions, organizing various stakeholder engagements such as workshops and county sensitization forums. The Authority also offers advisory opinions to stakeholders for free.

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Inzillia is an avid reader and researcher on matters finance, business, government affairs, culture, and human interest stories. Poetry too. Email: inzillia@urbwise.com