A manufacturing business is a physical thing before it is a financial one. The two liability categories most often underweighted when acquiring a manufacturing business in Kenya, environmental compliance and accumulated labour exposure, are the ones that survive a change of ownership and land on the buyer’s desk after closing. Due diligence should be built around them.
The environmental impact assessment licence does not move on its own
A manufacturing facility of any scale operates under an environmental impact assessment licence issued by the National Environment Management Authority under the Environmental Management and Co-ordination Act. Section 65 allows the holder to transfer the licence only in respect of the project for which it was issued. The person transferring it and the person receiving it must jointly notify the Director-General in writing not later than thirty days after the transfer, and under section 65(4) the transfer takes effect on the date the Director-General is notified.
The consequence is a gap. A buyer who completes without ensuring the joint notification is filed may operate for a period under a licence that has not validly transferred. Section 65(3) adds that, where no joint notification is given, the registered holder is deemed to be the owner or the person in charge of the project for the purposes of the Act, so the seller stays exposed too. Contravening section 65 is an offence under section 65(5). Other NEMA approvals a plant may hold, for example for effluent discharge or emissions, carry their own conditions and should be reviewed separately.
Check the compliance history, not just the current licence
A valid licence shows the facility was compliant at its last review. It says nothing about unresolved complaints, pending enforcement, or contamination from past operations. The Authority may cancel, revoke or suspend an impact assessment licence under section 67, may carry out environmental audits of activities with a significant effect on the environment under section 68, and may serve an environmental restoration order under section 108. Ask for the inspection and audit reports, correspondence with NEMA, complaints and any notices received, and commission your own site assessment where the plant handles chemicals, solvents, fuel or effluent. Contamination liability tends to follow the operator and the land, so a clean paper file should not substitute for testing.
Acquiring a manufacturing business: share sale or asset sale
In a share sale the employer does not change. The company you buy is still the employer and keeps every accrued liability: unpaid wages and overtime, leave, pending disciplinary and termination disputes, and any claim yet to be filed. In an asset sale the picture is different. The Employment Act, 2007 does not contain a general rule that carries employment contracts across to a buyer of the business, so the transaction documents have to deal with each employee, either by novation with the employee’s consent or by termination by the seller with all entitlements paid.
If the seller terminates because the buyer will not take the workforce, the termination may be redundancy, which engages section 40 of the Employment Act. The employer must notify the union and labour officer, or the employee personally and the labour officer, not less than a month before termination, apply fair selection criteria, and pay severance of not less than fifteen days’ pay for each completed year of service (section 40(1)(g)). Price this into the deal and decide who bears it.
Statutory contributions and workplace injury claims
Manual and machine-operated processes make workplace injury a standing risk. Review the target’s compliance with the Work Injury Benefits Act, 2007, its insurance cover and its claims history, because unresolved injury claims are an easily overlooked liability. Confirm that contributions under the National Social Security Fund Act, 2013 and the Social Health Insurance Act, 2023 are genuinely current rather than compliant on paper, since arrears become the new owner’s problem to resolve and negotiate against the price.
Machinery, land use and licensing must line up
Confirm that actual operations match what the licences describe. A line that was expanded or repurposed without updating its environmental licence or county planning approvals is a real compliance gap. A site visit combined with document review is the only reliable way to find it. Check also that the title or lease supports the current use.
Build the NEMA step into completion
Because the licence transfer only takes effect on notification, put the joint notification into the completion mechanics. Make it a closing deliverable signed by both parties, not post-closing administration. Add warranties on environmental compliance, specific indemnities for known contamination and pre-closing labour claims, and a retention or escrow sized to the exposure you identified.
How We Can Help
Clay & Associates Advocates acts for buyers and sellers in acquiring a manufacturing business in Kenya, from legal due diligence through to transaction documents and completion mechanics. Our Regulatory & Compliance practice reviews NEMA, labour and statutory compliance before signing so that price and warranties reflect what the target actually carries.
Frequently asked questions
How long do we have to notify NEMA after buying a facility?
Section 65(2) of the Environmental Management and Co-ordination Act requires joint written notification of the transfer of an impact assessment licence to the Director-General not later than thirty days after the transfer, and the transfer takes effect on the date of notification.
Do employees transfer automatically in an asset purchase?
The Employment Act has no general provision transferring contracts to a buyer of the business, so the deal documents must provide for novation with consent or termination with full entitlements.
What severance is payable on redundancy?
Not less than fifteen days’ pay for each completed year of service under section 40(1)(g) of the Employment Act, in addition to notice and other accrued dues.
Can NEMA act against a new owner for past contamination?
The Authority may issue an environmental restoration order under section 108 against a person in respect of environmental management matters, so a buyer should treat historic contamination as a live risk and allocate it in the contract.
Sources: Environmental Management and Co-ordination Act, sections 65, 67, 68 and 108; Employment Act, 2007, section 40; Work Injury Benefits Act, 2007; National Social Security Fund Act, 2013; Social Health Insurance Act, 2023.
