Wrangling shareholders of Directline have moved to court to challenge an investigation ordered by the Attorney-General (AG) into the affairs of the insurance company over a complaint made by Royal Media Services boss SK Macharia.
Sureinvest Company Limited and Triad Networks Limited, who claim to be the majority shareholders of the insurance company, question the AG's motive to carry out the investigations, without the permission of the court.
According to court documents, the investigation team will look into the company's financial, corporate governance, and regulatory compliance.
The investigation is also meant to ascertain the legitimacy of shareholding and directorship changes since 2005 and examine allegations of manipulation of company records as well as non-compliance with statutory provisions.
The team appointed by the AG will also recommend corrective measures to restore legal order, investor confidence, and regulatory compliance.
The two firms allege that the AG Dorcas Oduor acted unlawfully in exercising her power, and that they were not notified of the investigation before it commenced.
The case is of considerable public interest as it involves the largest insurer of public service vehicles with a 47.97 percent market share in Kenya.
Directline has been in the news in the last few years over the ownership wrangles.
In their court documents, the shareholders also complained that despite formally requesting to be heard, they have been excluded from participating in the investigations.
They allege the disputes over Directline shareholding and directorship were settled through arbitration in an award published on May 11, 2022.
"The issues under investigation initiated by the 1st respondent (Attorney General) have either been conclusively determined or are pending determination before the High Court and the Insurance Appeals Tribunal and breach the sub judice and separation of powers principles,” the petition states.
The two firms said in court documents that trouble in the insurance firm started following the death of Mr Macharia's son- John Gichia, one of the founders and former chairman of the company in April 2018.
They said Mr Macharia irregularly took over the operations and management of the company, triggering a dispute between the shareholders.
“The dispute concerning the control and ownership of the Company led to the disruption of the Company's operations. The dispute was referred to arbitration before Phillip Bliss Aliker,” said lawyer Kevin McCourt, a director of Sureinvest Company.
Mr McCourt said the majority shareholders comprising of AKM Investments Limited, Janus Limited, Sureinvest Company Limited, Stenny Investments Pty Limited and Triad Networks Limited hold 90.336 percent shareholding of the Directline.
He said the majority shareholders are entitled to compel the minority shareholders to give them immediate control of the company.
Mr McCourt said the majority shareholders learnt late last month Royal Credit Limited through Mr Macharia made a report to the AG, which prompted an investigation into the affairs of the company pursuant to section 800 of the Companies Act.
Mr McCourt said despite requesting to get the complaint, composition of the investigation team or its terms of reference, no information was forthcoming.
He further said the matters to be investigated fall within the jurisdiction of the Insurance Regulatory Authority and are pending consideration by the Insurance Appeals Tribunal.
Mr McCourt said section 800 of the Companies Act does not confer the Attorney General with the power to investigate these matters. “The investigations are also being conducted without the involvement or participation of the petitioners and the interested parties, despite their direct and material interest in the subject matter,” he said.
The majority shareholders said the Attorney General acted beyond the mandate conferred under section 800 of the Companies Act.
The said section empowers the Attorney General to appoint one or more competent inspectors to investigate and report on the membership of a company for the limited purpose of identifying persons who are or have been financially interested in the company's success or failure, whether real or apparent and also persons who are able to control or materially influence the company’s policy.
They have also faulted the Attorney General for acting on a complaint by minority shareholders of the company, who do not hold at least one-tenth of the nominal value of the company's share capital, in contravention of sections 786(1)(b) and 800 of the Companies Act.
The two companies pointed out that the minority shareholders, including Royal Credit ltd and Mr Macharia previously made a complaint to the Directorate of Criminal Investigations.
However, the DPP declined to prosecute the majority shareholders and directors in a letter dated March 18, 2021.
Mr McCourt said the DPP advised that the issues in dispute would best be resolved by the civil courts and by the Insurance Regulatory Authority.
“By weaponizing the criminal justice process to advance the private interests of the 5 th and 6th respondents in a purely civil and commercial dispute, with the intent of placing the liberty of the directors and shareholders of the petitioners and the majority shareholders at risk,” Mr McCourt said.
He said despite the serious consequences of the purported investigation into the affairs of the company and its bearing on their rights and interests as majority shareholders, no written reasons for the investigation have been given to the petitioners in accordance with Article 47(2) of the constitution.
“The failure to give notice or justification undermines transparency, accountability, and the petitioners' ability to meaningfully challenge the action,” Mr McCourt added.
The majority shareholders want the court to issue a declaration that the Attorney General’s decision to investigate the affairs of Directline Assurance Company Limited is in breach of section 786, 787 and 800 of the Companies Act and is, therefore, unlawful.
“A permanent conservatory order be issued prohibiting the respondents whether by themselves, or their employees, servants, and/or agents or any person acting under their instructions, from interfering in any way with the directorship and shareholding in Directline Assurance Company Limited as at 21st October, 2022 and in particular in any manner that contradicts the arbitral award published on 11th May 2022,” the petition states.
