Sh400m secret transfer in Directline war with IRA

Insurance Regulatory Authority (IRA) CEO, Godfrey Kiptum.

Photo credit: Wachira Mwangi | Nation Media Group

On a chilly afternoon on May 15, media mogul Samuel Kamau Macharia wrote to Diamond Trust Bank (DTB) to wire Sh400 million from Directline Assurance Company Ltd to a housing firm he owns, unaware that it would awaken a five-year-old fight with the insurance regulator.

The millions were wired to an account belonging to Toy and Suna Holdings, a company fully owned by Mr Macharia, to finance the development of stalls and low-cost housing at Toy Market, in Nairobi.

A whistleblower alert led the Insurance Regulatory Authority (IRA) to successfully freeze the Sh400 million, triggering a chain reaction that saw an angry Mr Macharia shut down Directline and fire all employees before the regulator revoked the action.

The back-and-forth battle between the regulator and the media tycoon has stirred the five-year ownership battle over Directline Assurance, with both parties keeping conflicting shareholder records.

The legal battle for control has revealed that the insurer’s true ownership is uncertain, with both parties keeping conflicting shareholder records.

The regulator has previously described Mr Macharia as a minority shareholder with a 10 percent stake through Royal Media Services, which does not entitle him to stage a corporate coup.

Mr Macharia has disputed IRA’s list of Directline’s shareholders, saying he and his associates are majority shareholders and therefore have a right to call the shots in the operations of the troubled insurer.

This position egged on the businessman on Monday evening to order the closure of Directline, prompting a furious reaction from the regulator.

IRA Chief Executive Godfrey Kiptum, on Tuesday, rubbished the move, saying the insurer will continue to operate. “The purported actions are null and devoid of any legal effect and as such the insurer continues in full operation as licensed and approved by the Authority. The purported transfer of the assets of the insurer to any third party is therefore null and void ab initio (from the start),” Mr Kiptum said in a press statement to explain the status of the firm.

“All policies issued by Directline Assurance Company Limited remain in full force and effect and the insurer remains liable for any claims arising therefrom. All policyholders of the insurer may continue with their operations in accordance with their insurance contracts,” the IRA CEO added.

The regulator maintains that it has the sole authority to “approve, suspend or cancel” the operations of any insurance company in Kenya, terming Mr Macharia’s action as usurping of IRA duties.

Unknown to many in the market, Mr Macharia and IRA have been quietly fighting since June 3 when a whistleblower informed the regulator that Sh400 million had been transferred from Directline Assurance Company to Toy and Suna Holdings.

This forced the IRA to seek court help on June 4. In documents filed in court, the regulator stated that Directline was in breach of its permit, which bars the firm from engaging in business outside insurance.

It was also argued that Mr Macharia had upset the law by transferring assets of the insurance firm to a third party--Toy and Suna Holdings.

Directline Assurance was established in 1998 by John Macharia, son of the Royal Media Group owner who died in a road accident in April 2018.

After moving to court, the regulator obtained orders freezing the money, pending the determination of the petition. “Unless the orders sought herein are granted, the policyholders and their beneficiaries stand to suffer irreparable loss and harm which cannot be compensated by way of damages,” the regulator said in court documents, adding that the insurer has unpaid claims of Sh2 billion as of April.

Justice Alfred Mabeya granted the freeze order on June 6 and directed the case to be mentioned on June 18 for further action.

A few days later, Mr Macharia as the chairman of Royal Credit Limited - one of the shareholders of Directline, announced that the insurer had closed operations and laid off all its staff.

“The board of directors of Directline has been dissolved and all the assets taken over by Royal Credit Ltd. All employees have been dismissed, and Directline will no longer issue insurance services,” Mr Macharia said.

The communication caused panic, especially in public transport, as the firm has the largest share of the public service vehicles insurance business.

Directline insurance controls 69.6 percent of the public service vehicle industry, with premiums of over Sh3.4 billion, says IRA.

On Tuesday, Mr Macharia did not respond to phone calls and text messages seeking comment.

IRA now says it has placed the insurer under “heightened surveillance” as the row reopens a public shareholder spat.

On Tuesday, AKM Investments Limited and Janus Limited, who are listed at the firm’s registry to own 10 percent and 20 percent stakes in Directline, criticised Mr Macharia’s closure notice. “The shareholders and Directline Assurance Company Limited hereby entirely disown the content of the said statement,” AKM and Janus said in a joint statement.

Janus Limited is associated with Directline’s former CEO, Terry Wijenje, who was forcibly removed from the firm by Mr Macharia in September 2010. AKM Investments Limited is linked to Lisa Anyango Amenya, the partner of Mr Macharia’s late son, John Gichia.

Ms Amenya’s son, Adam Kamau, in 2019 also moved to court seeking to stop Mr Macharia from administering his father’s Sh1.2 billion estate.

At stake, were shares in more than six companies that have investments in insurance, communications and real estate. They are Directline Insurance, Serenity Media Productions Ltd, Big Five Conservancy, Bushfire Media Distributors, Toi Redevelopment and Harbour Capital Ltd.

Other properties are nine vehicles – two Range Rover cars, Land Rover, Jaguar, Jeep, Porsche 911, BMW, Trailer and Land Rover Discovery -- four motorbikes and five residential houses in Nanyuki, Loresho (Nairobi), Kyuna crescent (Nairobi), Kibarage (Nairobi) and Mugumo crescent (Nairobi).

Ms Amenya is listed as a director of Directline, according to the CR12 form at the company registry.

But Mr Macharia does not recognise the directors listed in the form, and lists Julius Orenge (chairman), Salome Gitoko and Kelvin Mogeri as directors of the firm.

Mr Macharia has previously argued that the register’s version of the shareholder roll was a creation of the firm’s directors whom the billionaire reckons had no powers to create and allocate shares.

This implies that Mr Macharia and his family own a 20 percent stake, in AKM Investments (48 percent) and Janus Limited (32 percent), an ownership the tycoon argues made him the majority owner and gave him the right to stage the corporate coup.

The CR12 form lists six shareholders including Mr Macharia and his family (10 percent), AKM Investments (10 percent), Janus (20 percent), Sureinvest (20 percent) Triad (20 percent) and Stenny Investments (20 percent).

The ownership based on Mr Macharia’s position could be in breach of regulations that limit individual ownership of firms to a maximum of 25 percent.

The battle for control of the Directline rests on the company’s ownership with the key issue in the battle having been referred to both the courts and the arbitration process.

On May 11, 2022, Mr Phillip Bliss Aliker, the arbitrator found that Mr Macharia had unlawfully interfered with the management of the company and must be restrained.

The arbitrator has backed the list of shareholders appearing in the CR12 form, but Mr Macharia went back to court to challenge the decision.

PAYE Tax Calculator

Note: The results are not exact but very close to the actual.