alexa DirectLine is such a big public interest that it should be saved - Daily Nation

DirectLine is such a big public interest that it should be saved

Tuesday October 8 2019

S.K. Macharia

Royal Media Services chairman S.K. Macharia. He is the father of the founding CEO of DirectLine Assurance Ltd, John Macharia. FILE PHOTO | NATION MEDIA GROUP 

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I’m compelled to return to the subject of the shareholder wrangles surrounding the jewel in the crown of the motor public service insurer, DirectLine Assurance Ltd, for the following reasons.

First, an almighty uproar that greeted the publication of the piece I posted hear last week amid charges by one side in the conflict that my comments were neither fair nor even-handed.


Because of its market share in the business of public service vehicle (PSV) underwriting, the company is a systemically important institution in the sector.

If it were to fall into problems, the ramifications would be felt through the length and breadth of the third party PSV underwriting business, especially the chaos-prone matatu industry.

Keen observers of the PSV underwriting business are waiting with bated breath to see how High Court deals with the vexed issue of the true ownership of the company.


Two rival camps, one led by the current management and board, are pitted against media magnate S.K. Macharia — the father of the founding CEO of the company, John Macharia, who has since died.

Mr S.K. Macharia has presented the High Court with pleadings giving a long history of the shareholding of the company since its incorporation as a family-owned entity in June 12, 1998.

He has also presented correspondence as he seeks to prove he was the one who provided the Sh100 million original seed capital that was used to start the company long before DirectLine started the insurance business in 2005.


The other side of the divide has countered by lodging a suit seeking to injunct Mr S.K. Macharia from interfering in the business of the company and purporting to have powers to replace both the management, board, and the CEO.

Keen followers of the dispute will also be waiting to see how the High Court will determine and shed light on one of the most explosive issues in the dispute, namely, the circumstances under which the names in the shareholding register changed in December 2011 when new names of mainly nominee companies were introduced in the company’s shareholding register.

Clearly, the court battle over the jewel in the crown of PSV insurance underwriting is stirring stuff.


Mr S.K. Macharia’s stand is that the changes that happened in the register in December 2011 were done irregularly and charged that they were meant to circumvent compliance to ownership restrictions on ownership of insurance companies that came into effect in that year.

He has maintained that the changes merely served to introduce nominee companies indirectly owned by directors into the shareholding of the company.

He has argued that under the Articles and Memoranda of the company, all incumbents needed to have been offered shares before names of any third parties could be introduced in the shareholding register.

The other side of divide have countered that the changes were made to comply with regulatory ownership ceilings that came into force in December 2011.


Their point is that the changes effected in the register in December 2011 were conducted in accordance with the Company’s Act.

The stage has been set for a battle royale. Public interest will be riveted on this court battle because this is no ordinary dispute.

Judgement day will be October, 15, just under a week.

It is a rare case where even the exercise of power by the regulator of the industry, the Insurance Regulatory (IRA) will be tested.


What should happen where an insurance company has a shareholding structure that does not comply with the limits on shareholding prescribed by the Insurance Act? Is there such a thing as regulatory forbearance and how much discretion does a regulator have to grant it and for how long? These are some of the questions whose answers will be sought.

The bundles and affidavits pleaded in court contain sensational disclosures. It now emerges that John Macharia had attempted to sell 89 per cent of the shares to an industry player in early 2018 hardly two months before he died.


Also contained in the bundle is a recent forensic audit report on the company by audit firm Ernst and Young that catalogues a litany of sensational disclosures. Jarring stuff.

Which leads to the point I made last week when I appealed to the shareholders not to let the company die.

DirectLine has been able to cope in a tough insurance segment with high levels of fraudulent and dodgy claims; ambulance chasing lawyers; and increasing legal awards to accident victims from the courts.

A solution must be found.