Directline Assurance Company Limited, a key player in the Kenyan insurance market, has announced the immediate cessation of its insurance operations. The company has issued a stern warning to the public and financial institutions, stating that any future transactions must only be conducted through its original shareholders. This decision follows a long-standing shareholder dispute, which Directline claims involves fraudulent activities and unauthorized issuance of shareholder documentation.
Cease of Operations
Effective September 10, 2024, Directline Assurance has ceased issuing insurance policies and stopped conducting all insurance business. In a public notice, the company emphasized that it is no longer regulated by the Insurance Regulatory Authority (IRA) as per the Insurance Act Cap 487. Furthermore, the Association of Kenya Insurance Companies (AKI) has been instructed not to issue any insurance certificates or stickers bearing the name of Directline Assurance Company Limited from the stated date.
The decision to halt operations stems from a conflict regarding the company’s true ownership and directorship. According to Directline, a fraudulent CR12—a document used in Kenya to list company shareholders and directors—has been circulated, falsely indicating other parties as shareholders. Directline maintains that this document is invalid and has been obtained through improper channels. The notice specifically identifies Royal Credit Limited, S.K. Macharia, and Mrs. Macharia as the legitimate shareholders of the company, dismissing any other claims.
Allegations Against the IRA
Directline Assurance has accused the IRA of complicity in the circulation of the fraudulent CR12, alleging that the regulatory body has been aware of the discrepancies since 2005 but has failed to act. The company claims that this fraudulent document has been used in court to secure rulings that are unfavorable to the true shareholders, thereby enabling unauthorized individuals or entities to control the company’s assets and operations.
The notice from Directline states, “The fraudulent CR12 has been used to mislead the courts into making rulings that are prejudicial to the real shareholders of the company. The persons or entities listed in the fraudulent CR12 are neither shareholders nor directors of the company.”
Financial Implications and Legal Liabilities
The situation has significant financial implications, as Directline alleges that the unauthorized parties have misappropriated company assets worth over Ksh.7 billion. This includes a payment of Ksh.2.3 billion to Actis, a UK-based company, which Directline claims was made in contravention of Section 71 of the Insurance Act. The company asserts that those involved in the fraudulent scheme are liable for employing staff under the guise of Directline Assurance and for the mismanagement of funds and assets.
Directline’s notice further warns banks and financial institutions against engaging in transactions not authorized by the legitimate shareholders. This precaution aims to prevent further financial losses and legal complications.
Market Impact
The sudden withdrawal of Directline Assurance from the insurance market is likely to have far-reaching effects on policyholders and the broader industry. Customers who have existing policies with Directline may face uncertainties regarding their coverage and claims. Additionally, other insurers in the market might experience increased demand as former Directline customers seek alternatives.
This development also raises concerns about the regulatory oversight of insurance companies in Kenya, highlighting potential vulnerabilities in governance and the enforcement of shareholder rights. The accusations against the IRA and the involvement of the courts in the shareholder dispute underscore the complexities and challenges within the sector.
Conclusion
As Directline Assurance exits the insurance market, the company’s shareholders and regulatory bodies must address the underlying issues that have led to this drastic step. Ensuring the protection of policyholders, safeguarding assets, and restoring public confidence will be critical in navigating the fallout from this situation. Stakeholders, including the IRA and AKI, will need to engage in transparent and decisive actions to resolve the disputes and maintain the integrity of Kenya’s insurance industry.
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