SportPesa is not a minor footnote in East Africa’s corporate story. It is a powerful betting brand that pioneered modern gaming and sports sponsorship across the region. Its rapid growth, bold marketing, and cross-border expansion made it one of the most recognisable brands in the betting industry. Yet behind the commercial success of the brand sat a holding structure that would eventually become the subject of serious shareholder litigation before the UK High Court in Paul Wanderi Ndungu v SPG Limited,   2025 EWHC 3039 (Ch).

Brief Facts of the case

The case arose after a dramatic downturn. In July 2019, Kenya suspended the betting licence of Pevans East Africa Limited, the operating company that generated approximately 98% of the group’s revenue. Practically overnight, the group’s income stream collapsed. The holding company, SPG Limited (formerly SportsPesa Group Limited), faced a genuine financial crisis and risk of insolvency.

In response, the company undertook emergency capital raisings, including a proposed £500,000 increase in share capital. These injections were intended to stabilise the business and avoid collapse. However, the consequence of successive capital raises was significant dilution. One shareholder, Paul Ndungu, saw his shareholding fall from approximately 17% to about 0.85%.

Mr Ndungu brought claims alleging unlawful dilution, breach of pre-emption rights, document falsification, conspiracy, and unfair prejudice under sections 563 and 994 of the UK Companies Act 2006 . He argued that the capital raising process was procedurally defective and oppressive.

The High Court dismissed all claims and entered judgment fully in favour of the defendants. The court accepted that the company was facing a genuine financial emergency. It found that the capital raisings were commercially justified and aimed at avoiding insolvency rather than oppressing minority shareholders. Importantly, although Mr Ndungu’s stake had dramatically reduced, he failed to prove causation. He did not establish that any alleged procedural defects caused him compensable loss, nor did he demonstrate that he had the financial capacity or willingness to participate in the capital raise. Allegations of document falsification and conspiracy were rejected.

On the surface, this was a complete victory for the company and the other shareholders.

Yet for governance professionals, the real lessons lie in what surfaced during the hearing.

The Critical Failure: Mishandling of Pre-Emption Procedures

Even though the claim failed, the court closely examined the company’s governance processes. The spotlight fell on how pre-emption rights were handled, how meetings were convened, how resolutions were documented, and how records were maintained. The fact that the company ultimately succeeded does not erase the governance weaknesses that were exposed.

The most critical issue was the handling of pre-emption procedures. Pre-emption rights are designed to protect shareholders from dilution. Before issuing new shares to outsiders, existing shareholders must be offered the opportunity to subscribe first, unless those rights are properly disapplied. These rights are highly procedural. They require valid board authority, properly drafted notices, strict adherence to timelines, and accurate documentation of acceptances or rejections.

During the dispute, the serving and validity of pre-emption notices became contentious. Questions were raised about whether notices were properly issued and whether the statutory  requirements were strictly followed.

The courts finding were that :

• the DHL envelope, containing the offer letter for issuance of new shares,  was sent to the wrong physical  address, not the Claimant’s address listed in the company’s register of members.
• Even if the address had been correct, the Claimant did not receive the First Offer Letter until 21st November 2019, well after a 1st November 2019 deadline.
• Sending the letter could never comply with Section 562 of the Companies Act , which requires a minimum 14-day acceptance period from the date the offer is sent.
• The letter, sent on or around 21st October 2019, did not meet this statutory requirement.

Even though the claimant ultimately failed to prove causation or loss, the case demonstrates how pre-emption procedures become the central battlefield in dilution disputes. When ownership percentages shift, process becomes everything.

Convening Proper Meetings

The hearing also highlighted concerns around how meetings were organised and conducted. Corporate governance requires compliance with notice periods under the Articles. Directors and Shareholders must receive proper notice. Agendas must be clear. Quorum must be satisfied. Decisions must be formally recorded.

In this instance, Paul Ndung’u alleged that he did not receive notice to the meeting where the initial  issue of capital raising was discussed.

Where meetings are convened informally or without strict adherence to notice procedures, resolutions passed at those meetings become vulnerable to challenge. In high-growth companies, urgency often overrides procedure. A quick call replaces formal notice. A shared understanding replaces documented approval. It feels efficient. Until it is examined in court.

Unsigned or inadequately documented minutes were another governance weakness that came under scrutiny. Minutes are not decorative paperwork. They are evidence of corporate action. Properly signed minutes confirm attendance, declarations of interest, and resolutions passed. When minutes are unsigned or prepared retrospectively, their evidentiary value weakens. In litigation, that weakness can be costly.

Statutory Filing

Regulatory and financial filing practices were also scrutinised. It emerged from the court hearing that the financial statements  for the relevant period 2018 had been improperly prepared . While not the central issue, compliance gaps in statutory filings and financial statements can create an impression of informality. In court, that perception matters. Opposing counsel will highlight every inconsistency to question the reliability of corporate records.

Taken together, these governance weaknesses reflect a pattern common in private companies, particularly startups and founder-led enterprises. When business is thriving, governance often feels secondary. Trust is high. Decisions are quick. Documentation follows later. Sometimes much later.

But when crisis strikes, as it did following the Kenyan licence suspension, governance shortcuts are exposed. Shareholder relationships strain. Dilution becomes personal. Informal understandings are replaced by legal arguments.

Governance Failures and Breach of Directors’ Duties

Governance lapses like improper handling of pre-emption procedures, failure to maintain accurate minutes, and incomplete financial statements can escalate into allegations of breach of directors’ duties. Directors are legally required to act in good faith to promote the company’s success, exercise reasonable care, skill, and diligence, and comply with statutory obligations.

In the Ndungu case, the Claimant argued that the mishandling of pre-emption procedures and failure to prepare accurate financial statements for year  2018 constituted breaches of duty. Even though the court ultimately dismissed these claims, the allegations underscore how governance weaknesses provide the basis for legal challenges.

Conclusion

The key takeaway from Paul Wanderi Ndungu v SPG Limited is nuanced. The court did not find unlawful dilution or unfair prejudice. It recognised the commercial reality of financial collapse and accepted that emergency capital raising was justified. The claimant’s failure to prove causation and loss was decisive.

However, the case shows that even where a company ultimately succeeds in court, governance processes will be dissected line by line. Directors cannot rely solely on commercial justification. They must also demonstrate procedural compliance.

For founders and directors, the message is clear. Financial crisis does not suspend governance obligations. Emergency capital raising must still comply with constitutional requirements. Pre-emption rights must still be respected or properly disapplied. Meetings must still be validly convened. Minutes must still be signed. Resolutions must still be properly recorded.

Governance is not tested when everyone agrees. It is tested when relationships break down.

How Netsheria Helps You Avoid Costly Governance

Netsheria exists to prevent governance breakdowns before they escalate into costly litigation. Rather than treating company secretarial work as a once-a-year compliance task, Netsheria embeds governance discipline into the day-to-day operations of your startup.

Here’s how Netsheria makes a difference for startups:

• Pre-emption compliance: Ensures proper board authority, valid notices, strict timelines, and full documentation.
• Meeting governance: Guarantees correct notice periods, quorum verification, structured agendas, and signed minutes.
• Resolution control: Maintains clear, properly executed written resolutions with documented authority chains.
• Regulatory compliance: Manages timely filing of annual returns, financial statements, and maintenance of statutory registers—removing the hassle so you can focus on growing your business.

Netsheria transforms governance from an afterthought into a strategic operational asset, giving startups confidence, clarity, and peace of mind as they scale.

Author: Susan Agwata,Corporate Commercial  Lawyer.

The post All That Went Wrong in Paul Wanderi Ndungu v SPG Limited: And How Structured Governance Support Can Save You Millions appeared first on Netsheria.

In an increasingly interconnected global economy, businesses are no longer confined by national borders. Technology has made it possible for an entrepreneur in Nairobi to serve customers in Lagos, Johannesburg, Dubai, London, and Singapore at the same time. Markets have become global, supply chains are international, and customers transact across time zones without hesitation. In this borderless world, many founders and executives ask a deceptively simple question:

Does It Matter Where I Choose To Incorporate My Business?

For cross-border operating  companies and multinational corporations, the answer is a decisive yes, not only because of legal technicalities, but because the choice of incorporation fundamentally shapes the governance structure, tax exposure, commercial strategy, expansion pathways, dispute resolution mechanisms, investor confidence, and long-term sustainability of the enterprise.

The doctrine of lex incorporationis, particularly for common law jurisdictions remains central to this discussion. This legal principle establishes that the internal affairs of a company are governed by the laws of the jurisdiction in which it is incorporated. No matter where a business operates, hires employees, or sells products, its corporate DNA is tied to its incorporation jurisdiction. This affects everything from the powers and duties of directors, the protection of minority shareholders, the permissible structure of subsidiaries, to the mechanisms for raising capital. Multinational corporations cannot escape these implications through operational flexibility; the incorporation jurisdiction continues to anchor their governance and compliance framework.

Contractual Autonomy

Yet modern cross-border business also heavily relies on contractual autonomy. Through choice-of-law clauses in commercial contracts, multinational companies may select entirely different legal systems to govern their external commercial relationships. A company incorporated in Kenya may choose English law for its supply agreements, Singaporean law for technology licensing, or New York law for financing arrangements. Contractual flexibility, however, does not override incorporation law. Choice-of-law clauses govern the rights and obligations arising from specific commercial arrangements, but they cannot replace the corporate governance obligations created by the incorporation jurisdiction. This interplay between lex incorporationis and contractual choice-of-law regimes creates a unique blend of flexibility and rigidity that multinational enterprises must navigate deliberately.

The Corporate Governance Structure Consideration

Because of this dual structure, the choice of incorporation for cross-border and multinational corporations is neither trivial nor easily reversible. Incorporation determines the legal and compliance regime that regulates corporate governance, financial reporting standards, director liability, corporate social responsibility obligations, and rules on mergers and acquisitions. These factors, in turn, influence whether investors are confident in the corporate structure of the business, whether regulators in host countries accept the company’s legal status without additional scrutiny, and whether the organization can efficiently scale across jurisdictions without facing costly legal bottlenecks.

For example, a company incorporated in a jurisdiction with weak regulatory systems may attract increased scrutiny from financial institutions concerned about anti-money laundering and counter-terrorism financing compliance. Conversely, a company incorporated in a jurisdiction respected for legal predictability and strong governance, such as, UK or the State of Delaware, may experience smoother onboarding in foreign markets, better credit terms, and greater trust in cross-border partnerships. Even where tax incentives are similar, the governance reputation of the incorporation jurisdiction affects investor perceptions, access to funding, and the ability to enter strategic alliances.

Dispute Resolution

In addition, incorporation determines the court system or arbitration framework that will handle internal corporate disputes. For multinational corporations, disputes often arise from issues such as shareholder disagreements, board decisions, executive conduct, or restructuring processes. These disputes, will more often than not be regulated by the incorporation jurisdiction, not by operational or contractual jurisdictions. Therefore, the stability, impartiality, and sophistication of judicial systems matter significantly. This is why many companies avoid jurisdictions with inconsistent court decisions or excessive political interference. Reliable courts reduce uncertainty, one of the biggest hidden costs of doing business globally.

Cross-border regulations further emphasize the importance of incorporation decisions. Many jurisdictions enforce foreign company registration rules, tax compliance obligations, transfer pricing requirements, beneficial ownership disclosures, and sector-specific licensing regimes. A poorly chosen incorporation jurisdiction may complicate compliance in every market the company enters. Conversely, selecting a jurisdiction with modern disclosure systems, digital company registries, transparent beneficial ownership rules, and clear reporting requirements can streamline multinational operations. Efficient incorporation jurisdictions allow companies to focus on their core business rather than bureaucratic complexities.

Conclusion

The choice of incorporation for cross-border and multinational corporations is far more significant than it may appear. Incorporation lays the legal foundation for governance, investor relations, dispute resolution, regulatory compliance, and global expansion strategy. Contractual choice-of-law clauses may offer flexibility, but they cannot replace the central role that lex incorporationis plays in determining the corporate identity and obligations of the business. In a world where compliance demands are rising and investor expectations are increasingly shaped by governance standards, choosing the right incorporation jurisdiction is a strategic imperative.

 How We Help You

Netsheria stands at the forefront of supporting companies through this decision, offering expert guidance, integrated compliance support, and a governance-first approach that empowers businesses to expand globally with confidence.

Authour: Susan Mwango Agwata/CEO-Netsheria

The post Beyond Borders: Why the Choice of Incorporation Still Determines Corporate Strength appeared first on Netsheria.