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.

Serving as a nominee director may appear straightforward, after all, you are appointed to represent the interests of a particular shareholder, investor, fund, creditor, strategic partner, or family group.
However, in law, a nominee director is not merely an agent of the appointing party. Once appointed, you become a director of the company, with all accompanying fiduciary duties, personal liabilities, regulatory scrutiny, and governance expectations.

In Kenya, the Companies Act does not create a separate category of nominee directors. You are held to the same legal standards as any other director, and failure to understand this can expose you to significant legal and personal risk.

Before agreeing to such an appointment, here are five critical things to note.

1. Your Legal Duties Are Owed to the Company, Not the Appointing Party

The first and most fundamental principle is that a nominee director’s primary legal obligation is to the company as a whole, not to the shareholder or investor who nominated them.

Under company law (including the Companies Act, 2015 in Kenya), every director owes statutory and fiduciary duties, including:

• Acting in good faith
• Exercising reasonable care, skill and diligence
• Avoiding conflicts of interest
• Acting with the powers given
• Exercising independent judgment

This means that although a shareholder can nominate you, they cannot dictate your decisions, especially where their instructions conflict with the company’s best interests.
If an investor pushes for a decision that harms the company, you must consider your actions in relation to the instruction, even if it creates tension with the appointing party.

Many nominee directors encounter legal trouble because they assume they only owe accountability to the nominating party. In reality, your loyalty is to the company itself, and breaching that duty can lead to personal liability, regulatory sanctions, or even disqualification.

2. You Can Be Personally Liable for Board Decisions

Accepting a nominee directorship exposes you to the same civil, regulatory, and criminal liabilities as any other director.

You may be personally liable for:

• Breach of fiduciary duties
• Wrongful or fraudulent trading
• Approving unlawful distributions
• Negligence in decision-making
• Participating in conflicted or related-party transactions
• Non-compliance with tax, employment, data protection, or AML/CFT laws
• Sector-specific violations in regulated industries such as banking, insurance, capital markets, payments, gaming, crypto, or telecoms

In Kenya, enforcement agencies such as the Registrar of Companies, CMA, FRC, KRA, CAK, and sector regulators can investigate or sanction directors.

If a company collapses, mishandles investor funds, breaches tax laws, or fails in compliance, nominee directors are often among the first individuals required to account for their actions (or inaction).

Before accepting the role, ensure you understand the full scope of regulatory exposure in the relevant industry and jurisdiction.

3. You Must Manage Confidentiality and Information Sharing Carefully

One of the most complex aspects of nominee directorships is information flow.

Nominee directors often assume they can freely update the appointing shareholder on everything happening in the company. But this is a dangerous misconception.

While you may brief the investor, you must not:

disclose confidential information that could harm the company;
share price-sensitive information without proper clearance;
release privileged or board-protected documents;
provide insider information in breach of capital markets laws;
violate NDAs, shareholder agreements, board charters, or statutory confidentiality obligations.

Improper disclosure can result in personal liability, professional sanctions, or criminal exposure.

A prudent nominee director always maintains clear boundaries on what can be shared, how it can be shared, and when.

4. You Need a Clear Appointment Instrument and Protection Mechanisms

A nominee directorship should never be accepted informally or based on verbal assurances.
Proper documentation protects both you and the appointing shareholder.

Key documents include:

✓ Nominee Director Appointment Letter or Agreement

Clarifies your role, mandate, expectations, reporting lines, and independence obligations.

✓ Shareholders’ Agreement

Sets out nomination rights, voting arrangements, conflict management procedures, and removal mechanisms.(Access here)

✓ Indemnity Deed

Provides financial protection against liabilities incurred while acting as a director (except for fraud, gross negligence, or willful misconduct).

✓ Directors & Officers (D&O) Liability Insurance

Covers legal defense costs, claims, regulatory investigations, and liabilities arising from board service.

The engagement should also address:

how conflicting instructions will be handled;
situations requiring recusal;
your right to independent legal advice;
limits to your reporting obligations;
procedures for resigning in case of ethical or legal conflict.

Professional nominee directors rarely act without these safeguards and neither should you.

5. You Must Understand the Business, the Industry, and the Risks

A nominee directorship is not a passive or ceremonial role. You are legally expected to be informed, active, diligent and competent.

Before accepting the role, carry out thorough due diligence on:

• the company’s structure and governance
• financial health and solvency
• existing debts, disputes, or regulatory investigations
• compliance levels (tax, AML/CFT, licensing, labour, data protection, etc.)
• the industry’s regulatory landscape
• the competence of the board and management
• internal controls and risk frameworks
• conflicts of interest within the ownership structure

Director liability laws increasingly punish ignorance. Courts assume that all directors, not only executive directors, have a duty to understand the business and ask tough questions.

A nominee director who joins a poorly run or non-compliant company may inherit significant personal exposure.

Conclusion

Acting as a nominee director can be professionally rewarding, offering insight into governance, strategy, and investment oversight. But it is also a role that carries significant legal responsibility and real personal risk.

A well-prepared nominee director strengthens both the company and the appointing shareholder.
An uninformed or passive nominee director, however, can become a serious liability, with personal consequences.

The post 5 Things You Must know Before You Act as a Nominee Director appeared first on Netsheria.