Kenyan Court Orders Failed Startup Directors To Refund Ksh23 Million

Kenyan Court Orders Failed Startup Directors To Refund Ksh23 Million

An investor in a failed startup dispute has been ordered to return Ksh 23 million by the Nairobi High Court.

This came after it became apparent that the initiative was not being operated as originally planned and that money invested to support the company’s founding and operations had been squandered.

The investors reportedly contributed a total of Ksh24.7 million over a number of months, with the understanding that the money would be utilized for the startup’s development and operation.

“The plaintiffs filed suit by way of plaint dated October 16, 2020, seeking inter alia the sum of Ksh24,708,000 owing as at June 2, 2020, costs of the suit, interest on the above at court rates from June 2, 2020, and date of filing suit, and any other or further relief that the court would deem fit,” the court noted.

The investors sought legal action when the directors failed to make loan repayments on time, despite their repeated promises to do so.

Evidence revealed during the trial demonstrated that, notwithstanding the money’s intended usage for corporate purposes, the directors received it in their individual capacities.

Additionally, an audit that was produced in court showed that although the startup made very little money, the company did not run as promised to investors and the majority of the funds were not spent as agreed.

The court observed that even though one director left their role during the loan period, they were nonetheless responsible for whatever money they earned while serving as a director.

One of the directors promised to pay half of the remaining amount after acknowledging some blame.

“The third defendant filed a statement of defense dated February 4, 2021, which was later amended on May 9, 2022, admitting to the fact that the defendants received funds as detailed in the plaint and that they were aware that the funds were sourced from a loan, save that the sums were investments by the plaintiffs in the company,” the court added.

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“Additionally, the third defendant committed to pay half of the sum demanded because the plaintiffs are his parents, are elderly and have lost their retirement funds.”

In its ruling, the High Court ordered the directors to jointly and severally repay Ksh 15 million, with an additional Ksh 8.8 million payable by one director, bringing the total to Ksh23.8 million.

“Judgment is hereby entered in favor of the plaintiffs as against the second and third defendants jointly and severally in the sum of Ksh 15,000,000, and as against the third defendant in the sum of Ksh 8,848,391,” the judge ruled.

The court also ordered interest on the sums from the date of filing the suit until full payment.

Kenyan Court Orders Failed Startup Directors To Refund Ksh23 Million

Tags: Milimani Law Courts