We were treated like flower girls at Resolution Health, British shareholder Linkham cries out

“The solution here is to ensure you are not throwing money at something that will catch fire again. You have to be able to realise a return and reinvest.”

Linkham feels that it is being treated like a flower girl in a company it owns. Despite controlling a 62.8 per cent stake, the Britons have not been allowed easy access to data on the day-to-day operations of Resolution.

Mr Cranfield said this is in complete contrast with the practice in markets such as Mauritius and South Africa, where “we know our underwriting results every  day and get live feeds from clients all throughout the  day.”

This, he said, ought to guide in deciding whether the pricing of premiums needs to be adjusted to make business sense.

Leapfrog exited Resolution by offloading its entire stake to Linkham Group, making the UK firm the majority shareholder.

A copy of the share purchase agreement dated May 18, 2020 seen by the Financial Standard shows that Linkham was to invest $7 million (Sh812 million in today's exchange rate) into Resolution Group for financial restructuring.

However, the parties in the contract, including Mr Nduati and Leapfrog agreed to vary this to $3 million on January 1, 2021.

Linkham committed, outside the share purchase agreement, to fundraise more money and address inefficiencies in the company.

Mr Nduati had reached out to Financial Standard for his side of the story when the regulator placed the firm under statutory management but postponed the interview, citing the suit he has filed against Mr Cranfield and Mr Persad.

It is a suit that Mr Cranfield terms a surprise even as he adds that they own a controlling stake in a firm where they could not make key decisions but were expected to come to its rescue.

“We were surprised by the lawsuit because he (Mr Nduati) essentially says we did not comply with the terms of the share purchase agreement, yet we invested $3 million (Sh348 million) into the company,” says Mr Cranfield.

“We haven’t gotten the level of information we wanted out of Resolution. At least we know what we don’t know.”

But Linkham’s frustration with the lack of information is not where the challenge ends.

Ordinarily, a majority shareholder would be entitled to make the key decisions and influence the direction of the company. That is what Linkham was expecting.

But the Insurance Act 2020 bars one from being appointed as an executive director, managing director, principal officer or any other senior management official of an insurer if such a person directly or indirectly controls more than a 20 per cent stake.

Linkham, with a 62.8 per cent stake, finds itself as a majority shareholder whose hands are tied when it comes to the day-to-day operations of the troubled underwriter.

“We had envisaged that, like in many markets, we would be allowed to have control. The control we wanted was to get down to the details. What we expected and what we got were two different things,” said Mr Cranfield.

And as Resolution desperately needed a solution, there was a limit to what Linkham could do. Yet money, Mr Cranfield said, was not the sole solution to Resolution’s problems.

“There are a lot of things we found out after the acquisition. Where things got difficult was in July last year when we were told we could not have day-to-day involvement in the company yet we needed that,” he said.

While this sounded new to Linkham, it was all along in the law. The regulator told Mr Cranfield and his partner that they could only try to run the company through committees and not sit on the executive board.

Linkham was not new to Resolution. It had, for over four years, provided travel insurance to the underwriter. That was long before it eventually bought the stake.

Linkham had seen Mr Nduati, then with a stake above 20 per cent, involved in the day-to-day affairs of Resolution.

That is what they thought they would do. But the law and a not very cooperative management — in Mr Cranfield’s assessment — stood in the way.

“The time we were taking to get data and information was too long. Whether it was deliberate to withhold the information or not, I am not sure,” he says.

When Financial Standard asked Mr Cranfield if looking back, he would say Linkham did not do due diligence before agreeing to take a controlling stake in Resolution, he took a long pause.

Afterwards, he explained how their hands were tied in getting deeper into understanding the affairs of the loss-making company they wanted to turn around but could not get the information they needed.

“That is a very good question. Some things came out of the woodwork afterwards, which were surprising to us. But you live or die by your decisions,” he said.

“We weren’t aware that we couldn’t have executive powers within Resolution until July last year, which makes things hard. We have to run a company by committees after every two weeks."

Linkham, for instance, had plans to do away with all the other general classes of insurance, including motor, which Resolution had diversified into and focus on what the firm was known for and was good at — health insurance.

About 90 per cent of Resolution’s loss had come out of motor insurance, and Linkham, therefore, wanted to pay out the entire motor book and exit this class that is hurting many underwriters.

This would have required interacting with underwriting teams, explaining the idea and getting to implement a restructuring process. But it was not going to be easy through committees.